JPMorgan Chase & Co. is starting to phase out an offering far more associated with old-fashioned bank branches than today’s smartphone apps: safe deposit boxes.
The New York-based lender no longer allows customers to rent new boxes. If a Chase bank branch is shut, its safe deposit boxes will be closed as well, and their holders won’t be able to open a new box at another location.
“We made a business decision to stop offering new safe deposit boxes as of December 2021, but that doesn’t affect current customers who have boxes,” said JPMorgan spokesman Tom Kelly.
Banks have offered safe deposit boxes for decades as places for customers to store valuables and important documents. The future of the business is uncertain as US lenders close branches at a record pace. Even as financial firms also open new branches, they’re often smaller locations without room for the large vaults that house safe deposit boxes.
Historically, lenders have associated safe deposit boxes with losses, since they have to dedicate real estate and staff to running the business, according to the consultancy Safe Deposit Specialists. Still, the service caters to lenders’ longest-tenured and wealthiest account holders, with the average box holder making an income 14% higher than the national average, and most at least 50 years old.
“It’s the most expensive square footage you can put in a new branch,” David McGuinn, president of Safe Deposit Specialists, said in an interview. “If you calculate building a vault, putting a security system on it, there’s $10,000 worth of boxes, you have to train your people on it. It’s not a cheap service.”
The business traces its roots more than 150 years back, when Francis Jenks started a standalone safe deposit box business, McGuinn said. Jenks built a fire-proof building at the corner of Broadway and Liberty Street in New York’s financial district, outfitted with armed guards, according to an 1865 New York Times article.
It wasn’t until the 1930s that the US Supreme Court passed a law allowing banks to offer the service, according to the Arkansas Law Review. Since then, lenders have built millions of safe deposit boxes around the country. Prices vary by size, location and bank, with an average annual cost of $60 per box, researcher ValuePenguin has found.
“There’s not a whole lot of income in it,” McGuinn said. Still, lenders should realize “that the people who need these boxes are some of their biggest depositors.”
https://finance.yahoo.com/news/jpmorgan-chase-phasing-safe-deposit-131842236.html....
With banks phasing out safe deposit boxes. The time could be ripe to found a franchise offering safe deposit box services.
Unfortunately, the phasing out of SDBs will make it more difficult to store physical assets which serve as hedges against inflation. Expensive jewelry, precious metals, collectibles and assorted small hard assets will have to be stored locally. Which on average increases probability of burglary, home invasion and theft.
It is possible credit card companies, 3rd party payment apps, blockchain and cryptocurrency platforms are well suited to takeover any SDB business banks abandon. The format of SDBs is one of informal collateral. Which is well suited to the business model of merchant services, crypto, cards and payment services.
A credit card company like VISA could open a safety deposit box franchise that accepts hard assets stored in SDBs as collateral against their card balance and interest rate. Blockchain and crypto could utilize a similar format.
Given crypto's historical difficulties with collateral on loans, opening a franchise of safety deposit boxes which store hard assets as down payments on loans could be a decent and worthwhile format. Especially if banks are abandoning the market, leaving demand that lacks alternatives.
Of course with inflation rising, the profiteering nature of interest rate dependent businesses like credit cards could be jeopardized. This could introduce an environment ripe for stablecoins backed by hard assets in SDBs. One of the issues with stablecoins is the question of whether their backed by sufficient liquidity to sustain their peg. A stablecoin that issued 1 coin for every $1 in hard assets stored in safety deposit boxes might maintain a decent pegging rate.
I wouldn't claim to have all the answers on opening a SDB based business but it is possible that this move by banks will open the door to innovation and new ideas for the market. Which represent a decent opportunity.
