The customer service mantra is constantly chanted but would banks do better by being more honest about the trade-offs a business has to make? Brian Caplen looks into the situation.

Few are the conversations with bankers these days when the customer service mantra is not invoked. ‘All our efforts are devoted towards the best outcomes for our customers,’ they declare.

Yet banking, and commerce in general, is littered with examples of poor customer service and cases where profits took precedence over the needs of clients. 

In UK retail banking, the most spectacular example is that of the mis-selling of payment protection insurance (PPI), which led to total compensation paid to customers in the region of £35bn ($46bn). The attraction of PPI to the banks was that it boosted revenues and kept profits flowing, allowing them to put off the unpleasant task of attacking bloated cost structures.

On the wholesale side, the financial crisis revealed many situations where a trader’s bonus or the profits from a structured product were more important than delivering for the customer or investor. Fast-forward to 2017 and undoubtedly everyone in banking has learned a lot in the past decade and the current approach to customer service is much improved.

But the basics of business have not changed. There will always be a tension between giving a high level of service and keeping costs under control so that the profit margin comes in where it needs to to reward shareholders. Bankers are kidding themselves if they don’t articulate this trade off because customers understand it for sure.

Retail customers know that online banking is as much about cutting costs as it is about improving service. Small company borrowers whose credit line is suddenly pulled quickly realise that customer loyalty can be a lesser consideration than the health of the bank’s balance sheet.

These trade-offs will not disappear for all that bankers talk up customer service. Far better to have a mature discussion about the service quality that can be delivered at a given price and not to kid 'economy' customers that they are sitting in 'first class'. Better to be transparent as to how much each part of a service costs – as is being thrust upon some areas of banking by MiFID 2 – than to obscure things.

Customers may be beguiled by hype in the short run but in the long run they prefer a straight-forward approach. Bankers need to give their sales pitch a reality check every now and then.

Brian Caplen is the editor of The BankerFollow him on Twitter @BrianCaplen

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