What Do Banks Need? More Loyalty

What do some of the great companies that have disrupted entire industries have in common? Think about companies such as Zappos.com, an online shoe retailer that has grown to be one of the world’s largest shoe retailers, now owned by Amazon. How about Uber and Lyft? They’ve crushed the taxi business. How about Apple, with its legions of customers more than happy to pay two or three times what competitors charge for their products? Not only have these companies simplified the buying process, but they have generated something many companies lack: customer loyalty.

As part of his speech last week at Bank Director’s Growing the Bank conference, Joseph Bartolotta, an executive vice president at $9.6 billion asset Eastern Bank in Boston, Massachusetts, talked about these companies and the importance of loyalty. Loyalty will generate increased spending from your customers, make them less sensitive to price and more likely to refer other customers. Loyalty will also lower your costs and reduce customer turnover, he said.

What have companies like Uber and Zappos done to generate loyalty? Zappos has a 365-day return policy and will pay the costs of return shipping. Not only are Uber and Lyft generally cheaper to use than taxis, they have a payments experience that is extremely smooth precisely because there is no payments experience, Bartolotta pointed out. The companies send you a receipt via email after your ride is over, and there is nothing to sign or approve. Apple creates products that are expensive, but their loyal customers swear they are better than anything else.

Banking, with a few exceptions, doesn’t necessarily generate a lot of loyalty. In a Gallup poll in 2015, only 25 percent rated the honesty and ethics of bankers high or very high—behind funeral directors, accountants and journalists. (But don’t despair, bankers rated higher than real estate agents, stockbrokers and members of Congress.)

Bartolotta listed a couple of practices that he thinks have hurt the customer experience in banking. A common industry practice of ordering check and debit transactions from the highest dollar amount to the lowest generated a high level of overdraft fees in the years leading up to the financial crisis, but it led to widespread customer dissatisfaction. Customers revolted and filed class action lawsuits. Another is the practice of a continuous overdraft fee that occurs until the customer comes out of a negative balance.

Bartolotta also tries to steer away from the use of asterisks and fine print in company marketing materials and brochures. Bankers may say, for example, “Yes sir, we disclosed this to you at the time of the account opening. It was in the document you received.” Communication, including in such documents, should be in plain language, avoiding acronyms and industry lingo, such as “RDC” for “remote deposit capture.”

In addition, banks should do everything they can to avoid making customers jump through hoops. If you are contemplating a new product or service, bring a literal chair into the room where the discussion is taking place and label it “customer,” he said. Make sure, in other words, the customer is always a part of the discussions about any products and services you provide.

What banks generate loyalty as described? Columbus, Ohio-based Huntington Bancshares does with its bank’s asterisk-free checking account. The checking account for The Huntington National Bank is free with no minimum balances. Anyone who overdrafts the account gets a notice and a 24-hour grace period to right the error before being charged a fee.

Bartolotta used his own mutual as another example. Eastern Bank had been sending emails to customers who closed accounts asking them why they were leaving. They got back several responses from customers who said, ‘I didn’t close my account. You did.’” It turned out that Eastern Bank, like a lot of banks, was charging a recurring fee on inactive accounts and then closing those accounts when they ran a zero balance. Many customers never opened their account statements and didn’t know what was going on. To change this, Eastern Bank began warning customers when they were about to be charged an inactivity fee, and giving them options to avoid the fee and even close the account, if they chose. The helpfulness was a huge improvement.

There’s room for improvement in the reputation that the banking industry enjoys. A lot of small, community banks already follow these customer-friendly practices. It would helpful if the entire industry did.