LANCASTER, Pa. -- On the menu at Gold Cafe on a suburban commercial strip here: coffee, espresso and biscotti.
Oh, and self-directed individual retirement accounts.
Taking a cue from the large bookstore that cross-sell magazines and lattes, and from Starbucks, which hawks its own brand of caffeinated brew alongside music CDs, Union National Financial Corp. is building branches that bear almost no resemblance to traditional brick-and-mortar bank establishments.
The Pennsylvania community bank has opened its first "financial barista," an upscale coffee house that doubles as a full-service bank branch that takes deposits and loan applications.
Last week, it began construction on a second location.
Its business model is the latest twist on a branch-building bonanza in the banking industry. After aiming to save money by pushing customers to the Internet in the late 1990s, banks in an intensely competitive race for deposits are again seeking face-time with customers. Many people are still more comfortable completing some banking transactions in person, such as opening an account, than in cyberspace, some lenders have determined.
To stand apart, many banks are staying open longer or adding plasma TVs to entertain customers while they wait in teller lines.
Few banks, however, have trained employees to prepare espressos and set up new checking accounts.
That the latest in 21st-century banking tactics are being deployed in a place better known for sustaining 18th-century living, in the heart of Pennsylvania Dutch country, underscores the broad pressures on retail banking.
"They're going along with the trend to create a unique environment in which to do banking," said Brian Shullaw, a banking analyst at SNL Financial. "But I haven't heard of any company taking it to this level of running two types of businesses out of the same building."
By tapping into the burgeoning coffee culture that has Americans lining up for expensive cappuccinos made from fine beans, Union National hopes its new branches draw more foot traffic -- and potential customers.
Believing in coffee
The bank believes in coffee's pull so much that it gave its own name second billing on signage that prominently features a coffee cup and Gold Cafe in bright yellow above Union National Community Bank in letters so small they can't be read from down the street.
"If you see that a new bank branch is opening in your neighborhood, you won't wander in on a Saturday to check it out," said Mike Frey, president of Union National bank. "But if a new coffee shop opens, you would stop."
To make the concept of a seamless dual operation work, Union National had to devise some creative approaches to architectural and regulatory issues.
The bank designed the building so that it could offer a spectrum of financial services and retain the feel of a modern coffeehouse.
Outside, the bank has drive-through lanes as well as a patio with umbrella tables. Inside, the bank is done in Southwestern colors of gold, terra cotta and sage to blend the coffee stand with a nearby conference room, seating areas and teller stations. Instead of the old-school teller counter, the bank uses closed-circuit TVs and pneumatic tubes -- like the kind usually found at bank drive-through lanes, but not typically inside bank lobbies -- to connect customers with tellers in a locked room at the back.
Because banks are prohibited by federal law from commercial enterprise, a separation that has been around since the Great Depression to ensure that banking deposits aren't used for risky ventures, Union National can't make any profit from the coffee.
To follow regulations, the bank signed a licensing agreement with Lancaster County Coffee Roasters for supplies and set up dual employee arrangements, mostly used by banks in conjunction with brokerages or insurance firms.
Union National employees, each of whom has attended barista training with the West Coast's Bellisimo Coffee InfoGroup, essentially get two paychecks, one for pouring coffee and one for banking.
"We had some concerns over whether someone would want to be a banker and also schlep coffee," said Frey, the bank president. "But they all said, 'That is so cool,' and wanted to be a part of it. This is a career for them."
A long history
In fact, the financial industry has had a long history with coffee. The London Stock Exchange can be traced to Jonathan's Coffee House where brokers did business three centuries ago. The New York Stock Exchange had its origins in the Tontine Coffee House about a century after that.
That potent combo of business and coffee has survived in various ways because of the brew's effect on people, said Ken Bernhardt, a marketing professor at Georgia State University.
"People slow down when they have a cup of coffee in their hand," he said. "You have to wait for it to cool down a bit, you take five to 10 minutes to drink it, and meanwhile you're wandering around a shop, and you may find something you want to buy."
Though known as the home of shoo-fly pie, kitschy tourism and as the birthplace of Pennsylvania's only president James Buchanan, Lancaster is a tougher place for banks to compete than one might expect.
Demographics and location make the area appealing to banks. The median household income of more than $47,000 is about 10 percent above the national figure, and the city is an hour or so by car to Philadelphia and the state capital of Harrisburg. Three regional banks -- Fulton Financial Corp., Sterling Financial Corp. and Susquehanna Bancshares Inc. -- have their headquarters in Lancaster County, and national banks such as Wachovia Corp. have branches there.
Banks have been chasing deposit share since the Internet bubble burst five years ago and investors began pulling money from the stock market to put in bank accounts. In the past two years, deposits have become even more attractive as the Federal Reserve has repeatedly raised interest rates, making deposits a cheaper funding source for lending than a bank's own debt portfolio.
According to the Federal Deposit Insurance Corp., the number of bank branches in the U.S. has grown to about 92,500, a 6 percent increase in the past three years, or almost three times the rate of growth during the previous three years. Deposits have ballooned to $5.9 trillion, or nearly $2 trillion more than in 2000.
Even ING Direct, the Internet-based savings bank, has opened four storefront cafes, though not actual branches, in cities including New York and Philadelphia where salespeople guide customers in opening an account at public computer terminals.
A 'new angle'
Community banks such as Union Financial go head-to-head with national banks that have larger branch networks and bigger advertising budgets by emphasizing customer service with a parochial flair. The financial barista idea is a "new angle" on that, said Jefferson Harralson, an analyst at Keefe, Bruyette & Woods.
Frey said the bank purposely picked employees for Union National's Gold Cafe who have outgoing personalities that could translate on the teller TV screen and enable them to connect with customers. With that criteria, Justin Smay, 22, seemed a good choice to man the coffee counter and handle new accounts. He worked at a coffee shop at a college he attended, and he's a third-generation employee of the bank, which dates back to the 1850s.
Smay said the new setting does afford more opportunity to get to know customers without the need for a hard sell.
"You build a relationship of trust," he said. "After a month of getting coffee here every day, a customer might mention that her son is headed off to college. And I might suggest a student loan or a revolving line of credit for spending on books or meals."
The branch, bank officials said, appeals to the younger set with its modern amenities such as Wi-Fi Internet access, to mothers who can take a coffee break and plop their kids in front of the DVD player to watch Shrek and to retirees who congregate at banks to cash Social Security checks and view those trips as a social outlet.
'This is my bank'
Angela Courington, 33, of nearby Strasburg was making a deposit one afternoon last week. Had she not seen the cafe branch, she said she "probably would have thought it was a stupid idea." But after visiting she became a new customer and says it's a good tool for getting her 8-year-old daughter interested in saving.
"She thinks it's cool," Courington said. "She has a smoothie and says, 'This is my bank.'"
Retiree Joe Rossi, 61, who came in from a motorcycle ride to get a cup of coffee, was more skeptical about the arrangement.
"I don't go to the bank to drink coffee," he said. "I go in to do my business and get out. Sounds like a mysterious business model to me."