The Fourteenth Banker Blog

January 10, 2011


Filed under: Running Commentary — thefourteenthbanker @ 7:26 PM

I just want to share a simple concept that underscores the nature of mega-banking today. For years the banks have suffered from significant customer attrition, that is, customers that leave. Years ago this was a matter of some concern.

However, in the 2000’s, the largest banks achieved dominant distribution and scale advantages which, along with the TBTF cost of funds subsidies, made business production relatively easy. Now, I am not commenting on the quality of much of that business. I am just saying it could be acquired, revenues booked, and bonuses paid.

So while the actual figures would differ at each bank, let’s say you acquire new retail customers equal to 30% of your book and lose customers equal to 20% of your book.  That would be a net gain customer gain of 10%.

Here’s the kicker. If you could bring that production in, but focus the customer attrition on the least profitable customers, you could grow earnings at more than 10%. Voila, lots of book profits to pay bonuses on. Once you squeeze the maximum profits out of a client, if there is not much else to be had, you just treat the client poorly and if they leave, so what? Retention efforts are focused on the highest monetary value clients and the rest are left to mostly self-service through what are called the “least cost” channels.  These are internet, offshore 800 numbers, and getting shuffled away from overworked branch staff.

The customer has no value as a human being, but is just an economic widget.  So if you feel widgetized, it was probably intentional.

Why do I bring this up today? I have some accounts at a bank and would be a reasonably profitable customer for them. Occasionally I try to change something to simplify or optimize or to set something up for my kids. Every time I do this, once a year or so, my “packaged account” gets modified and somehow one of the accounts is left out of my list of free accounts. Then I get hit with a fee. It is the systems that do it. I either have to go to great trouble to get a refund, or just live with it. So if I, probably in the top 20% of their retail customers as far as balances go, experience this, I hate to think what happens to the other 80%. I suppose they have the same problems but can’t get the refund at all.



  1. Me, I’ve been doing business with credit unions for decades. If one picks them carefully (they are not immune to the corruption) they do a better job on almost everything except safety deposit boxes.

    Comment by The Raven — January 10, 2011 @ 8:43 PM | Reply

  2. Recently, I have had a similar problem with a TBTF. Despite having a package, I keep getting hit with a fee. I have to call, wait on hold to have my issues dealt with. It is getting old.

    Comment by ella — January 11, 2011 @ 8:41 AM | Reply

  3. Banks now offer a service to pay your bill. Once you click the pay button, after you provide the receiver’s information, your money leaves your acount in a second. Now your bank actually have your money in its account. Often times, it takes 2-3 weeks for the receiver to get the check from the bank. Do you think the bank is using your money to make short term profit for themselves during this period of 2-3 weeks? I am sure for TBTF banks, there are hundreds of thousands such transaction at at given days, amounting tens of millions to hundreds of millions of dollars.

    Comment by epijj — January 12, 2011 @ 3:58 AM | Reply

  4. I’m going to go extremely philosophical here, so bear with me. Presence of abusiveness in one’s life is a symptom of excessive attachment to material comforts. Excessive attachment causes fear, which then can be easily manipulated…..even by people close to us.

    What does it have to do with banks? TBTF and their attitudes today are a perfect example of the presence of abusiveness in our society. We as a whole will need to overcome our fears and our attachment to the little security that this abusive relationship provides us. That’s the start, the recognition of abuse. I believe America has done that. I don’t think we Americans are in the dark about the presence of these dark forces any longer.

    The next is the appearance of an alternative. We’re not there yet, as Raven said ” they are not immune to corruption”, which is true. We right now don’t really have viable alternatives to the little security that the TBTFs provide. BUT, they are starting to emerge. And this is where I think TBTFs will go wrong, just like the abuser in a relationship they are now unable and unwilling to see their role in the abusiveness. It is clear from the way Jamie Dimon was arguing on his earnings call about any and every concern that was being raised by the analysts. He mentioned how unemployment and reduced housing prices were going to affect future prospects, but forgot to say a word about what the most powerful bank in this country can and will do to change that. He mentioned how American banks must take a leadership role in Global Banking, but forgot to mention what kind of a leadership role will JPM take in healing the broken relationship it has with it’s long time spouse……American Citizens.

    Alternatives are starting to emerge, there are loads and loads of online companies that are coming up to compete with the business that TBTFs are ” not really interested in” or ” are prepared to loose”. What they are underestimating is the noble intentions that these new entrepreneurs have and what the power of nobility can do. Because all those upper middle class folks who are now flirting with low middle class status and those low middle class who can now safely call themselves poor or the poor who are now homeless, they are a big number and their collective intentions will show up as the demise of TBTFs.

    There does come a day in the life of every abuse victim, when the disgust with being abused surpasses the little security that the relationship provides and that’s when one creates an Alternative that’s better and healthier and holistic.

    This is America and we are Americans!!! I really think that all those who have written American Innnovativeness off will be surprised. Taking back our dignity might take a decade but it will happen.

    Comment by Vocal banker — January 15, 2011 @ 1:19 PM | Reply

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