By John R Wright
It really does beggar belief that a number of banks and financial institutions are again heavily incentivising the “acquisition” of new home loans.
Surely, the experience of the “noughties” would have caused them to move forward cautiously. The “behaviour” that this egenders is unhealthy and just breeds cynicism on the part of staff and customers alike.
Anybody who understands the true nature of personal banking knows that “retention” is the key element. Do any banks actually incentivise “retention” or give customers iPads for staying with the bank for 3-5 years? I very much doubt it.
“Retention” is the core element of profitability for personal banking. The longer one retains the core client relationship the greater the opportunity to “cross sell” or if one would rather put it in more delicate terms to “deepen the relationship”.
From a bank’s perspective the cost of going out incentivising staff, putting physical incentives in place for customers to acquire new business is up to nine times more costly than working hard to retain existing customers. The “churn” that incentivsation for acquisition creates is unhealthy and drastically expensive; why on earth can’t bank CEOs learn this lesson.
So, often for every home loan that is attracted through incentivisation one is disappearing out the back door to another Lender because of short term incentives. It simply is nuts!
The problem really then is “behaviour”, which I have written extensively on previously. Surely, the lessons of the past should be driving bank’s managements to encourage their staff to adopt an ethical approach where they might even contemplate promoting products that are actually in the best interests of their customers, having considered customer needs and tailored their offerings accordingly.
We can always dream! “Incentivisation” is at the root of the banking crisis that drove us pretty much to the wall in 2008/9. When this is extrapolated from the point of sale to the higher echelons of corporate and investment banking it engenders style and tone that are a million miles away from securing the safety of their customer deposits. This cannot be in the long term interests of shareholders who should now know better, having experienced the value destruction of the noughties.
One also has to consider why on earth the regulators are not all over this like a rash, after all we’ve been here before….. watch this space!
Of course, these comments do tend to draw attention to what has been happening in Europe and North America but banks in the Middle East Region have also shown considerable aggression in their selling and marketing so these messages apply to them just as much as they might to readers in other countries.
Glasgow-based John R Wright is an academic, veteran banker and a former CEO of Oman International Bank and Gulf Bank, Kuwait. The views expressed are his own.