It’s no mystery… consumers don’t like financial institutions. On a feel-good ranking of industries from Gallup, banking sits near the bottom. This is a position the financial industry has occupied long before the 2008 financial crisis.
Why? Because consumers think financial institutions don’t care. Most consumers don’t think their banking provider would listen to them if they were to lodge a complaint.
Consumer distain for banks has very real consequences. Unhappy customers are easy prey for competitors, and particularly vulnerable to fintechs — the new kids on the block, who offer consumer-pleasing software. Furthermore, apathetic clients are less likely to open additional accounts or make referrals.
The root of customer dissention can be traced back to an underlying conflict between the goals of the bank and the consumer. Banks are out for themselves, and customers know it.
Banks want customers to use products that enrich the institution’s bottom line; they are willing to push their agenda even when it’s not in the customer’s best interest (e.g., Wells Fargo and their ugly cross-selling debacle).
This attitude contrasts sharply with the world’s most beloved brands like Amazon and Apple, which continually demonstrate that the customer is their first priority and short-term profits come second.
Consider checking programs. Fees associated with checking programs are the most-cited reason why customers leave banks, in part because fees are punitive — charged every time customers make a mistake. Overdrafts, falling balances and lost debit cards are among the 22 charges that come with a typical checking account. According to WalletHub, some of the more creative institutions out there have found ways to impose as many as 50 different fees.
Financial institutions don’t seem to care about how many people they piss off. They persist in their punitive policies because fees have become an indispensable source of revenue. Bloomberg Intelligence estimates that overdraft fees made up 8% of banks’ net income in 2016.
In short, banks have become fee addicts.
At best, fee policies undercut trust. At worst they underscore the larger perception that banks take advantage of customers.
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A similar conflict exists in product sales. Banks reward employees for selling financial products which boost their bottom line. However, the products aren’t necessarily suited to the customer’s needs — they are revenue drivers. Since a banker’s income is often dependent on selling products, overly aggressive sales tactics weaken relationships and undermine trust in the institution.
Consumers’ worst fears were confirmed when Well Fargo’s opened millions of phony and fraudulent accounts. The overarching message: banks can’t be trusted.
Beyond feel-good ads, the banking industry has done nothing to address the negative attitudes held by the public. Nor has it modified the practices that foster discord. Instead, the banking industry has focused on repealing Dodd-Frank, and fighting anyone who challenges their dominance (like payment processor Square, and their attempt to get an industrial loan charter). In other words, they would rather change the than change their culture.
Instead of awarding bonuses to bankers for sales, managers should reward them for satisfying customer needs. Satisfied customers are more profitable, use more services and maintain longer bank relationships. Net Promoter Scores can be used as proxies for gauging customer satisfaction and loyalty. Quarterly or semi-annual NPS surveys can help banking providers determine if customers are happy and fulfilled. Instead of a singular focus on sales, personal bankers could hold unpressured discussions with customers about their finances, which would ultimately lead to more productive relationships. Bankers would be rewarded for the right reasons.
Banks must also align their checking account metrics with customer goals. One way to do this is by incorporating all fees into one monthly charge determined by the individual’s balance, usage and value to the bank. The charge could be static or adjusted annually and thereby eliminating both punitive and ‘surprise’ fees
Misalignment also exists between executives and customers. Executive compensation packages typically reward participants for short-term profitability, whereas a consumer focus demands a longer-term view. Executives can manipulate short-term profit goals by tightly controlling costs, closely enforcing fee policies or raising sales targets, which (as Wells Fargo illustrates) can utterly destroy a financial institution’s reputation.
Foregoing immediate income, however, can often be in the best interests of the bank and the customer alike. Accommodating customer requests, investing in new products, or enhancing in-house training programs, for example, usually come with short-term costs that bring long-term benefits
Bank programs must be customer-focused from the first moment of contact. During the account opening, a banker must ask a series of questions to understand the applicant’s lifestyle, interests and financial goals. All future interactions — telephone calls, text messages and emails — would revolve around giving advice or reporting on their financial progress.
Synchronizing the economic interests of banks and their customers will help financial institutions earn consumers’ confidence, leaving them in a stronger position to compete with consumer-friendly fintechs and the likes of Google, Amazon and Facebook.