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.