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Boot Camp for Bankers

Robert Vickers struggled not to grin, but the camouflage-clad drill sergeant caught him anyway.

"Get down and beat your face. Start pushing!" Air Force Technical Sgt. Elbert Fish shouted, sweat beading on his chiseled face as the sound of combat — gunfire, incoming mortar shells, air sirens and helicopter rotors — punctuated the early morning air from speakers around a grassy field here. "You call that a push-up?"

After counting out 20 push-ups, Sergeant Fish yelled, "Get up. I don't want to see that smile on your face again."

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Mr. Vickers volunteered for this treatment, but not for the military. He was one of about 300 employees of USAA, the financial services firm that primarily caters to military veterans and service members, who were doing push-ups, situps and jumping jacks before work at the company's 280-acre corporate campus. Each of them had signed up for this taste of military basic training and spent months attending seminars and extensive workouts to prepare. They spent the predawn hours running several miles in formation, exercising and marching together. Zero Day PT, named after the first day of Army basic training, is one of many things USAA does to better educate its employees about the armed services.

Former Army Drill Sergeant Hector Mallen, left, motivates Jose Fernandez, a USAA employee, as he does push-ups during the company’s Zero Day PT, which gives employees a taste of military life, in San Antonio, March 21, 2014.
Erin Trieb for The New York Times
Former Army Drill Sergeant Hector Mallen, left, motivates Jose Fernandez, a USAA employee, as he does push-ups during the company’s Zero Day PT, which gives employees a taste of military life, in San Antonio, March 21, 2014.

"You serve the military best when you understand the military," said Josue Robles Jr., the chief executive and president of USAA, who is a retired Army major general.

The battle for customers in good financial shape is building and USAA is working to maintain its edge against competitors that are focusing on military customers. As they struggle to find new business to bolster sluggish earnings, banks consider the nation's 25 million veterans and service members prime customers.

Citigroup, U.S. Bank, JPMorgan Chase, Wells Fargo and Bank of America have introduced or expanded benefits and services to them over the last few years to entice them to open an account. Some inducements include no A.T.M. or checking fees and discounts on mortgages and closing costs.

The move into the military market also dovetails with rising national sentiment to help veterans and service members as they return home to a moribund economy and higher-than-average unemployment rates. Financial institutions have responded through a flurry of programs and initiatives, hiring thousands of veterans, donating millions of dollars to military nonprofit groups and offering financial counseling for military customers.

"There's a recognition of the sacrifices being made," said Jerry Quinn, military affairs program manager at Wells Fargo and a major in the Army Reserve. "We asked ourselves, 'What can we do?' This is a corporate responsibility."

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Mainstream banks are pursuing service members and veterans because they need the income that customers with secure jobs provide. Service members are paid electronically and don't have to worry about sudden layoffs. They also are required to remain in good financial health by their command or face problems at work, like loss of security clearance.

Steve Debenport | iStock | 360 | Getty Images

"Military customers are pretty loyal and they pay their bills on time," said Michael Ott, president of U.S. Bank's wealth-management division and a colonel in the Air Force Reserve. "We see less churn than with customers who never served."

Banks are also betting that if they can attract veterans and service members when they're young, they will grow with the bank and eventually trade up from a checking account to more extensive services, like mortgages and commercial lines of credit. More services, the thinking goes, translate into more fees for banks.

"We're trying to build customers for life," said Natalie Abatemarco, managing director for national initiatives at Citi Community Development.

The large banks are imitating a model set up decades ago by USAA. The company was founded as the United Services Automobile Association in 1922 in San Antonio by Army officers to insure one another's cars. It eventually grew over the years to include banking services, mortgages and financial investments.

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With more than 10 million members, up 7 percent from 2012, USAA is now one of the country's largest direct banks, meaning it does not have traditional branches and provides services on the phone or online. Deposits climbed 6 percent, to $59.2 billion, in the first quarter of 2014 compared with those in the period a year earlier, according to the Federal Deposit Insurance Corporation. Because of its lack of branches, fees are low or nonexistent.

But the company is not immune to the overall struggles in the financial sector. While revenue as a whole climbed 1.2 percent in 2013, to $21 billion, USAA's net income declined by 3.8 percent, to $2.7 billion.

Still, USAA is growing, a development that can be attributed to the rise in popularity of direct banks, a foray into advertising, relationships with military organizations that raise the bank's profile and a loosening in membership requirements. Only active-duty service members could largely join before 2009, but now all veterans with honorable discharges can open accounts and pass their eligibility to their spouses, children, parents and grandparents.

The company's wide array of services tailored specifically for military personnel, like predeployment and retirement financial counseling by those who have recently done the same, have helped it retain the majority of its customers. USAA says it keeps 98 percent of them. USAA has also been ahead of many banks with technological innovations, like mobile check deposit, video chats and low-bandwidth sites that make it easy for widespread military personnel to do their banking.

"They've been at the forefront and they've had to be with the increasing deployments and no on-base presence," said Andrew M. Egeland Jr., a retired Air Force major general who is chief executive and president of the Association of Military Banks of America in Warrenton, Va. "I consider them to be an industry leader who everyone is chasing."

The military banking sector received scant attention until the terrorist attacks of 9/11 and their aftermath, when thousands of members of the reserves and National Guard were activated and sent abroad to fight. The military's profile was heightened drastically and banks realized they were missing an important demographic. Legal action also pushed many of the country's biggest financial institutions to address the military sector.

Some of the country's biggest financial institutions illegally overcharged thousands of service members interest on their mortgage payments and foreclosed on more than 700 of them while they were deployed, a violation of the Servicemembers Civil Relief Act. JPMorgan alone overcharged more than 6,000 service members. In settlements with the Justice Department, banks agreed to pay millions of dollars in fees and payments as restitution.

"When the examiners focus on something, the bankers focus on it, too," said Robert Rowe, vice president and senior counsel at the American Bankers Association who also oversees the association's military programs.

Jose Luis Pelaez | The Image Bank | Getty Images

After the settlements, banks scrambled to clean up their image and business practices. Many introduced new products and services like financial education and career transition help, donated millions of dollars and homes to military nonprofit groups and hired thousands of veterans. Reducing veteran unemployment became central in their outreach efforts because the rate for veterans has consistently stayed above the national average.

"We looked at ourselves in the mirror and said we have to get this right 100 percent of the time, and not let anyone fall through the cracks," said Jeff Cathey, senior military affairs executive at Bank of America and a former naval officer.

All these moves also help extend a bank's reach into the military community and heighten its brand. After the Iraq war and the drawdown in Afghanistan, sentiment is running high in the country to help veterans and service members. All of the bank executives stressed their commitment to veterans was for the long term and not a gimmick.

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Despite all these moves, mainstream financial institutions have yet to match USAA's understanding of the military and its culture. The company requires that 30 percent of its new employees must be veterans or military spouses. About a quarter of USAA's 27,000 workers served in the military or are spouses of veterans. All executives are required to fulfill five hours of military acumen each year, whether through guest lectures or base visits, and new employees must go through a three-day orientation during which they eat Meals Ready to Eat and undergo a simulated overseas deployment.

"Serving the military is in our DNA," said Eric Engquist, assistant vice president of USAA's military transitions program and a former Army infantryman. "It's the right thing to do and it makes good business sense."

By Kristina Shevory, The New York Times

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