Bank Of Luke

The Retail Lock Box Department of the Bank of Luke has become uncompetitive in item processing due to the rise of large automated specialists like Vader Inc., which can process items at half the cost. The department lost $100,000 last year and recently lost a major commercial account to Vader.

The Bank of Luke's Retail Lock Box Department processes retail credit card and mortgage payments for 75 commercial accounts, generating $1.5M in fee revenue annually. The item processing industry has transformed over the past decade, with large automated specialists achieving massive scale advantages. The bank's operations remain largely manual, reflecting a historical focus on service rather than profitability.

How can the Bank of Luke's Retail Lock Box Department be made profitable, and what strategic options should the bank pursue given that its cost structure is roughly double that of best-in-class competitors?

Challenge the premise that the service must be retained. Evaluate four options: automate and compete, acquire scale by taking on other banks' processing, sell/outsource to a specialist, or exit. Use cost-benefit analysis to compare each. Creative solutions such as partnering with a larger processor should be explored before cost-cutting.