175 Federal Street
Boston, Massachusetts 02110
Incorporated: 1928 as Old Colony Trust
Total Assets: $10.2 billion
Stock Exchanges: NASDAQ
SICs: 6712 Bank Holding Companies; 6022 State
6211 Security Brokers & Dealers; 6162 Mortgage Bankers &
BayBanks, Inc., is one of the largest and most successful bank holding companies in New England. Located in Boston, Bay-Banks is the undisputed leader in providing consumer financial services across the state of Massachusetts. The firm operates an extensive network of retail banking outlets, with more than 200 full-service banking offices and more than 1,000 Automated Teller Machines (ATMs). This is the seventh largest network of ATMs in the United States and rivals the ATM networks of such huge banks as CitiCorp. BayBanks offers more than 160 banking products and financial services and is the official investment broker for a number of mutual funds. The company is also at the forefront of offering innovative services to its customers, including a banking catalog and a 24-hour customer service center.
Baybanks, Inc., was founded in 1928 when the management of a large Massachusetts business trust, already holding a significant amount of stock in nine state banks, decided to reorganize and establish itself as Old Colony Trust. For the first two years of its existence, Old Colony Trust was very successful. The high-flying stock market and seemingly unending opportunities for the banking industry contributed to the firm’s growing asset base. As the bank prospered, it implemented an acquisition program and began to purchase interests in a number of small banks throughout the state of Massachusetts.
When the stock market crashed in October 1929, the entire banking industry was hit hard by the ensuing worldwide economic depression, and when Franklin Delano Roosevelt’s reorganization of the banking industry was initiated during the early years of his administration, many banks were unable to keep their doors open to the public. Management at Old Colony Trust, however shrewdly and cautiously steered the bank through the worst years of the Depression. By the mid-1930s, Old Colony was able to reinvigorate its acquisition program with the purchase of a few smaller banks. A well-planned strategy of mergers with small banks and additional acquisitions throughout the latter part of the decade helped to expand the firm’s investment holdings.
During the 1940s, Old Colony prospered by expanding its customer base and by making numerous acquisitions. By 1944, the company had grown large enough to necessitate a comprehensive reorganization. Management also decided at this time to change the name from Old Colony Trust to Baystate Corporation, in order to reflect the widening scope of operations and services the firm provided throughout the state of Massachusetts. In the 1950s and 1960s, Baystate engaged in an aggressive acquisitions strategy and bought more than 40 banks. Baystate had grown to become one of the larger regional banks in New England, with extensive holdings and investments in small and medium-sized banks.
In 1974 Baystate hired William M. Crozier, Jr., as chairman and chief executive officer of the bank. Crozier had extensive experience in the financial industry, and was instructed by the bank’s board of directors to use whatever measures he thought necessary to improve the performance of the firm and prepare it for the future. Under Crozier’s supervision, it was determined that the bank’s holdings were a rather unwieldy and disorganized collection of banking concerns. As a result, management merged and consolidated all of Baystate’s investments into 12 banks. This move was aimed at centralizing operations to improve efficiency and establishing a unified image that customers could readily identify. In 1976 the bank’s name was changed from Baystate to BayBanks, Inc., a title which was assumed by all of BayBanks’ operations.
BayBanks had grown into a firm with more than $2 billion in assets, and Crozier filed notice with the Federal Reserve that five of its state-chartered bank subsidiaries were withdrawing from the Federal Reserve System. Crozier cited the reasons for leaving the system as the increasing expenses associated with holding idle reserve requirements with the Federal Reserve and the disadvantage in head-to-head competition with other banks due to the costs involved in carrying the deposits. Thirteen state-chartered banks had already left the system, all of them citing the reserve requirement as the reason. The Baybanks subsidiaries that withdrew from the system nonetheless continued as members of the Federal Deposit Insurance Corporation. Crozier’s move helped BayBanks save nearly $1.5 million.
During the late 1970s BayBanks also introduced a number of innovative customer services. In June 1977 the firm brought out the BayBanks Card and, during the same period, the X-Press 24 hour automated teller machine (ATM) network. Within a few months, X-Press 24 was the preferred automated teller machine network throughout New England. In 1978 and 1979, the bank implemented a strategy that emphasized business product development, including cash management services, lending specialties, a full-service money desk, and an international department. This strategy, overseen by Crozier, was designed to improve the company’s competitiveness.
During the 1980s, management at BayBanks formulated an aggressive strategy to expand the firm’s commitment to customer service. BayBanks entered an agreement with Bank of Boston to implement a shared network of automated teller machines in supermarkets throughout Massachusetts, under a joint venture called CombiNet. Installed in early 1984, by the end of its first year CombiNet operated nearly 300 terminals. By this time assets at BayBanks had grown to $4.3 billion, and, with its eight subsidiary banks operating in the state of Massachusetts, the firm had developed the largest retail banking system in New England. Bank of Boston was already widely known as New England’s largest banking organization with over $18 billion in assets. When combined, the two banks counted over one million ATM cardholders. For BayBanks, however, this joint venture in the ATM market was only the beginning. In 1986 BayBanks purchased the part of the Cirrus national automated teller network that already operated in the firm’s statewide financial institutions, branches, and other locations. By the end of fiscal 1986, BayBanks reported $5.7 billion in assets, and had grown to become the fifth-largest bank holding company in Massachusetts. Continuing its expansion strategy, BayBanks purchased 10 branches from Northeast Savings during the same year. Northeast Savings, a savings and loan with more than $5.4 billion in assets, represented the company’s first acquisition in Connecticut.
As the bank devoted more and more resources toward the development of its automated teller network, unforeseen obstacles began to arise. In 1986 BayBanks filed an anti-trust suit against New England Network, Inc., operator of the Yankee 24 network of automated teller machines. Yankee 24 implemented a “sub-switching” fee that would have been levied on numerous automated teller machine transactions. The fee, amounting to four cents, would have raised costs enormously for BayBanks when it processed transactions from ATMs for banks that belonged to both Yankee 24 and BayBanks’ own X-Press 24 ATM network. Although the fee seemed minimal, the bank argued that the millions of ATM transactions would add up rapidly. In 1988 New England Network, Inc., finally relented and agreed to withdraw the fee. Terms of the settlement did not involve any financial payment, but BayBanks was clearly the victor—the bank’s 87 million ATM transactions were freed from what could have amounted to a very costly levy.
In the early 1990s, Baybanks used its network of ATM machines to dominate the retail market in New England. With more than 1,250 automated teller machines in the region, BayBanks significantly increased its share of the retail market to 27 percent, an increase of five points in approximately five years. In 1990, one in four Massachusetts citizens owned a checking account from BayBanks or one of its affiliates. More than eight out of every ten customers held a BayBanks ATM card, and the BayBanks network had developed into the single most utilized system in the entire United States. The company’s ATM network was found not only at branch offices, but also at supermarkets and transit stations. The bank prided itself on the capabilities of its ATM network, which included a customer’s ability to receive cash after a deposit irrespective of the previous account balance, a fast-cash button that dispensed $100, the ability to withdraw money despite a system failure, the ability to determine the most recent ATM transaction, and the ability to determine whether or not a check had cleared. In 1991 the company added new functions to its ATMs, including such unusual features as loan modeling and interest rate information, and also initiated plans to provide screens with wheelchair accessibility for disabled customers. With approximately $9.9 billion in assets, BayBanks was handling more than 230,000 ATM transactions per month. BayBanks’ ATM network in New England was the banking equivalent of McDonald’s ubiquitous golden arches.
In 1992 BayBanks continued its highly successful strategy of marrying sophisticated technology to mass marketing. The company introduced check-image statements, providing customers with miniaturized copies of all their checks rather than the actual checks in monthly statements. In 1993 BayBanks continued to expand the capabilities of its automated teller machine services by providing customers with the ability to apply for credit, bank by telephone at special ATM locations, and purchase postage stamps at selected ATM sites. BayBanks’ ATM cardholders also had point-of-sale debit capabilities at more than 5,000 Mobile gas stations and nearly 200 supermarkets throughout the greater Boston area. Best of all, the company’s cardholders could access more than 7,000 ATMs nationwide. BayBanks’ market penetration was nothing short of astonishing. In eastern Massachusetts, 31.2 percent of all households had at least one account with BayBanks; in the entire state of Massachusetts, the figure was over 25 percent. Within one suburban Boston county, the number of households that had at least one account with BayBanks was an unbelievable 41 percent. BayBanks’ automated teller machines could be found in airports, strip malls, universities, colleges, supermarkets, and stand-alone sites.
BayBanks derives 80 percent of its revenues from its retail business, while its closest rivals—Fleet Financial Corporation, Bank of Boston, and Shawmut National Corporation—have only been able to capture 15 percent of the retail market. Even though BayBanks is ranked as the United States’s 67th largest commercial bank in terms of assets, it operates the seventh largest network of automated teller machines in the country. The bank’s closest rival in the ATM market is Chemical Banking Corporation, a holding company 14 times the size of Bay-Banks and with nearly $150 billion in assets. BayBanks’ spending on technological development ranges between $20 to $30 million annually, and untold millions are set aside for regional New England television and billboard advertisements.
Much of the recent success of the company is also tied to its emphasis on customer service. BayBanks has saturated the greater Boston metropolitan area with a 53-page catalogue of services and products that include such items as 24-hour toll-free customer service telephone numbers and various designs for checkbooks. In 1993 bank employees fielded five million customer service calls, handled nearly 40 percent of the bank’s consumer loans, and opened approximately 15 percent of all new personal savings and checking accounts. In one instance, when a customer urgently needed travelers checks for an overseas trip, a BayBanks employee drove to the airport to deliver them personally. The company is also in the process of devising a highly detailed strategy to provide more comprehensive services to customers in Boston’s large academic community, including Tufts, Brandeis, the Massachusetts Institute of Technology, and Harvard.
BayBank Systems, Inc.; BayBanks Associates, Inc.; BayBanks Brokerage Services, Inc.; BayBanks Credit Corp.; BayBanks Finance & Leasing Co., Inc.; Bay-Banks Investment Management, Inc.; BayBanks Mortgage Corp.
Barthel, Matt, “BayBanks Growing Electronically,” American Banker, September 13, 1991, p. 11.
Chaney, Dale, “BayBanks’ ATM Card Forms Bedrock of Its Winning Mass-Market Strategy,” American Banker’s Management Strategies, May 24, 1994, pp. 9-12A.
Gullo, Karen, “BayBanks to Offer Check-Image Statement,” American Banker, January 17, 1992, p. 3.
lida, Jeanne, “BayBanks Keeps up Pressure on Rivals with an Unswerving Focus on Service,” American Banker, February 25, 1994, p. 4.
Layne, Richard, “BayBanks Gets Retail Edge with ATMs,” American Banker, March 7, 1990, p. 7.
Spitzer, Bruce, Historic Profile: BayBanks, Inc., Boston: BayBanks, Inc., 1995.
Tyson, David O., “Boston Banks to Share Supermarket Network,” American Banker, November 22, 1983, p. 3.
Weinstein, Michael, “Yankee 24 Agrees to Drop Fee In Settlement of BayBanks Suit,” American Banker, March 28, 1988, p. 5.