Brett King

Posts Tagged ‘Regulation’

The Total Disruption of Bank Distribution – Part 5

In Blogs, Customer Experience, Engagement Banking, Groundswell, Retail Banking, Social Networking, Twitter on August 1, 2011 at 11:09

Transparency challenges new revenue and friction

In September of 2009 Ann Minch, a customer of Bank of America, posted a video on YouTube called the “Debtor’s Revolt”. Ann detailed her case against BofA who had unilaterally increased her credit card APR (Annual Percentage Rate) to 30% from its historical 12.99% – quite a jump. She argued as a customer of 14 years, having never missed a payment, that such treatment was unjustified.  She contacted BofA and asked if they would discuss her situation or negotiate the rate change, but they referred her to a debt consolidation counselor.

BofA subsequently argued that the terms and conditions she had signed allowed them to make any adjustments of this nature without consultation with customers like Minch. If she didn’t like it, she was free to cancel her card and go to another bank. This wasn’t the end of the story.

Half a Million YouTube views later mainstream media started to pick up Ann Minch’s story. The pressure was suddenly on BofA to explain their actions, and the story that they were within their legal right to do so, just didn’t stand up to cross examination. All but BofA believed that their actions were unreasonable and extreme. The resultant pressure resulted in a complete reversal of BofA’s decision, a win for Ann Minch right?

Transparency wins

The Ann Minch story, and that of David Carroll with his YouTube-generated hit United Breaks Guitars, tells us that today consumers have extraordinary power afforded to them through social media. Consumers today have a voice, but increasingly that voice is becoming about choice, about rewarding organizations that listen to customers, and punishing those that think their decisions are immune from debate or dialogue. Prior to social media, Ann Minch wouldn’t have had a hope of getting a behemoth like BofA to change their policies or decisions based on her complaint. But it’s not just the voice of consumers on Twitter, Facebook, Google+ or social media more broadly.

A plethora of user driven recommendation apps and tools are coming to the fore in helping consumers choose organizations that respect customer involvement. There’s Nosh and Yelp apps that help consumers choose restaurants that they like, that provide great service or great food. There’s Trip Advisor that has become such a powerful force in the travel game that it gets 50 million unique visitors a month who use the site to select hotels for their family vacations. Then there are staples like iTunes and Amazon (who arguably pioneered the consumer product rating mechanism) who rank listings of their products based on consumer votes and reviews.  Today we’ve seen the launch of First Direct’s new FD Lab as a worthy attempt to engage customers in the future of the bank from a service and product perspective.

First Direct, who already has great customer advocacy, has launched a new crowdsourcing platform for engagement

Outdated processes are just friction

Today we live in a world where you can no longer provide poor service based on outdated rules, processes and policies and argue “hey, were a bank and that is the way we do it”. Today, if you are a bank and you have stupid rules and regulations that have been perpetuated by processes built around unwieldy mainframe transaction systems, or around KYC processes that are overkill for 95% of customers and their day-to-day interactions – you are setting yourself up for a fall.

Banking has been for the longest time built on the premise that you have to jump through a bunch of hoops to make yourself ‘worthy’ as a customer – you have to prove yourself before the bank will deem you suitable. As bankers, we argue that it’s not our fault, that we are saddled with regulations and requirements that force our hand, that require us to approach customer engagement in this way.

That kind of thinking is institutional laziness and denial – it creates friction that frustrates customers, is largely unnecessary and is generally costly and inefficient.

Let me illustrate. Take a long-term customer that walks into a branch (for the moment forget my post last week on the decline in branch visitation :)) and applies for a credit card or investment class product after say 10 years of a relationship with the institution. In by far the majority of cases he or she’s sat down in front of an officer of the bank, handed a blank application form and required to fill out details that the bank has had on record for a decade. Why?

There is no process, rule or regulation that can possibly justify that kind of inefficiency and poor service. If there is a requirement to get a signed consent or legal record of the customer’s acceptance of certain terms and conditions, then print out the required document with all his/her details pre-filled, ask them to initial to confirm their details have not changed, and sign the acceptance of the T&Cs. What is so hard about that?

Recently at my annual review with my relationship manager at a major brand bank, I was subjected to a 7 minute video on the risks of investing in Collateralized Debt Obligations (CDOs) and the fact that I might lose all my money if I invest in this asset class, when I was, in fact, applying for a product that was a low-risk Corporate Bond in a totally unrelated asset class. Why the video then? Because someone in legal and risk decided all customers should sit through this video to reduce risk to the bank. Stupid friction.

Take a customer who forgets his Internet Banking password today. How many banks require him to come to the branch or sign a convoluted document and fax it to the bank to unlock his online account? I know at least two of my bank relationships do.

Take a wealthy HNWI (High-Net Worth) customer that moves to the USA or UK from a foreign country and applies for a credit card, only to be rejected because he has no credit score – therefore doesn’t exist in the system so he can’t be assessed from a credit worthiness perspective.

None of these rules makes sense, and yet banking is choc-a-block full of such friction and opportunities for disenfranchising customers.  This is the perfect storm in today’s user advocated consumer world of open, transparent choice.

Friction kills advocacy

The problem with outdated rules, processes and procedures is that thinking “we’ve always done it this way” or “if you don’t like it you can leave” is simply no longer a viable argument to an increasingly well educated and informed customer. Already we’re starting to see customer advocacy as a key driver in choice of financial institution, and high visibility for customers who voice their dissatisfaction with such friction.

Have a look at a few sample tweets in recent weeks:

@DavidBThomas I’ve been with my bank for 30 years. They “thank” me by telemarketing me at dinnertime.
@NewsCut My bank — TCF — has a security question “What city is your vacation home in?” My bank really doesn’t understand REAL America.
@StevenValentino I hate my bank and I would happily shove what little money I have into my mattress if the FDIC would insure it.
@MadRainbowLtd Halifax bank are sh*t! They let someone clear out my bank account using an old cancelled debit card!
@clarecbarry Bank screwed up appointment for third time. Quite impressive. Now on way to work with meeting with Mr Douchebag

And this wonderful series of Tweets from @docbaty on 29 July

@docbaty Things my bank did wrong today:
1) that it would take two weeks to perform a simple account creation;
@docbaty 2) offered to expedite that process, which means it -can- happen faster, but they’re just not trying;
@docbaty 3) asked me if I banked with Bank Y at all; they do the same thing while you wait…
@docbaty 4) gave me a blank form to complete in sign, when every piece of info – other than signature – is already on file…
@docbaty 5) made an error on the processing fee, charging $2,180 instead of $218. I had to correct their calculations (she’d used a calculator)
@docbaty 6) checked new calculations with manager, while making me wait.
@docbaty 7) failed to apologize.

Now imagine the next generation of customers who are out there looking for a new institution to engage with right now. Where are they going to look before they decide on a life-long relationship with a financial institution? They’re going to ask their peers. They will search on a product or brand and find search engine results prioritized, not by some clever search-engine-optimization techniques, but by how their friends and networks have scored the performance of that bank or credit union. They’re going to ask for recommendations on Facebook, Twitter or Google Plus, and they’re increasingly going to choose new providers who think out of the box and who work on simplicity, great customer journeys and improving customer experience through better interactions.

What used to happen informally now is being hardwired into the brand selection process. What marketers used to call the ‘choice set’. We’re learning that this process can’t be gamed, manipulated or bought as a result of ad spend. We’re learning that the most effective mechanism is simply being great service businesses and listening to customers when they’re not happy. The process is brutal, it’s transparent, and it’s going to kill your brand unless you are honestly engaging customers, and you try your hardest to get rid of those pesky, stupid banking rules that only make sense to us as the bank – and even then, let’s be honest… they don’t really make sense to us either.

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Forget greater regulation, social media will force transparency (HuffPost)

In Retail Banking, Social Networking, Strategy on May 10, 2010 at 09:53

See the original post on Huffington here

As President Obama was gearing up last month to push further reforms for the finance sector through congress, the sector lobbyists were also gearing up for a battle of PR wits to try to prevent changes that threaten the status quo.  Senior industry players like Jamie Dimon were extremely vocal in challenging the president’s push for greater regulation.

The mantra of “too big to fail” was the protection the big banks were all hoping to fall back on, and this call was certainly an underlying foundation of the bailout and TARP initiative in the US. The fear that if the biggest banks fail, the economic repercussions would be so serious that it is less costly and more economically prudent to bailout big banks so the economy didn’t get hurt further. Such sector lobbying and grandstanding is a fairly standard reaction to such government intervention, as we’ve seen time and time again.

But there is something more powerful than regulation or reform which looks like it will be a much more powerful force for creating change that even politicians will learn to fear – social media. In the recent UK elections, voter turnout was at the highest level in 13 years, largely due to the influence of social media in creating interest and driving participation in the election.

We’ve seen social media act as a force for small business and consumers in breaking the back of long held bank policies that have been unyielding even in the most regulated markets, with active ombudsmen or watchdogs. In February of this year Citibank was forced to very publicly back down from a policy-based decision on blocking the business account of a web start-up called Fabulis. In September of 2009 Ann Minch, a long and faithful BofA customer, posted a YouTube video documenting the interest rate increase on her BofA credit card from 12 to 30%. In the video Minch comments that she “could get a better rate from a loan shark”. Bank of America was unmoved by her social media efforts, at least initially. But after more than half a million views in just a few weeks, BofA was forced to reverse their interest rate increase and in doing so set a very public precedent for other customers.

Corporations are under the watchful eye of social media

This is a trend more and more questions by customers, more reversals in policy decisions that were once held as sacred and unmovable by the biggest corporations globally – basically they were too big to be challenged.

The largest corporate bankruptcies in history (see great infographic) largely occurred due to either lack of adherence to existing regulations (Lehman Bros), unbridled greed (Enron), lack of innovative thinking (GM) or just poor management. Even though Enron and Worldcom’s collapse resulted in the creation of the Sarbanes-Oxley act, it is generally believed that it is not lack of regulation that resulted in what were the biggest bankruptcies in US history at the time, but the intent of the management to circumvent existing regulations to create ‘arbitrage’ opportunities.

Great infographic on largest corporate bankruptcies (Source:www.good.is)

Goldman Sachs is being targeted for similar practices, this time around CDOs and the sub-prime crisis. Calls for Lloyd Blankfein’s resignation are sounding around Wall Street as Goldman’s shares have plummeted 19% since April 15, knocking $15 billion from Goldman’s market cap. The issue at hand is Goldman’s active strategy to make money from the collapsing sub-prime market, such as the so-called “Big Short”.

We saw the same shenanigans during the Enron debacle with empowered traders coming up with trading strategies they gave nicknames such as “Get Shorty”, “Fat Boy”, “Death Star”. This represents an institutional, wall street embraced, increased appetite for driving speculative bubbles or exploiting regulatory weaknesses to make extraordinary profits. Traders argue that arbitrage is just an ability to read risk and hedge appropriately, but when the traders have enough clout to create the bubble that generates the arbitrage opportunity, it takes on a different life – and creates lots of ethical questions.

We are coming to a point in time where such speculative, hedging and arbitrage strategies, or even outright fraud, are going to be a lot more difficult to execute because of the force of public opinion powered by social media.

We have come to an age where those organizations who are transparent, open and engaging with their customers will be rewarded. Those who don’t understand social media, refuse to participate in the conversation, and who don’t easily integrate customer needs, opinions and issues into their organization, will be punished – publicly and without mercy.

We often talk about the privacy implications of social media, but when it comes to large corporations – you most private, sacred issues will be played out on the public stage unless you are on top of social media and it’s impact on the voice of your customer.

Get ready for open, transparent customer engagement, 2.0 style!