I was both encouraged and perplexed by an article in The Wall Street Journal that described the internal debate at Bank of America over how to grow revenue. One side of the debate wants to charge new fees for basic services like checking accounts. And who do they want to charge? Their unprofitable customers who “typically have less than $50,000 in annual household income.” Those customers do little business with the bank, and Bank of America reportedly loses a couple of hundred dollars a year on them.
The other side of the debate wants to raise revenues by getting these unprofitable customers to buy more financial products from the bank — for example, get a credit card or buy a CD or take out a mortgage. If that happened, the problematic customers would generate enough revenue to become a money-making proposition for Bank of America.
If I were picking the winner of this debate, the decision would be easy. A growth plan that depends on extracting ever-increasing fee revenue from the very people who can least afford to pay it – for services that were formerly free – doesn’t seem like a growth plan at all. But getting a bigger share of those same customers’ wallets by selling them products that they’re going to buy from someone is a strategy that’s already working today for a bank that I’ll talk about in a minute.
The real question in this debate should be, how can Bank of America get its unprofitable customers to do more business with it? The answer: Provide a vastly improved customer experience — toe-dipping will not get the job done.
Fortunately, someone at Bank of America seems to understand the path forward and even started to go down it. The Wall Street Journal article provides this clue: “Researchers at the bank have spent several hundred hours over the past two months with customers, sitting in their homes for hours at a time and interviewing them about their financial habits.” That’s the kind of qualitative research that forms the basis of the customer understanding discipline. And even though doing the research doesn’t guarantee that a company will discover an innovative solution to its problems, it does move the odds strongly in the company's favor — provided it goes on to take action.
Why am I so confident that committing to customer experience can work for Bank of America in its efforts to turn a profit on its low-income customers? Just look at USAA, the bank with the highest rating across 13 industries in Forester’s Customer Experience Index, 2012. USAA retains 97% to 98% of its members year over year and had one of its best years ever in 2008 — when most of the financial services industry tanked.
In case you haven’t heard of USAA, it provides banking, insurance, and investment products to 8 million US military families. Even though members can keep on doing business with the firm after they leave the service — and even pass on the option to be a USAA customer to family members — USAA fundamentally goes to market based on the needs of military families. And you probably don’t need to be reminded of the fact that we don’t pay our servicemen and women a whole lot of money. In fact, the annual salaries of the highest-paid enlisted personnel with fewer than 10 years of service max out around $46,000, and officers at the lowest-two pay grades make even less for their first two years of service. That’s right in the ballpark of the customers that Bank of America hasn’t been able to make money on.
In our new book, Outside In, my co-author and I describe a broad range of financial services companies that apply customer experience discipline to transform their businesses. If the right side of the debate at Bank of America wins out, my hope is that it’ll learn from the examples of not only USAA but also the investment firms Vanguard and Fidelity as well as the Spanish bank BBVA (with an innovative CX strategy), the Royal Bank of Canada (with a great CX measurement program), Barclaycard US (with disciplined CX governance practices), and John Deere Financial (with a customer-centric culture transformation program). Both Bank of America’s customers and its shareholders deserve this fresh approach, and my guess is that the vast majority of the bank’s employees would cheer for it.