Getting Bank Customers to Happily Pay Fees


giving-money.jpgIt seems hard to believe after years of customers not paying for basic bank services due to free checking accounts, there are actually some services many are willing to pay for.

Nearly all bank customers feel basic banking services typically found in checking accounts should be free due to providing the financial institution with low cost funding from account balances. Free checking, the dominate consumer checking strategy over the last decade, has successfully reinforced this feeling.

This sentiment may be changing for a new type of bank services. According to the Integrated Study on Service Fees, which was conducted by San Anselmo, California-based Market Rates Insight in April 2012, and included responses from 1,500 current bank customers and credit union members 18 years old and over, an average of 67 percent of consumers are likely to use and pay for what was identified as “lifestyle financial services” (see table below).

Lifestyle Financial Services

Overall likelihood of use (%)

Identity Theft Alerts

82.5

Credit Score Reporting

73.7

Personalized Couponing

69.2

Overdraft Transfer Service

67.9

Personal Money Transfer

66.2

Mobile Remote Deposit Capture*

63.4

Prepaid Reloadable Cards

47.1

Average All Services

67.1

* Per deposit

 

 

The study states that consumers feel differently about lifestyle financial services. These services have emerged as technology has advanced and personal lifestyle behaviors have changed. The result is a much more acceptable value proposition due to the services embracing increased consumer mobility, personal financial management, informed purchasing, time efficiency, digital identity protection and media connectivity.

So how much are consumers willing to pay for these lifestyle financial services? The study respondents state they are willing to pay an average fee of $3.63 per month for each of these financial lifestyle services.

There is market validation for some of the study’s results already. StrategyCorps, which provides consumer checking account solutions that incorporate some of these lifestyle financial services, has found a material percentage of consumer checking customers do indeed pay for them happily. The most popular services are personalized couponing and identity monitoring/alerts (along with cell phone protection and insurance programs), which are all mainstays of our best performing fee-based checking solution.

Our experience is that the price point customers will pay for these popular lifestyle financial services bundled in the checking account (rather than sold separately) are averaging nearly $6 per month. The typical sell rate is about 30 percent of new accounts (when unconditionally free checking continues to be offered and 60 percent+ when not offered) and 40 percent of existing accounts, when these services are properly designed in the checking account, the account is smartly positioned in the overall consumer checking lineup and product merchandising is aligned with customers’ purchasing behavior.

While customers acknowledge the value in these types of services, our experience is that product design, lineup positioning, and aligned merchandising play a critical role in a customer’s willingness to pay. In other words, these services, despite their inherent value, don’t easily sell themselves like free checking. However, when properly offered to customers, the sales rate is very high.

This means a lot of new customer-friendly fee income at a time when non-interest income at U.S. banks generated from fees on deposit accounts decreased $2.1 billion or 5.8 percent in 2011, the continuation of a five-year trend. Pile on top of this trend line the continuing regulatory pressure on overdrafts and a full year’s impact of the Durbin amendment not captured in the 2011 numbers, and the challenge of getting more fee income without ticking off customers gets even more difficult.

It‘s clear that trying to generate new fee income from just basic banking services is a proposition that customers will not accept. The market has definitively spoken on this strategy.

The good news from the results of this study and StrategyCorps’ proven market experience is that there are fee income based checking solutions that do work in addressing the fee income challenges faced by every financial institution.

Getting New Customers in Healthcare or Property Management through Outsourcing


hybrid-fruit.jpgHybrid seems to be the new word these days.  Hybrid cars get better gas mileage. Why not apply a hybrid to your business model? As many of you, I grew up hearing that I didn’t need something new every time I asked, and I could make do with what I had.  I guess those core values stuck because I don’t necessarily think that you have to have an all or nothing proposition for your lockbox product offering. You may already have an established customer base with a group of talented people who do a great job—so why would you take all of that and outsource it?  If you have the desire to enter into new markets such as healthcare or property management and don’t want to incur the expense of building out a new facility, an option exists and is in play today.  By taking a hybrid approach, a blended style of outsourcing, financial institutions have more options than ever to consider.

With a hybrid approach, you decide what you want to remain in control of and what you want a partner to help with.  Here are a few examples of hybrid outsourcing to consider:

1. The healthcare market is a large revenue opportunity for financial institutions.  There are hundreds upon thousands of healthcare providers right outside your door, but processing those payments can be complex.  There is everything from high tech scanning and data recognition to fully compliant with HIPAA (Health Insurance Portability and Accountability Act) archive and data exchanges.  Don’t be overwhelmed and walk away from this potential revenue.  By partnering with an organization that has the expertise you need, and will be your product innovator, marketing department, billing and finance and operational arm, you are able to offer a new service to a new customer group without changing anything within your core operations.

2. Accept all payment channels. We all know there are several new and emerging payment channels that customers prefer using—but can your financial institution accept them all?  With an integrated receivables hub, offered through an outsourced model, now you can.

3. Expand your geographical footprint. Do you want to grow your financial institution without the expense of brick and mortar costs?  Your financial institution can gain access to a unique capture network that allows you to capture and process payments from just about anywhere.

By simply adding on to what you have today, a new hybrid approach can give you happier customers, more revenue, expanded geographic footprint and a happy chief financial officer.

Banking the Unbanked: Prepaid Cards, Mobile Payments & Global Opportunities in Retail Banking


lock-key.jpgDeloitte, a professional services firm specializing in audit, tax, consulting, enterprise risk, and financial advisory services, recently released a report on the unbanked, with excerpts printed here: 

A Large Untapped Banking Market?

Financial institutions around the world compete against one another trying to attract and retain the same middle- to upper-income retail customers year after year. Yet there is an enormous market that most banks are ignoring—and that nonbank competitors have begun to cultivate effectively: the world’s 2.5 billion adults who are either unbanked or underbanked.

By definition, unbanked customers have no checking, savings, credit, or insurance account with a traditional, regulated depository institution. Meanwhile, underbanked customers have one or more of these accounts, but conduct many of their financial transactions with alternative service providers, such as check-cashing services, payday lenders, and even pawn shops—and still use cash for many transactions.

Prepaid Cards and Mobile Payments: Recent Innovations Gaining Rapid Acceptance

The developing world is serving as a crucible of innovation for a new payments infrastructure for financial services — one that relies less on the physical presence of branch offices and more on wireless telecommunications and the Internet.

Prepaid cards. Like the holiday gift cards that have become so popular in the United States, general purpose reloadable (GPR) prepaid cards are a medium of stored value. However, gift cards are typically “closed loop” products accepted by a single merchant, while GPR prepaid cards are “open loop” and accepted almost everywhere.

Prepaid cards can offer unbanked and underbanked consumers access to online shopping and bill payment, as well as a host of other traditional banking functionalities. Moreover, many governments around the world are increasingly adopting prepaid cards as a preferred mechanism for making benefits payments to consumers because it can be cheaper, faster, and more secure to transfer funds to cards than it is to mail checks or provide cash to all recipients.

Mobile payments. At the same time that prepaid cards are taking off, payments made through mobile phones are also becoming more common. According to the International Telecommunication Union, the United Nations agency for information and communication technologies, there were 5.9 billion mobile-cellular subscriptions in the world at the end of 2011.  With a global reach of 87 percent—and a developing-world adoption rate of 79 percent—mobile phones are in use almost everywhere and by virtually
every consumer segment.  With such widespread access to mobile technology, consumers in Africa, Asia, and other emerging markets can pay bills, get cash from local merchants, and send money back home to their families—without having to step into a banking office.

The United States: An Emerging Market for Prepaid Cards

In the United States, a number of prepaid program managers are increasingly positioning their GPR prepaid products as a checking/debit alternative and targeting them to both the unbanked and underbanked population as well as presently banked consumers.

Prepaid cards can appeal not only to younger consumers looking for a cheaper, more convenient alternative to traditional banks, but also parents eager to control, compartmentalize, and track their children’s spend or their own.

Emerging online banking players are offering a broader product array, including savings and credit accounts to complement their prepaid offerings. Adding to the pressure, several established nonbank players and several large retailers have introduced everyday payment prepaid cards with fewer fees aimed at younger consumers and the cost-conscious segment of the market.

Responding to New Competitors

Stay the course and reduce operating costs. Some banks may elect to continue to grow their share of wallet among existing profitable customers while further reducing operating costs in-line with the new reality of regulatory constrained fee income.

This option is a traditional response of large incumbents when faced with disruptors. It also is a well-established playbook and might make the most sense for many banks. This option will likely require forcing out unprofitable consumers and will shrink the total consumer franchise. Typically, large national banks seem to have chosen this option, either due to a profitability imperative or to a strategic choice to focus on the affluent. Some regional banks have made a similar choice as well. The shallow profit pool of existing prepaid customers is also a common reason cited for this choice.

Protect the franchise. Other banks may decide to offer prepaid products to unprofitable checking/debit consumers, migrate them to the cheaper prepaid platform, and offer prepaid options to less creditworthy customers.

This approach will likely preserve the size and scale of the franchise and preserve the future option of migrating prepaid customers to traditional banking products as their financial situation improves. Banks that are more comfortable with middle-income and subprime customers as well as regionals looking to grow aggressively are considering this option. The risks associated with this option are a dilution of efforts and the traditional risks associated with middle-of-the-road options.

Embrace the disruption. Still other banks may choose to create an enterprise-level focus on the unbanked and underbanked markets initially around prepaid offerings and actively prepare for the upward march of this new banking solution. Of course, this option can be especially attractive for banks in fast-developing markets where the non-consuming segment is 70 percent or more of the population.

Traditional banks could acquire one of the prepaid specialists or create their own program-management capability. The upward march would involve migrating the product functionalities and positioning to help meet the needs of selected banked segments, whether lower-middle class or younger affluent segments that do not want or need traditional banking relationships.

For access to the full report, click here.

The Double-Barreled Regulatory Assault on Retail Banking


shotgun.jpgFollowing the financial crisis, one can cite any number of areas where the regulatory pendulum has swung too far.  Retail banking is one of those areas.  The Dodd-Frank Wall Street Reform and Consumer Protection Act ushered in a new—and an oddly schizophrenic—regulatory regime for retail bankers.

The premise of the new legislation is that, had the prior retail banking regulatory regime been different, material aspects of the financial crisis would have been averted.  In particular, proponents of the legislation asserted that federal bank regulators focused on safety and soundness considerations significantly to the exclusion of consumer protection.

Whether these problems were real or imagined, they were given a legislative “solution.”  Dodd-Frank created a new federal super-regulator for consumer financial services regulation, the Bureau of Consumer Financial Protection (CFPB).  With generous funding and a singular focus on consumer protection without regard for prudential considerations, the CFPB has a host of unprecedented powers, including:

  • rulewriting authority for 18 federal consumer credit laws;
  • authority to issue rules implementing the new consumer protections added by Dodd-Frank, most notably the statute’s open-ended proscription on unfair, deceptive or abusive practices;
  • direct compliance-related supervisory authority for banks with total assets of more than $10 billion.

In other parts of the Dodd-Frank legislation, however, Congress seems to have forgotten that the CFPB was the “solution” to the perceived problem of lax federal oversight.  Notwithstanding the CFPB’s creation, Dodd-Frank ushers in a wholly separate alternative “solution.”  Specifically, Dodd-Frank increased state enforcement authority.  State attorneys general, in particular, in effect have been deputized to enforce aspects of federal consumer financial protection law.  Dodd-Frank also erected an array of barriers to federal preemption, the principle by which banks that operate on a multi-state basis often are permitted to follow a single uniform federal standard rather than a hodgepodge of different and potentially inconsistent state laws.

Although federally chartered banks and thrifts will bear the worst of the new anti-preemption changes, state chartered banks also stand to lose some of the preemption efficiencies they have enjoyed.  Many preemption rules apply without regard to charter type and, even where preemption is specific to federally chartered banks, most states have some variety of “wildcard” statute offering state banks parity with their federal counterparts.

It was shortsighted to have concluded that preemption is always contrary to consumer interests and that rolling back preemption and hamstringing it in the future ensures better public policy.  Let us recall some examples from a prior financial crisis— the extraordinarily high interest rate environment of the late 1970s and early 1980s when the prime rate of interest, at its peak, skyrocketed to 21 percent.

  • Many state usury limits were set at well below market rates of interest.  Credit, particularly housing credit, was unavailable to consumers as banks were forbidden from charging rates at prevailing market levels.  The solution was federal preemption of mortgage loan interest rates.
  • In that extreme rate environment, banks and consumers alike often preferred adjustable rate mortgages.  ARMs would have reduced the bank’s risk of rate volatility, and consumers with immediate housing credit needs could have avoided locking in historically high rates for the long term.  Unfortunately, this was not possible in a number of states that mandated that loans have level payments that could not vary over the life of the loan.  The solution was federal preemption of these state rules.
  • Also during this era, consumers did not always get the rates and other mortgage loan terms they deserved based on their credit history.  Various states prohibited “due-on-sale clauses,” the contractual provisions permitting a bank to deem the entire note due and payable upon sale of the property.  Under these laws, mortgage loans became “assumable” by any purchaser of the property, including one less creditworthy than the initial borrower.  Hence, the initial borrower was forced to pay a risk premium even if he or she had no intentions of selling.  The solution, again, was federal preemption of state prohibitions on due-on-sale clauses. 

These examples demonstrate that states are not always the best source of enlightened retail banking public policy (or always nimble in making adjustments in a crisis).  These examples also show that preemption can be pro-consumer and an important tool in meeting an economic crisis.

Unfortunately, these policy lessons of the past seem to have been lost.  Retail bankers now face a double-barreled assault focused on consumer protection from the CFPB and the states.  Either one of these “solutions” to perceived regulatory failures of the past would have prompted bankers substantially to tighten their internal consumer compliance controls.  Facing both “solutions” simultaneously means that compliance must be a high priority at every level of the bank, starting at the board of directors.

How Can Retail Branches Become More Profitable?


fishbowl.jpgI have two grown children, 25 and 28 years old, who have checking accounts, but have never been in a bank office.  Yet, despite all the evidence that branch usage is in decline over the past decade, the industry continues to build new offices.  As a director of 10 different FDIC-insured banks during my 25 years as a consultant/investor for the financial services industry, I do not envy the job of current bank directors preparing for the future.  With a large amount of capital tied up in single-purpose real estate and fees on accounts restricted by regulators, where can bank management and directors turn to make the branch profitable again?  The answer to this problem may lie in the historical study of how we got where we are today.  

In the first 10 years of my banking career at Trust Company of Georgia (now SunTrust), I held responsibilities in both management and internal consulting of operations and technology.  I remember going to our Fulton Industrial Boulevard branch on a payday Friday and hearing the branch manager ask, “What can we do to get all these people out of our branches?”  Well, mission accomplished!  These days the long lines on payday are more frequent at a Walmart financial center than at a bank branch.  What will draw these people away from Walmart, check cashers, payday lenders and title pawn shops and turn them back into profitable bank customers? Evolutions in technology, social media and product offerings now provide the solution.

Asset quality disasters, regulatory concerns and other survival issues have consumed the lives of many bankers as of late, leaving little time to pursue the five-year plan.  Banks now must begin to reshape business plans to reflect the evolution in technology and consumer behavior or become the next victim of obsolescence, much like such industries as home entertainment, photography, telecommunications and specialty retail.  Can a full function ATM machine replace a branch the way that a Blockbuster Express self-service movie rental kiosk replaces a store?  Never has the role of a bank director been more important than today; financial institutions must proactively chart a new course for retail banking.  Personal interaction with successful retailers in other industries can provide directors with the needed experience to guide their own companies.  Think of the experience of renting a movie from a kiosk instead of going into a store and compare it with using a full-function ATM instead of visiting a branch.

Now is the time to begin the evaluation of which branches are crucial to the customers in an area, provided all of the other ways that are now available to meet their banking needs.  Given the unlikely event that margins will grow, replacing fee income lost as a result of regulatory changes for most banks is critical to future earnings growth.  Directors need to be proactive in encouraging management to recruit customers that the bank lost to alternative financial services providers, such as check cashers and payday lenders.  To get these customers back, banks must offer a new suite of products and services, which includes cashing checks, money transfer, money orders, prepaid cards, reloadable cards, and fees to guarantee funds. In the future, perhaps a cash advance fee at a bank can replace payday lending.  These services can be highly profitable, as evidence by the large number of alternative financial services providers in the market place. 

An argument usually brought up by bankers is that no other bank is doing this. That’s not true. Regions Bank recently announced Regions Now Banking in all 1,700 branches.  The products mentioned earlier are all included in this offering.  Early results are extremely pleasing to Regions’ management team, which expects the new fee income will replace revenue lost as a result of regulatory changes.

When an industry must react to changes in technology and consumer behavior, the first thing to ponder is if the consumer still needs the product.  Does the public still need financial services?  The answer is yes.  So, how can banks use new technology?  The answer is still evolving, but every bank director who  has purchased something on Amazon, rented a movie from a kiosk, or used the self-service checkout at the grocery store has a personal experience that can be valuable in shaping the future retail bank customer experience.

For Banks, Maximizing The Small to Medium Business Opportunity Starts With Remote Deposit Capture


challenge.jpgThe nation’s 27 million small-business owners are busy people, dealing with countless tasks every day to make a go of it. That’s why many consider their trek each business day to the bank to deposit checks and other customer payments to be a hassle. That time adds up. A technology solution, remote deposit capture (RDC), exists that lets businesses transmit checks electronically to the bank for posting and clearing. It saves them time and money.

Here’s the rub: While a majority of banks provide such technology, just 5 percent of small businesses are using it, even though nearly half of them say they would prefer using the remote route (Aite Group report, Nov. 3, 2011).  

This offers large and small financial institutions alike an opportunity. By executing remote-deposit strategies expertly, they can reap some of the estimated $700 million in revenues being lost now because businesses with less than $10 million in annual revenues aren’t employing these services, according to Aite Group

Banks realize they have an opportunity they haven’t tapped. Fifty-one percent of banks surveyed acknowledge they haven’t been effective in educating their business about remote deposit.  Further, one-third of surveyed SMBs say such a service is important/very important to them (Aite Group, August 2011)

What’s sparking the disconnect?  Banks cite:

  • A lack of resources to enroll and support all interested customers, primarily because they’re using manual systems for such enrollment. Banks say it’s expensive to roll out remote deposit for SMBs.
  • Inadequate training resources to educate potential SMB customers about remote deposit as well as training required to educate internal associates allowing them to sell the solution.  According to Aite, nearly three-quarters of all small business either have not heard of RDC or have heard of it, but aren’t familiar with the details.
  • Poor marketing as the technology isn’t often packaged for SMB needs, which means small businesses aren’t even aware of it. Insufficient understanding and evaluation of the risk associated with the SMB market and difficulty managing risk and monitoring an account once an SMB has enrolled.  

One other obstacle exists. Providing technology that allows small businesses to just automate checks only addresses a segment of their needs. They need a turnkey solution that lets them process checks as well as electronic forms of payment, including one-time and recurring ACH, debit and credit transactions.

As for the SMB community, not all of them are prime candidates for remote capture. Five segments, though, comprise half of the SMB deposit opportunity: professional-services firms, construction, property management, medical and education services.  

For banks and SMBs, help has arrived. Recent turnkey solution offerings promise to remedy many of the headaches for banks with remote capture. They include quick, easy online enrollment forms for banks to use that automatically set up new SMB customers. Also, such turnkey solutions are available that provide marketing materials, return-on-investment calculators, automated setup, hands-off training for users, scanner sales, delivery and support.  These systems accept checks and ACH, and the captured payments can be viewed via a single online portal. 

Risk-monitoring capabilities also are available to allow financial institutions to set up queues to manage and monitor deposit behaviors. Automated setup based on underwriting results speeds up the onboarding process.  In addition, systems now can help to handle changes to existing customer profiles, eliminating the need to manually modify a customer and reducing costs. 

Such turnkey solutions will do much to clear up the problems plaguing banks from enlisting customers and small businesses from using remote deposit capture. And just how lucrative could this prove for banks?  One major financial institution is actively pursuing the SMB market.  It figures that its more than 1,000 branches can add thousands of new small-business customers in total each year for the next three years. 

Financial institutions recognize the demand for remote check deposit among small businesses, but limited resources and management tools have kept them at bay.  With the new turn-key solutions available, financial institutions can capitalize on the significant growth opportunities this huge market segment presents. 

Face-to-Face Still Trumps Technology

cornerstone.jpgUpon reading the news and listening to industry experts, you may think bank branches are going the way of the buggy whip.  News reports claim: “For the first time in 15 years, banks across the United States are closing branches faster than they are opening them,” and “Bank Branches Are Closing; People Using Nearby ATMs Don’t Notice”(time.com).

In November 2010, analyst Meredith Whitney predicted 5,000 branches would close in the next 18 months (fortune.cnn.com) and according to author and consultant Brett King, “The current network of branches for most retail behemoths has absolutely no chance of survival in the near future. I’m not talking 10 years out here… I’m talking in the next 2-3 years,” (banking4tomorrow.com).  To paraphrase a quote from Mark Twain, reports of the death of the branch have been greatly exaggerated.

As part of the 2011 Bank and Credit Union Satisfaction Survey, Prime Performance surveyed more than 12,000 retail bank customers.  The findings from this survey show that the branch continues to play a vital role in the customer experience. 

4 Reasons Why the Branch Remains the Cornerstone
of the Retail Banking Relationship

1. 59 percent of customers performed a teller transaction at a branch within the last two weeks
Even though branch transactions are declining, branches continue to be highly visited. In 2011, 59 percent of customers performed a teller transaction at a branch within the last two weeks. While younger customers make more use of self-service channels, they still frequently visit the branch.  Among Gen Y customers, 56 percent performed a teller transaction at a branch within the last two weeks.

2. 74 percent of bank customers said they opened their most recent account in a branch
Most customers still choose to open their bank accounts in a branch.  Almost 3 out of 4 (74 percent) bank customers said they opened their most recent account in a branch.  This compares to 19 percent opened on-line and 6 percent by phone.  As expected, older customers (born before 1965) were more likely to open their account in a branch, and 81 percent did so.  Among Gen X, 69 percent opened their account in a branch, and surprisingly 74 percent of Gen Y did so as well.

3. 52 percent say branch location is the top reason why they selected a bank
Customers claim convenient branch locations is the primary factor in selecting a bank.  Fifty-two percent of new customers who opened their account in a branch rated convenient branch locations as the number one reason for selecting the bank and 74 percent said it was one of the top three reasons. New customers who opened their most recent account online also rated convenient branch locations as the number one reason why they selected the bank, even though they chose not to open the account in a branch.  Twenty-seven percent of customers who opened their account online rated branch locations as the number one reason why they selected the bank and 43 percent ranked it in the top three reasons (35 percent and 49 percent among Gen Y).

4. Live interactions continue to drive customer satisfaction and loyalty
While self service channels can play an important role in the customer experience, interactions with bank representatives are, by far, the primary drivers of customer satisfaction.  Regression analysis on over 12,000 customer surveys showed that customer satisfaction with the branch had the greatest influence on their overall satisfaction with the bank, how likely they are to recommend the bank and how likely they are to return to the bank first for future financial needs.  Still in its infancy, at this point in time, mobile banking is showing virtually no impact on customers’ overall satisfaction.  The branch has over three times the influence on overall satisfaction than both the internet and ATM channels.  Customers value self-service channels, but don’t see them as significant differentiators between banks. Ultimately, their interaction with humans has the greatest affect on how they feel about their bank, for good or ill.

Ron Johnson, who left Target to build the Apple Store from scratch and now is the CEO of J.C. Penney Co.,  said in a recent Harvard Business Review interview, “The only way to really build a relationship is face-to-face.  That’s human nature (hbr.org).”  As long as customers continue to place significant value on the locations of branches and the interactions they have with representatives in branches, banks needs to continue to make the branch the cornerstone of their retail strategy.

Banks must recognize that strong customer relationships are the key differentiator that will drive long-term growth and the branch is the key to developing and nurturing those relationships. Successful banks listen to their customers and use that feedback to energize behavior change and create a shared vision of consistent service excellence, and then deliver on that vision on each and every customer interaction.

Why Mystery Shopping Does Not Measure Customer Satisfaction at Banks and Credit Unions


mystery.jpgCustomer satisfaction has become a hot topic in banking.  Recent studies have concluded:  “Delivering a positive customer experience is one of the few levers banks can use to stand out in today’s market (Capgemini 2011 World Retail Banking Report)” and “organic growth rooted in strong customer relationships, and the economic rewards they deliver, will be the best path forward for retail banks in the years ahead (Bain & Company Customer Loyalty in Retail Banking: North America 2010)  and from J.D. Power and Novantas, 2009: “Across all driving factors, satisfaction provides the most sustainable competitive advantage.”

With all of the advantages that come with high levels of customer satisfaction, it is no wonder that most banks and credit unions want to measure their customer satisfaction.  According to the Capgemini World Retail Banking Report:  “Banks are taking a closer look at the ways in which they incent and reward branch employees. Increasingly, they are using customer satisfaction as a key measure of employee performance. This process requires more frequent measurement of customer satisfaction and clear communication of the results to branch staffers.”  Many banks today will claim that they measure customer satisfaction through mystery shops.  While mystery shopping can play a role in improving the customer experience, it does not measure customer satisfaction.  To help banks and credit unions understand the limitations of mystery shopping, Prime Performance has published a white paper entitled “Why Mystery Shopping Does Not Measure Customer Satisfaction at Banks and Credit Unions.” 

Available as a free download here, the “Why Mystery Shopping Does Not Measure Customer Satisfaction at Banks and Credit Unions” white paper outlines the seven major reasons why mystery shopping fails to accurately measure customer satisfaction.

  1. Mystery Shoppers Cannot Accurately Gauge Customer Satisfaction
  2. Mystery Shoppers Do Not Represent Typical Customers
  3. Mystery Shoppers are Not Representative of the Entire Customer Base
  4. Mystery Shops Do Not Reflect Variations in Service Based on Time of Day or Day of Week or Month
  5. Mystery Shops Do Not Reflect Levels of Service Provided by Different Employees
  6. Substantial Variation between Shops Diminishes Value of Results
  7. Mystery Shops Do Not Provide Enough Observations to Draw Accurate Conclusions

The white paper discusses other challenges with mystery shopping including mystery shoppers being identified by bank employees and the unintended consequences of a mystery shop program.  The paper also describes when mystery shopping makes sense, such as when customer contact information is not available or when it is used to supplement a robust customer satisfaction survey program.

The paper goes on to explain why telephone customer surveys are a superior approach for banks and credit unions, “based on decades of experience, we believe strongly that phone surveys are vastly superior to mystery shopping as a way for banks to gauge the quality of their customer service. Phone surveys are fast, efficient, effective and relatively inexpensive. They deliver data that is reliable, consistent and actionable. Clients welcome phone surveys that allow them to praise – or criticize – companies they know well. In fact, greater customer loyalty is an unexpected benefit of phone surveys.”

Five Tips to Sell Better in Your Branches


sales-training.jpgDoes this sound familiar? Your bank is launching a new product or sales technique that’s going to be a surefire hit with your customers. You’re expecting big results in growing customer relationships. But, the results don’t meet expectations. The new ideas fail to infect your branch teams with your enthusiasm. In my experience, lackluster training is usually the culprit. But even the best instructional content is not guaranteed to produce great results. Don’t take chances with the success of your retail initiatives. Follow these five ideas to add new life to your branch sales performance. 

1. Create the Right Environment  

First of all, don’t call it, sales training. Branch employees hate the “S” word. Instead, focus on customer service training. Your front line will be more open to your ideas and their emotional buy-in can be the difference between success and failure. 

If you want your branch teams to care, then you have to show them that you care, too. Have senior managers kick off the training sessions—let them hear the critical messages directly from you and your senior management team. Share your passion with them. Tell them why the training is important and what success can mean for the bank and its customers.

Let’s face it—bank sales training can be boring. Just a few details can add a little pizzazz to your sessions and leave a lasting impression on your branch teams. Blast some upbeat music for arriving students. Provide some goofy training gifts (see me after class for your  “I know the Secret of the Bank Secrecy Act” T-shirt).

2. Market Your Training to the Front Line

Involve your marketing team in your training initiatives. Give them a budget. Set goals for how the training should be communicated to targeted employees. Create an internal email campaign or a fun video at the beginning of each training session to solicit buy-in from your retail team.

3. Practice, Not Role Plays

There’s no better way to be a better seller than to learn new sales techniques by role playing.  However, just saying the words, “role play” will incite panic attacks in most retail bankers.  Don’t single out participants for role playing exercises in front of their peers. It freaks them out. Instead, pair off the participants and let them practice with each other without the pressure to perform in front of the whole class.

4. Target and Reinforce Simple Training Behaviors

Even great trainers are lucky if participants remember 20 percent of what they hear in a training class. Make the target skills easy to remember. At our company, we use memorable phrases like: “Remember the 1-2-3.” Reduce key ideas down to something as easy as 1-2-3. You’ll have a better chance of connecting with your trainees.

Don’t train new sales behaviors and then hope for the best. A wise sales manager once told me: “There are only two ways to get people to adopt new behaviors pleasure or pain.” Without pleasure or pain, people usually just revert back to the same comfortable behaviors as usual. So, focus on the key activities and behaviors that you want to change, and then reinforce these behaviors with things that make people feel good. Include lots of public recognition for top performers. How about a sales contest to reward the new sales behaviors?  Or announce a spot incentive to put the focus on a new goal.

5. Don’t Forget the Branch Managers

Too often, sales training focuses just on sales behaviors. But managing new behaviors is equally hard. Help your branch managers develop a “fast start plan” to guarantee a successful implementation of new sales skills in their branch. Brainstorm a list of easy five minute sales meeting huddles. Be sure to plan fun reward and recognition activities that sustain the enthusiasm of your front line. Over the years, I’ve grabbed dozens of inexpensive ideas from the book,”1001 Ways to Reward Employees,” by Bob Nelson.  Every person in a leadership position should have a copy of this book.

Execution is always the difference.  We’d love to hear about things that your team has done to take your training events to the next level.

Nothing for Something?


empty-tray.jpgEvery consumer is intrigued by the offer of something for nothing. Retailers have depended on the positive, natural response of consumers to this marketing message for decades to generate purchasing interest.

So it is odd, strange and frankly confusing that mega banks (Bank of America, JPMorgan Chase and Wells Fargo), which claim to be retailers, are doing just the opposite by offering “nothing for something” when it comes to charging their customers for debit cards.

Sure, debit cards have inherent value. But financial institutions of all sizes have diluted that value by giving the cards away for many years. This has trained consumers to feel that banks can make money by providing them for free and are now being greedy by charging for them.

Three, four or five dollars per month for a debit card probably won’t put many more people in the poor house, but it sure feels unfair. Response has been overwhelmingly negative by customers, non-customers, consumer advovcates, politicians and even other financial institutions.

As a practicing amateur psychologist, it is easy to see why the reaction has been so negative. Nobody: rich/poor, male/female, black/white/brown, gay/straight, or city slicker/hayseed likes to get nothing for paying something. It violates what economists call the “fair exchange of value.” It violates what I call common sense.

And that’s what these big banks miscalculated here. It’s not the amount of the fee itself that is riling up the masses, nor is it the justification of why fees must be charged:—the government made us do it.

Rather, it’s the perception of the fee as unfair that’s causing the uproar. Earlier this year, Russell Herder, a Minnesota-based marketing research company, conducted a survey of more than 500 United States bank and credit union checking and savings account customers to ascertain if, and to what degree, loyalty to their financial institution is impacted by fees.

The bottom line, according to the survey: “The belief that a particular bank fee is unfair has a much stronger impact on consumer sentiment than the fee itself. In fact, as long as charges are perceived to be fairly assessed, the research showed no negative impact on consumer sentiment whatsoever.”

If you don’t believe these results, tell me how you feel about having to pay for your luggage when you fly.

It’s this miscalculation of the impact of these fees on the collective psyche that provides a fantastic opportunity for competing financial institutions. It offers a “bags fly free” type of marketing opportunity to gain market share and mind share of consumers just like Southwest Airlines has.

There are smarter ways to get more fee income from consumer checking customers than, in their minds, getting charged something and getting nothing. You have to be creative and not rely solely on traditional checking design and pricing, because these also face customer backlash given the value perception in customers’ minds anchored around “getting charged for using my money”.

But it can be done. Hundreds of banks are successfully doing this already and there are millions of checking customers gladly paying fees equal to or greater than what these big banks are requiring customers to pay for debit cards. Customers are willingly paying $5-$7 per month for benefits like local merchant discounts, identity theft protection and accidental death insurance (bundled with traditional checking benefits). These benefits provide tangible value to customers in terms of real savings and ample personal security. In other words, banks are simply asking customers to pay a modest fee for something that is perceived as and is valuable, instead of for paying something and getting nothing new for it in return.

Someone said “chaos creates opportunity”. And when it comes to consumer checking accounts, this is just the beginning of chaos that we’ll see as banks try to recapture lost fee income. For some of you reading this, it’ll be your “bags fly free” opportunity. For others that follow the lead of Bank of America, it’ll be just another reason for consumers to broadly brush banks as out of touch with their customers.

Which one are you?