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Safe Deposit Boxes: Profit Center or Loss Leader?
Wednesday, June 4, 2014 6:25 AM

For many profit-conscious financial institutions, their safe deposit box operation is perceived as a millstone or a low-yield “necessary evil” that must be tolerated to remain competitive and serve consumers. However, with careful analysis, planning and the revamping of some pricing and procedures, David P. McGuinn, president of Safe Deposit Specialists, says these same boxes can become a thriving profit center within 24 to 36 months.

“I am often asked what techniques could be put in place to transform this ‘loss leader’ into a lucrative endeavor. My answer is always simple and concise: know your market, evaluate and train your department staff, and review your box rental rates, fees, programs and policies,” notes McGuinn.

McGuinn says it’s important to identify the consumers who will most likely rent boxes and appeal to them. Surveys reveal these facts:

  • Most box renters are 50 years old or older. (age = wealth)
  • The income level among box renters is 14 percent greater than the national average, and 42 percent are college-degreed professionals.
  • This market group is 16 percent more likely to avail itself of additional financial services offered by an institution.
  • Nonusers are typically younger blue-collar workers with less education and lower income than their affluent counterparts.

“The challenge, to draw this nonuser market group into the safe deposit fold, can be met in several ways,” he explains. “Educate these potential box renters, by making safe deposit box rental relevant to their particular needs. Offer rates and fees that appeal to a lower income clientele. Train your staff to recognize this group and offer box services that are realistic and affordable, but not given away.”

A well versed, well trained department staff, McGuinn says, must be very sensitive to the special type of traffic that flows through their department, those who match the typical box renter profile, your affluent patrons.

“Within this market group there are rich opportunities to cross-sell additional financial services. These consumers will most likely express interest in investments, CD’s, annuities and mutual funds and are excellent candidates for a VIP relationship for which they will be willing to pay by maintaining high account balances,” he notes. “Sophisticated box renters expect to interact with a well trained staff capable of answering their questions and discussing and meeting their financial needs and aspirations. The typical temporary worker or a part time staff lacks the motivation or knowledge to tap into this cross-selling opportunity.”

McGuinn also suggests that box rental rates, fees, and policies must be carefully reviewed annually. After surveying the local competition, your current rental rates and fees should be compared and adjusted periodically, the same way other products and pricing are handled.

“Box rental rates should be calculated using a ‘vault area occupied’ pricing method which can be easily calculated and explained to box renters,” McGuinn advises. “Complete a profit and loss analysis of the entire safe deposit box operation, develop additional ways to increase box rentals and implement at least fifteen additional fees that could be charged. Formulate an acceptable method of announcing future rate and fee increases and if available, revisit successful box rental programs and employee incentives that proved beneficial in the past.”

Finally, McGuinn says credit unions should examine all “free box” rental agreements and justify the reasons why rental charges were waived.