The Retail Banking Group on LinkedIn held an interesting discussion post about consumer reaction to banks. Two truths exist without doubt, more regulation is coming, and secondly, financial model assumptions aren’t effective in this economy. Having worked for both banks and credit unions I’ve learned valuable lessons. The first is banks must rethink fee structures in this economy. I don’t agree with higher fee proponents for small to mid-size commercial borrowers. Doing so pushes potential customers into the waiting arms of credit unions which are allowed to provide business solutions. Most credit unions aren’t equipped or eager to handle large commercial accounts, which rely on complex analysis to extract fees, but they’re more than prepared to handle small businesses.
We’re all familiar with the taxation issue at the heart of the bank/credit union disagreement but put that aside for a moment to discuss ideology. In the July 27 edition of Businessweek, Peter Burrows writes a fantastic article titled, “Microsoft’s Aggressive New Pricing Strategy” in which he details the CEO’s strategy to accept lower margins in exchange for higher overall profits. The overall goal, and I summarize, is to get customers to buy more across all product lines. Consider going against MBA and corporate mantra to value the shareholder above all. I hear the collective gasp but hear me out.
What good is shareholder value if there is no company to invest in? If the “consumer shot heard at bankers” theory is right, then some serious community goodwill is necessary. So why not take a step back and really assess how much is enough to charge consumers when they’re having as much trouble staying afloat as you are. And I don’t mean coming up with creative products that overcharge struggling consumers like payday lending. I do not support practices in which finance rates exceed 100 percent and I don’t buy the argument made “it’s allowable under current regulations.” See the community goodwill reference.
If you’re a banker, please ask yourself why consumers place more confidence and trust in credit unions. The tax issue is moot.
It is naïve to presume goodwill is all you have to do. Expense control is a must and requires buy-in from board, shareholders, and employees but don’t please don’t interpret expense reduction as offshoring either. See the community goodwill reference. Examine every process, product, operations, and pricing model. Branch models are expensive transaction processing channels. How is your technology integrated and balanced for the customer and employee? Do you spend more time cashing checks or building relationships in the branch? Ask why. What do your customers want or care about? Are you meeting those needs? Most importantly, are your employees prepared to help? Be honest.
It’s not naïve to develop a plan to work with consumers, educating them on your resources, offering restructured payment plans or deferments in certain cases, or reducing fees voluntarily. Educate the public on how your products and services will help them succeed. Consider calling your customers just to ask them if there is anything you can do to help them and let them know you’re there when they need you.
Perhaps the real question is do you think the government would need to control your relationship with the customer if the customer believed corporate responsibility was more than a printed section in your annual report?
Just a few thoughts from discussions I've had lately.
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