Tuesday, October 27, 2009

Bank Admits Error, Customers To Benefit

It seems like I have been chastising the banks for years. Although they might seem to make easy targets, and criticism could even be viewed as a cheap shot, they have collectively done so much for so long to deserve it. The list of grievances is so long it can be hard to know where to begin, but unnecessary fees and charges come to mind pretty quickly. Then there’s the huge differential between the tiny interest rates they pay on transaction accounts and the huge rates they charge on credit cards. There’s the relatively relaxed pace at which they pass on interest rate reductions to home loan customers as compared to the unseemly rush to pass on any increases as quickly as possible. And of course, the perceived decline in customer service which has resulted from branch closures and the preference for automated banking.

But recently there have been signs of the big banks finally coming to their senses. After years of copping a caning for exorbitant fees and charges, the big banks have started to cut them back or even cut them out completely. It seems that they have finally heard the message that charging their customers for opening an envelope has been hurting not only their customers but their business. Now, something which previously appeared to be impossible has come to pass. A senior bank executive has admitted that closing branches over the last two decades was a big mistake. Peter Hanlon of the Westpac bank has said, “Closing branches has been a complete failure. We have closed branches in places we simply should not have closed them. This is an admission we made a mistake.”

Now, wait a minute! I could have told him that years ago. In fact, I did. Every time banks were in the news for closing a branch in a suburb or a small town, I told anybody who would listen that it was not only bad for the community, it was also a mistake for the bank. At a time when building societies and credit unions were working hard to increase their customer base, the big banks were literally throwing away the one thing that small institutions could not match. They were destroying the single point of difference that gave them a competitive advantage over the smaller operators. The big banks could offer customers a physical presence and face to face service in just about every suburb and town in Australia, and their competitors couldn’t match it. But through some sort of lunacy, they failed to recognize that unique competitive edge and just threw it away.

While it is tempting to say “I told you so”, the important point is that it appears that the banks are finally coming to their senses and realizing that it is not enough to simply talk about customer service in expensive and glossy television commercials, it is important to actually deliver it. At last, we are seeing the first glimmers of hope that banks might actually understand that looking after their customers is not an expense, but an investment which will show a return on the bottom line. Peter Hanlon is talking about people coming to respect banks and bank managers again, just as they once did years ago. It would seem that he understands that customers will be far more likely to give that respect if the bank first shows the same respect to them.

And who knows. If it works, perhaps it will catch on in other businesses too… like telephone companies.

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