Early in 2016, while tracing the history of U.S. savings banks for an article I was writing on their bicentennial, I was intrigued by the stories of two of the founders of the savings bank movement: Philadelphian Condy Raguet and Bostonian James Savage. Both were 32 when, in 1816, they founded the first American savings banks in their respective hometowns. In addition to their contributions to banking, they were also notable merchants, travelers, men of letters, philanthropists and community leaders. When I first made Raguet’s and Savage’s (historical) acquaintance, I was also 32. I marveled at what these young men had been able to accomplish. They were talented and creative and industrious, but I would argue they were not exceptional for their times; instead, they had an open field for enterprising activity in a young country.
But the more I’ve learned about banking history, the more I’ve found that our field provides ample opportunities for young women and men in the early parts of their careers for incredible achievements. As you’ll see in this article, men and women under 40 pioneered numerous conveniences and innovations, from savings banks to data-driven lending and from traveler’s cheques to home computer banking.
Many of these innovators came late to banking or brought to the industry experience in another profession. Some were lawyers; one was a restaurant owner, another was a newspaper editor, still another an engineer. Some wouldn’t even have called themselves bankers. Our industry thrives when it welcomes ideas and expertise from outside the industry. And not all of these individuals were CEOs and presidents when they developed their world-changing ideas. Some were junior officers in their institutions, but their creativity and drive brought their approaches to the top.
None of what follows is to disregard the achievements of wise older bankers. We will always need the leadership in our industry of people who have done it all and seen it all. But my goal here is to show that throughout our industry’s history, many of our greatest innovations were driven by our younger colleagues. Banking has always been about finding that balance.
A final note: this list is neither comprehensive nor exclusive. It is simply informational—and, I hope, a bit inspirational too.
Alexander Hamilton is today celebrated on Broadway, honored on the $10 bill, revered for his contributions to American political thought through the Federalist Papers and remembered for a swashbuckling political life that ended in a duel against the vice president of the United States. But he ought to be just as famous for his distinctions as a banker—founding the Bank of New York in 1784 and, seven years later, the First Bank of the United States, all before the age of 35. In fact, Hamilton was a mere 27 when he opened the first bank in New York and the second bank ever established in the United States.
In the post-Revolutionary War years in New York, young lawyer Hamilton saw the need for a sound bank. American money was a mess, with a wide array of specie, near-worthless state-issued notes and foreign currency in circulation in New York City. Hamilton saw a role for a sound, well-managed institution to issue its own notes that would bring some order to the chaos.
Some wealthy New York landowners sought a so-called land bank, in which the capital is constituted in real estate, as a means of employing their land. Hamilton outmaneuvered them in positing a “money bank,” in which the capital stock was liquid, as an idea better suited to the commercial needs of New York City. The bank opened seven years before getting an official charter in 1791, proving that it sometimes pays to ask forgiveness rather than permission.
That same year, when the then-34-year-old Hamilton was serving as the first treasury secretary, Congress followed his urging in chartering the First Bank of the United States for a 20-year term. Its purpose was to lend to the government, make loans to businesses and provide a stable money supply through its notes. The new central bank triggered the formation of 18 new commercial banks in just five years, compared with four in all of the United States prior to the First Bank’s chartering, and shored up the credit of the young republic—giving it much-needed credibility in international financial markets and providing a platform for crucial investments in internal improvements and military strength.
As a pioneer in U.S. commercial banking and the original architect of the young republic’s financial infrastructure, there has been no young banker more accomplished or consequential than Hamilton.
Condy Raguet and James Savage
On a chilly November day in Philadelphia in 1816, Condy Raguet was walking down Chestnut Street, mulling over reports he had read about the then-novel savings bank model in Great Britain for helping the poor. Raguet—a rakishly handsome 32-year-old merchant, Caribbean traveler and literary man—ran into a few friends along the way and asked them if they had heard of the concept. Without stopping for a reply, he implored them: “Would you unite with me in the endeavor to establish one?” They agreed, and not a month later, the Philadelphia Savings Fund Society was open for business. With five dollars, Raguet’s African-American manservant, Curtis Roberts, became the bank’s first depositor.
Like Raguet, Bostonian James Savage was also 32 and had cut his teeth in Caribbean trade—this time selling blocks of New England pond ice to cool-craving islanders. Savage read a report from the London Provident Institution for Savings, and he decided a similar savings bank would be of great benefit to Boston. Savage spread the word among his peers, and barely two weeks after the Philadelphia bank opened, 48 of Boston’s leading men incorporated the Provident Institution for Savings on similar principles. It opened for business early in 1817.
A savings bank wave swept through the cities and towns of the young republic. Savings banks were established in Baltimore and Salem, Mass., in 1818; in New York City, Hartford, Conn., and Providence and Newport, R.I., in 1819; and Albany, N.Y., in 1820. The Baltimore bank founders essentially copied the founding documents of the Philadelphia bank.
That the savings banks in Philadelphia and Boston were launched virtually simultaneously seems like dumb luck—and thus both cities are credited with kick-starting the American savings bank movement. But Raguet and Savage were singing from the same sheet of music. The savings bank was a perfect fit for the America of its time, and it would fundamentally transform the way Americans thought about their money.
Marcellus Flemming Berry
For most of human history, traveling with or sending cash was not just a chore—it was a risk. Theft was a very real probability, and irreparable loss was easy too. If you sent money, it was hard to confirm the exact amount would arrive, and if you were traveling abroad, even if your money weren’t stolen, you would be at the mercy of the (inevitably onerous) exchange rate charged by local merchants and bankers.
That changed in the late 19th century thanks to a creative banking innovator named Marcellus Flemming Berry. Born (we believe) in 1849, Berry went to work at American Express as a messenger boy in 1866. He impressed the head man, J.C. Fargo, with his imagination and stayed on as a traffic manager. Express companies like AmEx and Wells Fargo were in those days the payment arms of the banking industry, providing fast and secure transit of goods and funds.
A creative thinker, Berry in 1881 devised a money order system for AmEx to take market share from the Post Office. Fargo rarely welcomed new ideas, especially ideas that could result in fraudsters costing him money, but for some reason he allowed the thirty-something young man with the ruddy face, mustache and bald head to prevail. Berry’s innovation was to include a “protection margin” on the check where the sum was written, allowing the money order seller to physically trim the money order to the exact five-cent increment the order was bought for. Now virtually fraud-proof, the money orders became invaluable to the burgeoning immigrant population at the time and the growing numbers of internal migrants sending money home to family members.
In 1891, Berry took the idea a step further by devising the traveler’s cheque, a one-stop, universally accepted replacement for cumbersome letters of credit that international travelers used to have to arrange. By perfecting the money order and inventing the traveler’s cheque (all by his early 40s), Marcellus Berry brought efficient and safe payments to mass audiences for the first time.
Maggie L. Walker
For most of American history, banking was the province of white men. Even banks chartered to serve African Americans—such as the Freedman’s Savings Bank after the Civil War—were run by whites. (White leaders like Henry Cooke served the Freedman’s Bank poorly, driving it into insolvency and taking with it nearly $3 million from 70,000 depositors.) African-American mistrust of banks was endemic, but that began to change with Maggie Lena Walker.
Born in Richmond, Va., to a former slave in 1864, Walker became a teacher and worked closely with the Independent Order of St. Luke starting at age 14. Founded as a mutual society to share burial expenses, the order was one of the many fraternal organizations in the 19th century that were especially important to black life in growing cities. (Another, the True Reformers, were the first African Americans to charter a bank in 1888.)
Walker, who became the leader of the order in 1899, became convinced that black communities in the Jim Crow era had to take charge of their own finances. “First we need a savings bank,” she told the St. Luke convention in 1901. “Let us put our monies together; let us use our monies; let us put our money out at usury among ourselves, and reap the benefit ourselves. Let us have a bank that will take the nickels and turn them into dollars.”
The St. Luke Penny Savings Bank opened its doors in July 1903; Walker was 39 years old, the first woman to open a U.S. bank. Before the bank opened, she spent two hours per day at a white-owned bank in Richmond learning the trade. The St. Luke bank became the financial heart of Richmond’s black community. Walker led the bank until her death in 1934; through a series of mergers, the bank remained black-owned until 2005. Through it all, Maggie Walker’s bank remained a beacon of economic empowerment and trust for a community that had been betrayed all too often before.
In 1965, a 36-year-old financial salesman named Dee Hock found himself in rainy Seattle, unemployed, depressed, with three young kids while his wife pursued a long-overdue college degree. He had worked for 16 years in various nonbank financial companies across the West Coast and had no fire for another move.
Hock decided to get a steady bank job—doing what didn’t matter—and “retire in place,” as he puts it. From that point of view, he had the bad luck to end up at Seattle’s National Bank of Commerce (a forerunner of Rainier National Bank, which would eventually merge into Bank of America), where the bank president had different ideas for his new management trainee.
Three years into his job, the president called Hock into his office. The bank was licensing BankAmericard, the first general-purpose credit card, from Bank of America. Would Hock take a break from his work to lead the launch? Hock had no use for credit cards—he and his wife had years before sworn off all non-mortgage debt—but he agreed to give it a shot.
Hock and a colleague flew to San Francisco for training. What they found was a mess. Individual banks like BofA had proprietary control of card networks and participating merchants, and there was no harmonization. (One bank, Hock reports, issued its cards with a hole in the center and a steel peg on the merchants’ imprinting device—to keep those merchants from taking competitor cards.) The biggest obstacles were in clearing the sales drafts across multiple banks, which were sent via the mail, and in incentivizing the merchants’ banks to process transactions for card-issuing banks. “Back rooms filled with unprocessed transactions, customers went unbilled, and suspense ledgers swelled like a hammered thumb,” Hock reflects. Counterfeit card fraudsters and scam merchants sensed an opportunity, and anti-fraud measures slowed the clearing process down even more. When Hock’s bank joined the BankAmericard network, the card transaction back end was disintegrating.
Hock quickly became part of an ad hoc committee of fellow BankAmericard licensees seeking to strengthen the system. They began to brainstorm an entirely new approach to card acceptance and settlement—a distributed, decentralized network with clear rules governing the system and all participants having an equal voice and vote. Hock barnstormed the country, persuading BankAmericard participants—and Bank of America, which despite the strong fee revenue it was collecting was running up against the limits of what could be accomplished—freely to join the new network. In 1970, the new organization formed. Today it is known as Visa.
Successes followed swiftly, including the first electronic transaction authorization, clearing and settlement process systems in 1973, the international launch of the Visa network in 1974 and the first debit cards in 1975. Hock would lead Visa until 1984, retiring to a second career of promoting what he calls “chaordic” networked organizations that combine chaos and order in the pursuit of growth.
Born in 1946, Vernon Hill grew up in a banking family. He worked for a bank during his high school summers and as a commercial lender during college at the University of Pennsylvania’s Wharton School. And he had a fairly rare insight about the industry.
“The real value of the bank was low-cost core deposits—a lower cost of funds for a longer period of time,” he says. When he was getting his start in banking, he says, “lending… was where value was created. Deposits were important, but lending was more important.” He flipped that insight on its head. Almost any company can make loans, he observes, but only licensed banks can accept insured deposits. “That’s why the legal and economic value of a bank is in gathering deposits from loyal customers.”
And how, in the early 1970s, could a bank most efficiently gather deposits? Here Hill applied lessons learned as a site scout for McDonald’s and as a Burger King franchisee: offer the most convenient hours at the most convenient locations with the friendliest service around.
Hill began planning for a new kind of bank. Commerce Bank, opened shortly before Hill’s 27th birthday in 1973, provided seven-day-per-week service with hours from 7:30 a.m. to 8 p.m. on weekdays so that customers could bank before or after their jobs. As Commerce Bank grew, other uncommon features included the removal of barriers at the teller line, free coin-counting machines, 24/7 live responses on the customer service line, free checking accounts, next-day check clearing and a welcome mat for pets in the branches, which he called stores. The stores all had a similar look and feel designed by Hill’s wife, Shirley.
Hill’s retail-first approach to banking and hoovering up deposits fueled unparalleled growth for Commerce Bank, which expanded by 2007 to 440 locations across the mid-Atlantic with $50 billion in assets. Over 30 years, Commerce Bank stock provided a 23 percent compounded return. More consequentially, Hill’s ideas reinvented the banking industry’s approach to retail branches. New branch designs at banks of all sizes are more likely to feel open and airy, allowing universal bankers to solve customer problems.
Customers got used to banking on their own time and terms, an attitude that online and mobile banking helped to cement. Commerce Bank paved the way for anytime banking.
Facing regulatory scrutiny over his handling of certain business deals, the brusque and combative Hill left Commerce Bank shortly before its acquisition by TD Bank (which held on to Hill’s ideas). He moved to London to repeat the Commerce Bank experience with Metro Bank, which similarly shook up an even more staid British banking sector. Hill has recently returned to the Philly area, where he is currently chairman of Republic Bank.
More than just making things more convenient for customers, Hill’s aim is to “surprise and delight” every customer, converting them into fans along the way. “People want to get a thrill out of patronizing your business,” he says, “whether it’s a bank, a retail store or a pet insurance company.”
Vernon Hill made it more convenient for his customers to get to the bank, and more pleasant while they were there. But bankers across the industry were spending the late 1970s trying to figure out how to roll out the ultimate in bank convenience—banking from one’s own home. Today we take mobile banking for granted, but four decades ago “anytime banking” was a distant dream.
Banks across the country were working on it. The biggest names in the industry—Chemical Bank, First Chicago, Bank One, Citibank—were racing to roll out home banking. Perhaps surprisingly, the first to do it was a community bank in Knoxville, Tenn. And the leader of the rollout was a 35-year-old technologist named Thomas Sudman.
Sudman was an engineer who had spent the first decade of his career at IBM focusing on parallel processing before he joined the United American Service Corporation, which served several small United American banks in Tennessee cities (statewide branching not being permitted until 1990).
There were two key elements to home banking, Sudman realized: the access portal and the account status. The second challenge was less readily solved. At the time, transactions were processed in batches at the end of the day. Funds availability was not certain at any given point before the batch, since any number of transactions could have been initiated. To enable home banking—in which the consumer could initiate transactions on his own or just get an accurate read on his account balance—would require real-time settlement. “It was a renegade way of thinking,” Sudman reflects. “Technology is always capable of doing more than culture is ready to accept.”
Having pushed United American and its systems to move toward real-time processing, Sudman turned to the simpler challenge: access. The portal would be a home computer. They were not widespread but were moving from the realm of the hobbyist to the first consumer mass market. Sudman arranged with Radio Shack to manufacture a custom security modem for its TRS-80 computer; United American customers who bought the hardware would be able to access their account information securely.
Home banking began rolling out to United American customers in December 1980. In its first year, customers could pay bills, check balances and account history and even apply for a loan. Included in the charge of $25-30 per month was access to games, budget and tax calculators and 11 daily newspapers. Thousands of Knoxvillians enrolled in the service.
Sudman’s ambition was to take United American’s platform national, licensing it to other banks. The launch attracted huge media attention; Sudman gave hundreds of speeches around the country and did a white-knuckle live demonstration on Good Morning America with Joan Lunden. And Sudman’s system may well have been the future of banking, but for the man at the helm of the bank.
Jake Butcher was at the head of a Tennessee banking empire, a prominent Democratic state politico and a relentless civic promoter. (He singlehandedly brought the unlikely 1982 World’s Fair to Knoxville.) “He was not a great banker, but he hired good people,” Sudman recalls, proud of the team that rolled out home banking. But Butcher let the bank run out of control and it failed in 1983 on massive loan losses—the fourth largest failure up to that point. The acquiring bank couldn’t figure out what to do with the innovations Sudman had led, and Sudman and his team moved on.
United American may not have had the “killer app” for anytime banking, but it was first to the game—proving that even in high-stakes technology races, creative young community bankers can beat the big guys.
Dee Hock may have revolutionized how banks issue credit cards, but it took Richard Fairbank to get those cards into the hands of ordinary Americans. For decades, credit cards were the domain of the affluent, and they were a fairly standard product—“‘one-size-fits-all’ cards with 19.8 percent interest rates and $20 annual fees,” Fairbank says. He studied the card industry up close as a management consultant in the 1980s. What he realized was that banks had a wealth of data about current and potential customers but that card offers were not tailored to individual customers’ needs and risk profiles.
In 1988, the 37-year-old Fairbank struck out with a business partner, Nigel Morris. They pitched their ideas to 20 banks unsuccessfully before being put to work running a new credit card division of a small Virginia bank called Signet. They pioneered new approaches in marketing credit cards, such as tailored interest rates customized to customers and preapproved offers with pitches to transfer balances.
By leveraging data to make the case for a more marginal customer’s creditworthiness, Fairbank was also able to expand the credit box and provide cards to more Americans who had been left out of the credit market. Fairbank helped take credit cards from a province of the well-to-do and make them a mainstream financial product.
Their use of data to tailor financial products was revolutionary. In 1994, Signet spun off the credit card division as Capital One. The company grew rapidly and brought fresh thinking into traditional banking with several strategic acquisitions. Today Capital One is a diversified financial institution that remains a leading credit card issuer, one of the nation’s largest auto lenders and a leader in providing a top-notch digital experience—even as the company reinvents its physical retail presence with Capital One Cafes.
Today, about three-quarters of Americans have credit or charge cards, and they account for nearly a quarter of all payments. Through big data and clever marketing, Fairbank changed the way Americans acquire and use credit cards.
This feature originally appeared in the July/August 2017 issue of the ABA Banking Journal and is reproduced here by permission.