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.

New Debit Card Regulations ...Changes Abound

So if you are like me in the morning you have routine. My routine consists of ironing my shirt as I watch the news (yes, I iron my own shirt... and sadly, it is therapeutic for me) and then thinking about what the day might bring. With all the talk on financial reform I could not help wonder about how it would impact me. I have already heard that big banks are announcing the end of free checking. So what else might be lurking around the corner?

One area in which I think we will see some movement is on credit and debit cards. Have you ever had this experience... I went into a gas station (large gas station franchise) and went to the drink section to buy a soda. When I get to the register they point to a handmade sign that says "minimum purchase is 3 dollars" for credit or debit cards." Exasperated I look around and see a bin of candy bars that says "two for 3 dollars" so I grab two candy bars and my drink and they gladly swipe my card for 4 bucks and some change. [Note: The worst part was they had put all the unsold old nasty candy bars in the bin but I didn't realize it until I was 30 minutes down the road.]

For most of us that experience might become even more familiar as, now with Congress’s blessing, they can make that a standard practice as long as the minimum is not more than $10 bucks. Merchants are free to offer discounts to people who opt to pay cash instead of using cards. The irony is that I hardly ever have cash so the discount for me is a zero win.

Luckily, merchants will not be allowed to give discounts based on which bank issued the card you are using. Why is that good you ask? Glad you asked. The bill gives the Fed the right to set a limit on the fees that stores must pay to accept debit cards which is called interchange. The law in its intent to focus on the big banks states that only banks with more than $10 billion in assets would be subject to the cap. So that's a good thing right....well not so fast.

Consider the downstream effect merchants may have to pay more to accept debit cards from smaller community banks or credit unions than big banks like Wells Fargo or Citi. If that happens it is only a matter of time before some stores might be tempted to offer discounts to people with big bank debit cards. It is not a stretch of the imagination to picture small retailers gladly accepting cards with the names of big banks that they recognize and then asking shoppers with cards from small credit unions or community banks to use cash or some other card. Net effect? I am forced to use a credit card from a large bank with an interest rate of 20-25 percent instead of my card from my credit union that only charges my interest of 9 %.

Another fear is that big banks will immediately use their clout to pressure Visa and MasterCard to lower merchant fees for all debit cards, not just the big banks’ cards. Now this is where it really starts to hurt...as smaller institutions like a credit union now have to absorb those losses in revenue while still competing with the bigger pockets of the large banks.

No matter what the intent was I can't help but feel that we will all face some unintended consequences of the recent changes.

Business at All Cost - Has Become Too Expensive

Over the years I have found that one of the hidden treasures in life is having a connection to the communities you are a part of. Communities can provide a source of support and strength in times of challenge and difficulty. We all anticipate some of the common life events that many of us pass through: graduating from school, first “real” job, first dates, buying a car, buying a house.

Yet, these events come with others that are not anticipated and we find it comforting to be able to reach out and ask for some advice from those we know and trust.

I think that is why so many people were shocked to see the CEO of a large oil company out sailing his yacht when the Gulf of Mexico and countless communities were still facing life changing peril. I guess in times of stress people sometimes run to the things that help them cope and for this leader it was his yacht.

What seems so terribly sad to me is that the people of one common community are counting on the focused leadership of this man to lend support and his undivided attention to getting the matter resolved. Yet, he has run back to his community, which is far from the Gulf Coast, and just wants to get his life back. Sadly, so do countless others in the Gulf Coast area. I grew up on the Gulf of Mexico and recall seeing the fishing boats head out at the start of the season so to me seeing the harm that has come their way is heartbreaking.

This whole tragic turn of events has reminded me of the Wall Street Meltdown. It is easy to see the similarities- top executives making decisions on events that happen in communities in which they don’t live or even plan to visit. Whether it was putting people in subprime loans (that everyone knew they could not afford) or sacrificing quality to make a faster profit (as is alleged in the Gulf Coast tragedy), the results are the same – people in a community suffering because of the actions of some distant executive. Sadly, it is so easy to see how someone in an office so far away fails to see anything other than the report that is right in front of them.

Yet, how do you describe a community on paper? How do you write about the people that come into the local breakfast dinner in the morning and all they have to talk about is bad news? How do convey to the corporate board room the challenge families, who work on the Gulf Coast, face as bills arrive with every trip to the post office. That sense of despair is not easily seen on a budget line item.

How do you teach community to a generation of business leaders? How do you get them to think beyond how they can make money off their efforts? Until we can get people to get out of their offices in some far away community and come see how people live in another community then we will always be waiting for the next disaster. How many collapsed mines, exploding oil wells, and Enron accounting scandals do we have to face before we demand more from the businesses that operate in our communities?

Business and making a dollar no matter the cost has become too expensive.