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US banking: BBVA Compass – US model of the future

Loan production offices instead of branches; tech tie-ups lead to nationwide presence.

Is BBVA Compass the new model of banking in the US? Instead of branches, the bank has been introducing loan production offices, which, coupled with investments in technology, mean it is succeeding in doing what most US banks have never been able to do: become a truly national player.

BBVA has spent more than $12 billion on building a US banking presence, including the acquisition of Compass Bank in 2007. BBVA Compass is now the fourth-largest bank in Texas, second in Alabama and fifth in Arizona.

Manolo Sanchez

 Our business model in different countries was to offer an integrated service, which we thought would work well

Manolo Sanchez,

Chief executive and chairman Manolo Sanchez says BBVA recognized the opportunity in US banking 10 years ago, particularly in high-growth states like Texas, and that it deliberately avoided the overheated markets of California and Florida.

“The US had, and has, a very fragmented banking market, where the consumer buys financial services from multiple vendors. And our business model in different countries was to offer an integrated service, which we thought would work well here,” says Sanchez.

He is referring to the bank’s full-service investment-banking capabilities with international services, as well as commercial banking and consumer and private banking. Turning the bank into a more diversified business has taken time.


“After the acquisitions, we were heavily concentrated in commercial real estate, and we have tried to balance that with building out our expertise in other areas such as commercial banking,” says Sanchez.

An integrated model has almost been forced on the US banking industry since the financial crisis, he says. “The mortgage market, for example, was owned by the likes of Countrywide but is now returning to the hands of banks.” BBVA Compass was simply ahead of the game.

Sanchez says mortgages are of key importance for banks in developing client relationships. “Mortgages are the anchor for a relationship to be nurtured. Those relationships have become so commoditized that we are really trying to build a different model.”

Commercial loans and mortgages were behind the 11% increase in total loans the bank experienced in the first quarter.

Becoming a nationwide bank is a challenge that all US banks face if they don’t have deep pockets for large acquisitions. But Sanchez says that as branches have become less important for the consumer, becoming a national bank has been made easier. Rather than just adding branches, BBVA Compass is expanding its reach across the US with loan production offices outside of its traditional geographical footprint, such as in Chicago, Cleveland, New York City and Washington DC. It has approval to open in several cities along the west coast, as well as in other southern states.


Well-timed technology investments have also helped BBVA Compass pick up clients outside its inherited foothold. Deposits were up 13% year-on-year at the end of the first quarter, to $62 billion. It’s not just about mobile banking, says Sanchez.

“When we made the acquisition we knew we had bought out-of-date systems. The traditional US bank has geological layers of software that, as they expand, become add-ons. To run an efficient customer-centric bank we knew we had to get rid of the old systems and start from scratch,” he says. That cost $360 million.

“We hired Accenture and created a core banking platform system that works on real time – not on batch processing. We also wanted to be different. The US banking system early on was reliant on vendors that were selling off-the-shelf solutions for technology innovation. There was little differentiation, so we started writing our own code.”


The desire to give the client a different experience, coupled with the agility that updated back-office systems afford, has led the firm to innovate more than many of its larger peers. The bank has won many firsts in the US: the first Spanish-language app on iPhone and Android; the first Spanish app built for the iPad; an award-winning mobile app. In June the bank launched its digital wallet in the US. It also teamed up earlier this year with payments innovation company Dwolla. And last year the group bought US online banking start-up Simple for $117 million, which allows customers to access the bank from any state. Sanchez says that while the two firms are separate, there are many valuable lessons they are learning from each other.

Its large investments have not made the bank the most popular choice with short-term shareholders. Moody’s points out in its latest report on BBVA Compass that the bank’s earnings remain relatively weak compared with its peers as a result of its larger overheads from technology investments. But Sanchez says it is a necessity.

“The role of the branch has been on a steady decline for years. There is no doubt that more banking will now take place on smart phones and that banks need to create a new customer experience. We took a bold step in changing our infrastructure but we did it. It’s a step others have yet to take.”

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