by Martin Lariviere
The financial crisis was just that, financial. The root cause of the crisis did not generally lie in operations. Now, however, the federal legislation overhauling financial regulation is forcing major operational changes at a large bank (Bank of America Branches Sit On Front Lines of Overhaul, Jul 16, Wall Street Journal). Bank of America (NYSE:BAC) gets half its revenue from its consumer banking arm so limits on overdraft fees and such threaten an important part of its business model. (B of A “earned” $6.8 billion in fees and service charges last year.) So how has the bank responded to the challenge? By rethinking how it trains its people and runs its branches.
As Congress began debate on the bill, Bank of America executives scrambled to retool the bank’s consumer operation ahead of the expected changes. That ended a tense internal debate over whether to drop an array of hidden fees and retrain employees to sell differently. Some executives, concerned about how the bank would replace that revenue, were reluctant to move quickly.
Brian Moynihan, a top executive who became chief executive on Jan. 1, argued that the bank should get ahead of the legislation. One sign of the bank’s realization that a shakeup was inevitable came earlier this year when it reversed a decision to raise credit-card fees before new rules on rates went into effect, people familiar with the situation said. …
As the likelihood of the bill’s passage grew, Bank of America began retraining employees in its 6,000 branches.Until this year, branch employees received 100% of their incentive compensation based on the number of new products they sold. The payout has been cut to 30%, with the rest based on customer satisfaction, persuading customers to use ATMs and other cheaper channels, customer retention, and the attentiveness of employees to training and other factors.
These changes are showing up in a variety of ways. On the one hand it is putting greater emphasis on customer service in its branches. It even has a “catchy” acronym GUEST (G is for genuine welcome, U is for undivided attention, and so on). At the same time, it is altering product offerings to keep customers out of its branches. It will have a new account that will be free if you only use ATMs and online banking for basic transactions but will cost about $9 bucks a month if you dare to ask a teller to take a deposit. (Wells Fargo had a similar account for students when I was in grad school.)
I am doubtful whether all of this will pay off for B of A. I think that they were right to get in front of changes as opposed to fighting them. Significant new regulation was pretty much inevitable and rearranging deck chairs will only get you so far. On the other hand, banks seem to have been talking about wanting a deeper relationship with customers for years so I do not see how this is all that different.
I am also not sure how often even heavy users come into branches and how they will experience these changes. I spent three summers working as a bank teller. The bank I worked for had ATMs but they were not as heavily used as they are today; we still had a lot of people coming in and cashing checks. The only people who the tellers knew by name (outside of friends and neighbors) were those from local businesses. We all knew the lady from the hardware store who came in every afternoon to make a deposit but not the random guy cashing a check. Indeed, some customers would pop a fuse when you asked for an ID. Sure an IT system that pulls up customer information could help personalize the service but I don’t see how this is easily going lead to new business — and that is what they need. They have to replace lost revenue. Defensively holding onto customers through friendly service is good but that will not make up the revenue.