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banking
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(Wordcount: 2,571) I opened my first bank account as a senior in high school. My parents didn't advise me to; it simply hurt to cut the check-cashing place a percentage of my small, but hard-earned paycheck each week. The lucky bank I picked was the Trust Company of New Jersey (bought out by North Fork Bank), selected by default - it was the only bank in my neighborhood. I deposited about $400 in my account and felt like a "rich man". I lent (read: donated) money to friends (read: girls), upgraded from greasy street vendor food to actual fast food during lunch breaks, and decided to splurge on a fancy winter coat. Inevitably, one day I needed to make a withdrawal that brought my account under the minimum balance for the first time. Since I'd never brought it below this balance, I hadn't realized that Trust Company had one, let alone wouldn't allow me to withdraw below it. My natural reaction was aggravation; I demanded access to my funds, but Trust Company refused. "But it's my money!" A large, African American female associate didn't understand why I couldn't understand bank policy and made me feel like the snot-nosed, punk teenager I was. I was so furious that I decided to close my account right then out of spite.
In college, my next bank was Republic Bank (bought out by HSBC). Clearly not catering to young people, their minimum balance requirement was $1000. I selected this bank because my dad used to bank there. It took me all of 1 month before I needed to access funds below the minimum requirement. Enter Citibank, the next closest bank to the Republic Bank branch. Citibank somehow seemed cooler, younger, and with those blue colors and reps giving me free stuff on campus, it seemed like a no-brainer. Citibank also had a $100 minimum balance, but it wasn't as big a problem in college. As Citibank rolled out more ATMs and became more internet savvy, I became hooked; my contact with tellers decreased, I took a personal loan, and I got my first credit card from Citi. I even told my family to sign up. I was a great customer, until Citi got bigger. It was around this time I started noticing (and loathing) the term "maintenance fee". A fee to hold my money!? I can hold my own money for free! The feeling of being treated like a number soon overwhelmed my relationship with the bank and I started looking for any and every hassle as another excuse to move my account.
When I launched the business, I decided to keep my personal and business finances separate. I opened up a business account at Fleet (bought out by Bank of America), selecting them based solely on their bi-state (NJ/NY) convenience. The relationship was pretty straight-forward - with some occasional, lousy customer service (1) - until I started experiencing growth in my business. I incorporated, needed to get new office space, and a line of credit, and decided to walk into a branch to upgrade my relationship. On the day I went to open a new account, I met Brandher, a banker so committed to treating every customer like they had $10 million in deposits, I almost believed that I did. He showered service on me, crediting my account for a year's worth of "maintenance fees". He got to know me, believed in me, did all the leg work to secure my first line of credit, overcoming "corporate" resistance, and helped me get my larger office space. He actually managed to get me to lower my guard, a "sanity-preservation" mechanism I developed in the presence of Fleet associates. To this day, the experience continues to make me feel all warm and fuzzy inside. Compared to that, Citibank was a dark, hard, cold stone wall. After years of banking with them, I gladly closed my account.
And then Bank of America announced their purchase of Fleet. It was to be the end of cheap, high-quality service and the automation of every interaction - for a fee. Brandher knew what was coming and tendered his resignation immediately after the announcement. Regrettably, and to my permanent disappointment, he further decided to not remain in retail banking. During our final conversation, he apologized for his decision and told me he left my account in what he thought were capable hands, but what he did was high-tail it out of there so fast, he punted me and the rest of his clients off to a banker so inept, she single-handedly negated in a few short weeks all the goodwill Brandher cultivated over our banking relationship.
| "The unbanked consumer isn't one who's financially ignorant or culturally unable to bank, but consider that they're perhaps consumers who don't value what you value." |
My first call to Shirley, my new banker, was returned no less than a week after I had called her. My first meeting with her occurred nearly 1 month afterward. While in this holding pattern, our financial affairs started hitting the proverbial fan. Had Brandher still managed my account, he could have taken care of our situation in a matter of hours. The manner in which Shirley handled my businesses would leave any serious banker in disgust: our first meeting was also our last meeting; repeated voicemails and emails were sporadically, if ever, returned; and I was financially left out to dry, and not just by Shirley, by the whole Bank of America. After months of these shenanigans, I interrupted my business to take matters into my own hands: I decided to close two of my three accounts; I called up Bank of America personally to clear up overdraft issues that cropped up while I was waiting for Shirley to deal with them; and I attempted to salvage my relationship with the bank by initiating new relationships with other bankers. By this point BoA had completed its integration of Fleet and they were more focused on greeting me at the door, at the ATM, and on the phone than actually serving my banking needs. It was a competitive reaction to winning business from the 298 other banks in the NY-metro region. Meanwhile, they had become less accessible, less competent, and charging me $15 a month for the privilege.
The first banker I met was the guy that took Brandher's job, Sam. Sam is an incredibly obnoxious, fast talker. My attempts to initiate a relationship with Sam broke down instantaneously as he accused me of being at fault rather than accepting my disparagement of my Bank of America experiences. He then steered me to make decisions beneficial to the bank without disclosing to me all of my options. More than any other experience I've had with BoA, this one was the one that finally broke the camel's back.
During this entire ordeal, I was "unbanked", not because I didn't have a bank account, but because I was actively evaluating other banks. I couldn't care less about credit protection programs, new checking/savings rates, or the latest "product". (Sam even had the audacity to offer me free checking for a year if I linked my personal and business accounts, after I told him I wanted to close my account. Perhaps BoA hasn't yet caught on to other banks' free checking for the life of the account?) Rather than evaluate on the criteria banks believe I evaluate on, I created my own criteria of things I value most: bi-state convenience, permanent free checking, online banking, no minimum balance, and no hassle. Bank marketing and "innovative products" had nothing to do with my selection. Sam asked which bank "stole" his business, to which I replied: "You are your own best competitor".
Banks believe that a consumer is "unbanked" if they merely don't have a bank account. And they believe that not having a bank account is entirely due to the consumer's own issues. Many consumer-facing issues are known, but there is little discussion of how banks are addressing
a) their own ineptness in training and managing their own personnel,
b) their lack of exploring alternative ways to initiate and develop relationships, (frustratingly rooted in their historic operating model and legacy standards, with an over-reliance on a customer's numerical background), and
c) their inability to clearly decide on an operating model for the next generation of bank customer, one that favors either volume or service.
Rethinking Retail Banking Staffing
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There are 92 banks in the New York City market with 557 branches. On most corners, in fact, it's not unusual anymore to see a different bank branch on each corner. With this many banks, anything above a 1% market share is above average. (2) Just for comparison, there are 137 Duane Reade pharmacy stores and just over 170 Starbucks on the tiny island of Manhattan, too. (3)
Amongst this red-hot competition, it boggles the mind that some banks continue to operate on a schedule convenient only to them - 8 am to 4 pm. (Do you know anyone who's free to pop into a bank for a 30 minute wait during this time?) The problem, as told to me by senior retail bankers in New York City, is that they just can't modify their associates' habits - including their own - enough to accommodate retail banking's new market realities. And to make matters' worse, there just aren't enough tellers in the marketplace for all these banks to hire.
Of New York's 8.2 million workers, just 0.40% are tellers and loan officers, but 5.6% are cashiers and retail salespersons. (4) As a group, cashiers and retail salespersons make an average of $12 less per hour than tellers and loan officers, excluding benefits. Thanks to the advances of technology, the changes in the dynamics of a retail banking relationship, and how banking organizations have increasingly adopted a business model more similar to retailing than traditional banking, a bank employee's job is not necessarily the same as it once was. Consequently, the qualifications and duties of a bank employee candidate have also changed. Clearly, this argument points to an abundance of potential candidates in the New York City market, so why haven't banks responded by modifying their hiring and training practices accordingly?
As I pointed above, the value I derive from my bank has nothing to do with bank associates. Banks - more likely due to competitive pressures than planning - have naturally cut down the number of associates available to service customers at all their branches. When lower-paid retail salespeople, better training, a crash-course in operations management (emphasizing queuing), and job decomposition (5) are all done, a bank can immediately solve a substantial portion of its staffing challenges. Having recently experienced the consequences of understaffing first hand, I can say that there is nothing worse than waiting an hour to be helped; during my bank evaluation, I can attest to employee idling, inefficient queue management, and incomplete training. (How ironic that an increased number of bank branches is directly related to longer waiting times.)
Redefining "Unbanked"
Bankers, like classical economists, assume that people are rational and value fractions of points on checking accounts above all other factors. In fact, this thinking is what drove the brief 90's redeployment of investments in online banking services from brick-and-mortar branches. If you're a bank employee and read my above experience without sympathy, you missed the point; it doesn't matter what you think, it only matters what I think. More importantly, if you can easily take the bank's perspective, then you're suffering from the same affliction they're suffering, an inability to put yourself in your customers' shoes and broaden your understanding of what they value most.
The unbanked consumer isn't one who's financially ignorant or culturally unable to bank, but consider that they're perhaps consumers who don't value what you value - don't value saving money, don't value service, low interest rates, and high yields on CDs, don't value financial supermarket convenience - and the traditional tactics won't work to capture share of their wallet nor extracting lifetime value from them as a customer.
Framed with this perspective, an unbanked consumer may have a bank account at your bank, but treats you - banks - like the number. They couldn't care less what you offer, as long as they can get from you what they need to purchase their home, car, or launch their business. To them, you're nothing more than the untrained, obnoxious sales clerk behind a desk - and they aren't necessarily impressed with his ability to speak their language.
Taking a risk on an unbanked consumer has traditionally been left to what the numbers say. However, banks require new protocols in initiating and managing relationships with these consumers; protocols such as a) evaluating prospect transaction histories with third parties, b) on-the-spot, interview-like conversations with trained specialists, and c) transparent levels of service and fees instead of product marketing that can add more relevant dimensions to relationships that are increasingly too expensive to conduct the old fashion way or won't ever get as in-depth as before thanks to the various non-human channels through which you've given these customers access to their funds.
The Service Banks and the Volume Banks
Practically speaking, you can't and shouldn't be all things to all people. And yet, that apparently seems to be the "competitive" strategy for most banks in the NYC area. (Perhaps the reason nearly 8% of banks fail in the state, despite 4 major agencies that ensure bank stability, a liquid stock market, and an over-ambitious legal system). (6) A review of two banks, Bank of New York and North Fork Banks demonstrates this argument.
Bank of NY has a total of 335 offices, with 20 in New York City. (And these aren't modern offices - dating back decades, they're old-school marble, high ceilings, and the sort of wood paneling that makes you think that maybe they may have single-handedly deforested New York throughout the last 2 centuries.) They hold a 6.71% market share of the NYC market.
North Fork has a total of 316 offices, with 42 in New York City. Built from a hodge-podge of brand names, they can trace their history nearly as far back as the Bank of New York. They hold a 1.95% market share of the NYC market. (7)
In fact, for all intents and purposes, BoNY is double the size of NFB, but NFB is more efficient with their assets (1.896% average return on average assets over the last five years vs. 1.468% for BoNY) with dramatically lower cost of doing business (despite utilizing their branch managers as an aggressive, high-touch sales force, NFB spends nearly 11 times less in non-interest expenses than BoNY. Not surprising considering the real-estate BoNY uses for branches and their daily 8 am to 4pm hours; a closed branch is an idle asset, and idle assets are a waste of money). (8)
The conclusion is that both institutions are service banks, but NFB is a growth company, while BoNY isn't. The question is should a bank like BoNY change their strategy to focus on volume, rather than service? With a volume mindset, real-estate assets would be redeployed; consumer targeting and marketing would be overhauled; and BoNY's staffing approach would inevitably have to be rationalized.
There's nothing wrong with
treating customers like numbers, as long as that was part of a planned differentiation
strategy and the customer's choice. But in a market like New York City, where
everyone competes on service, and many fail to deliver on their promise, all
they're doing is tossing money into the Hudson.
Write to Al Berrios at editor@alberrios.com
Footnotes
(1) "Customer Service Sucks!"
(2) FDIC Deposit Market Share Report; al berrios & co. analysis.
(3) Company websites; al berrios & co. analysis.
(4) Bureau of Labor Statistics, May 2004 New York State Occupational Employment and Wage Estimates; al berrios & co. analysis.
(6) FDIC; al berrios & co. analysis.
(7) FDIC; al berrios & co. analysis.
(8) Company financial reports;
al berrios & co. analysis.
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