Is the Banking Business Model in for a Shift?


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You may have noticed Ally Bank, Discover, Chase, and others promising a computer-free, and, in some cases, foreigner-free customer service experience. Discover card is moving customer service to Utah. Chase promises that you will get a person not a machine on the phone.

Let’s call this an attempt by the financial services industry to win customers with an improved customer service experience. These changes dramatically increase the cost structure of the banks- human attendants vs. free machines and higher-paid U.S. workers vs. Indian or Pilipino.

Clearly, the logic behind these changes is that customers are fed up with machines and bad customer service and that fixing it will yield additional customers. Will this happen? Let’s explore the potential options:

  1. Financial institutions have continued to wring cost from the system to the point of excess. By correcting the over-swung pendulum, customers will migrate to the innovative companies that are improving service.
  2. Financial institutions removed service cost to benefit customers. The cost of customer service exceeded the benefit perceived by the customer. Customers may not like dealing with a machine or someone speaking Chinglish, but it beats increased fees. If this is true, the increased customer service offered will have little effect as consumers vote with their wallet. After all, the credit card will still work even if customer service stinks.
  3. There may be a hybrid business model available. Cheap, automated, and inexpensive customer service for one set of customers and more expensive service for others. Airlines, banks, and retailers already do this for VIPs. Perhaps a business model with another tier of quasi-VIPs could be created from customers willing to pay a bit more for better service.
  4. Is there an opportunity to go in the opposite direction? Could even less customer service provide an opportunity? This is probably the least attractive option, but there are probably customers saying to themselves, “Why do I care about better customer service, I haven’t talked to anyone in twenty years?” Could a bank use a business model that lowers the bar on customer service and find a niche?
  5. Increase the Americanizing of the off-shore customer service. Is the issue that Americans simply don’t like dealing with foreigners or that they cannot understand them. If bank customer service was off-shored to the United Kingdom, would there be an issue? One could make an argument that the significantly lower cost of operating offshore could justify American dialect, culture, and language classes. Banks could heavily screen all employees and refuse to put anyone on the phone if they could not have an excellent understanding of U.S. language and culture. My instinct says that American’s issue is a language one, not a disdain of foreigners.

Which of these options do you think is best? It will be interesting to see the outcome of these bank initiatives. These institutions are doing all businesses a favor by helping us answer the question, “Will customers change vendors or pay more for better customer service.”

Do you think customers will pay more for better service from their bank? Does this alter the banking business model?

Republished with author's permission from original post.

Jim Muehlhausen
Aside from his books "The 51 Fatal Business Errors and How to Avoid Them" and "Business Models for Dummies," Mr. Muehlhausen has been published in various publications including Inc., Entrepreneur, The Washington Post, MSNBC, The Small Business Report, The Indianapolis Business Journal, Undercar Digest, Digitrends, and NAICC Journal.


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