What Business is Your Bank In ?

I recall being in a class with other business leaders and the instructor stated, “Character is what you do when no one else is looking.” In the aftermath of the Wall Street meltdown and corporate bailouts I wonder if that definition is still appropriate. What exactly is the character of a company? It has to be something beyond the corporate spin and public relations messages that are broadcasted to the masses.


I mean prior to “The Spill” in the Gulf of Mexico one would have thought that some oil companies were anything but oil companies. One oil company had launched a 200 million dollar public relations campaign designed to position its brand as “Beyond Petroleum” with a new sun burst logo. It focused consumer attention on the output of its small solar operation while it appears to have cut corners in other more less obvious places.


The same thing happens in banking. Already Wall Street firms are back at making record numbers while Main Street America and small business owners find themselves frozen out of services and loan opportunities. This week a large BigBank announced that it was closing its subprime sales channel and eliminating thousands of jobs. The question is why did they have that sales channel to begin with? We can all understand why they should close it; nobody should build a sales channel that focuses on making risky loans for high interest return.


Today much of the media is focused on consumer advocacy and many BigBanks are scrambling to reposition themselves. There is a saying that I had heard that Joe Frazier had once stated, “You can map out a fight plan or a life plan. When the action starts your down to your reflexes. That’s where your road work shows. If you cheated on that in the dark of the morning, you’re getting found out now under the bright lights.”


Financial institutions are like people they do have a character or culture. They either are truly consumer focused or not. If they fake it when no one is looking they are discovered under the bright lights. Great financial institutions go beyond profit margins and balance sheets. They create and sustain positive impact in the lives of the people they serve. They are more than slick ad campaigns.


Practical Application:


What business is your financial institution in?
Are they in the business of improving members financial lives? 
If not isn’t it time your members belonged to an institution that was in the business of helping them become more financially secure?

Big Bank Credit Card Rewards and Slick Ads

Ever wonder if everyone has a favorite commercial? I remember having a favorite commercial many years ago when my wife and I were searching for a name for our first child. It was during the time when the Pantene Shampoo commercials were on the air with the super attractive actress or model doing the Hollywood hair swoosh. Did the commercials work? Actually,I would say, "Yes" as they had an interesting effect on our family.

One model stood out and like many people we asked, “Oh, who is she?” [Interesting note: over a decade later you can Google Pantene commercials and still see questions posted of people asking, “who was the actress in the Pantene commercials?”]As it turns out the actress was named Hunter Tylo and we decided that Hunter would be the name of our soon to be born daughter. Luckily, time allowed for some additional perspective and “Hunter” became her middle name.

Today as consumers watch commercials on financial institutions we often see humor or lifestyle commercials aimed at getting our attention. The goal is to paint a picture they want us to see. Consider credit card reward programs. Why are they giving us something additional? Is it because they have decided that they make too much on the card and want to give you something back? No. BigBanks aren't giving you rewards because they like you. With one hand they give you small rewards while their other hand is collecting much more through fees and interest.

Many people sign up for rewards programs thinking that they will just pay off their balance each month and then sit back and enjoy the “free” stuff that will be coming their way. A small percent of reward program users don’t carry a balance each month and reap the perks of the program. However, another significant portion of the program users do carry a balance and that is where “free” no longer remains “free”. The lesson that “free” doesn’t always mean “free” is a lesson that I can attest to from my own personal experience.

I recall years ago as a newly married couple my wife and I belonged to card reward program. Like many young married couples we had no real clue of how to manage our personal finances. So a reward program seemed like a fantastic idea. We consolidated all our cards onto one card…triple points for balance transfer! 

We made the monthly payment each month and when the statement arrived we went straight to the points section to see how many points we had received for the prior month. I recall us being so excited when we had reached ten thousand points. We were now 2^nd tier on the rewards grid. We huddled around the computer looking at all the “free” things we could get. We were practically dancing as we ordered a phone with a build in answering machine! [note: in 1993 that was a cool thing to own]

A few months later I switched jobs and started working at a BigBank. I learned about interest rates and the impact of compounding interest. I realized ten thousand points was a ten thousand dollar balance! I looked at how much interest we were paying each month and realized I could have bought three or four phones for what we were paying. Now after almost two decades of working in financial services I think the ad tag line, “what’s in your wallet” is probably one of the saddest inside industry jokes out there. How much are you paying in interest? Paying over 15 percent, 19 percent, 30 percent? 


Practical Application:

Don’t let your members be fooled by slick ads shot in black and white, with an attractive and financially successful looking middle-aged couple. Don’t let your members buy the lifestyle hook being presented that suggests, "If you bank with Big Bank, your life could be like this." We all know that the odds are banking with Big Bank will not make your member look good in an open backed dress. However, I do agree your members should know exactly what’s in their wallet.

Hollywood Make Over for Big Banks

It was one of those moments in which you just groan inside. I had insisted on going to see a new movie that was based off of a cartoon my children and I watched together. I can’t be the only parent who uses their kids to justify the shows they watch…ahem all the dads who take their kids to Hannah Montana or Moms taking their daughters to Justin Bieber concerts. I digress.

Sadly, though in the case of the movie the director had taken the superficial elements of the TV show and added millions of dollars to amp them up. So the movie had tons of special effects, panoramic vistas…and none of the dialog or humor of the TV show. Let’s just say it lacked "substance".

Recently with all the regulation changes that have taken place in financial services many large banks are trying to remake themselves as well. Like a bunch of wolfs that are all reaching for a new sheep costume they have grabbed at the superficial and thrown big marketing budgets into special effects while ignoring the "substance" of the dialog itself.


Why did we have financial reform in the first place? Anyone remember headlines of billion dollar credit unions threatening the global economy? No…odd me neither. I find it sad that in the passing of new legislation the new rally cry from large banks is that they are going to do away with free checking. It reminds me of someone not liking the rules and deciding that since the rules are changed they are going to take their stuff and not play anymore.


I think one of the most blatant examples of this has been the commercials from a recently converted bank that show a TV announcer talking to a child sitting at a table.
“Would you like a pony?”  the "TV announcer"man asks her innocently.
"Yeah,” she replies.
The man then hands her a small toy pony and she bursts into a giant smile.
The "TV announcer" then turns to a second little girl, asks if she wants a pony, and she says yes.
The man then clicks his tongue and a real pony comes out.
The first little girl gives a look that could kill and says, “You didn’t say you could have a real one.”
“You didn’t ask,” the TV announcer man replies smugly.


The irony ...the bank converted to bank status to receive TARP money after booking billions of dollars in sub prime mortgages. Like the girl in the commercial many people will not realize exactly what questions they should be asking of their banks.  


Practical Application:

As more “Big Banks” look at the new legislative landscape they are going to try and do a Hollywood makeover.
They will add more of one thing (wow…nice dividend for your shareholders…38 cents for preferred share) but it will be at the expense of something else… yep, that "Stagecoach from the West" is leaving and is taking your free checking with it.
At the end of the day a Big Bank can’t remake itself into anything other than a Big Bank…lots of hype…little substance.