This week, Dallas Wells interviews Joe Bartolotta, the EVP and Director of Strategic Partnerships at Eastern Bank in Boston, MA.
Dallas: Welcome to another episode of The Purposeful Banker, the podcast brought to you by Precision Lender where we discuss the big topics on the minds of today’s best bankers. I’m your host, Dallas Wells and thank you for joining us.
Today, we’re going to talk about how growing customer loyalty can help you grow your bank. That’s actually the title of the talk that our guest, Joe Bartolotta of Eastern Bank gave recently a Bank Director’s Growing the Bank Conference. We had several folks in the audience and we immediately thought hey, we need to get that guy on our podcast. Fortunately, Joe, who’s the EVP and Director of Strategic Partnerships at Eastern accepted our invite. Joe, thank you so much for taking the time to do this today.
Joe: Thank you for having me. I’m looking forward to it.
Dallas: You began the talk that you did at that conference with what we thought was a very interesting story, an anecdote or a cautionary tale about the effect that poor customer service can have on a bank’s bottom line. Would you mind retelling that story?
Joe: Sure. I’m happy to. Several years ago, we began sending surveys to people who had closed their checking account because we were obviously interested in learning if there was systemic service issues that could be fixed to improve our retention rate. Almost immediately when we asked, “Why did you close your account?” we heard this in response, “I didn’t close my account. You did.”
Our core charges us based on the number of accounts in our system. We initiated a dormant account fee to encourage people to close inactive accounts. What happened was that fee was slowly draining what were typically low balance accounts and when the balances hit zero, we then close the account. This fee which generated a few hundred thousand dollars in income for an operation that generates $450 million in income annually was causing tremendous damage to our reputation undermining our loyalty because these customers, this wasn’t their only account. This was one of several accounts they had or loans, what have you.
What did we do? We didn’t eliminate the fee because we didn’t need to. Instead, what we did was we made it more visible in our disclosure. We drew attention to it. We did something else that was critically important. Before the fee began, we began sending our customers letters letting them know they were about to incur the fee so call us so we can consolidate their account with another or just close it out for them completely. It was the bottom line and we know this intuitively, customers in any industry are willing to pay any cost that they believe is fair. Customers in any industry don’t like the sensation of being nickled and dimed.
Joe: Right. Yeah. It’s really about transparency and meeting expectations.
Dallas: It’s really about that difficult to quantify formula of fairness, right. What is fair? I think most people understand what it is. Exactly what it is, when it can be applied, there’s some margin for error in there, [basically 02:56], was not the way to go about doing it. People wanted to be notified in advance. We began notifying them in advance and it worked out just fine.
Joe: Where are some of the areas in which you see the banks most frequently fall short when it comes to customer service? With that example as the jumping off point, what are some other things that you see happen?
Dallas: I think it typically boils down to one of three different categories, revenue as was the case with that last one, bank think, which I’ll explain a little bit, and then communication, which is tied to the first story I told.
In regards to revenue, the fees that I find most reprehensible, I think the fees that anger your customers the most are those for services that it costs the bank virtually nothing to provide. For example, automatic transfer from a savings account to a checking account to avoid overdrawing your account. It’s electronic, doesn’t require any work, once it’s set up, it runs on its own. That’s easy.
Researching, going back five years and having your staff spend time going through old files, digital files to find statements or other information you need for some purpose in your life, that they understand. They could’ve kept the statements, they didn’t. They need to turn to us, they pay us an hourly rate in order to find whatever they need and we’re providing value. In this case, however, when you’re talking about automated services, I think that’s really a category in and of itself.
Bank think. This situation occurs when we allow our risk management practices to seep into everything we do. First, let me say that risk management is critically important.
Dallas: However, it needs to be compartmentalized. Here’s how it manifests itself in areas where it doesn’t belong. New checking incentives, because we don’t like to lose, we in the industry don’t like to lose, we practically place ourselves into convulsions trying to prevent a small number of people from getting a $10 folding chair or a $25 cash bonus when they have no interest in becoming a checking customer.
What do we do? We add layers of bureaucracy to a simple reward process. The conditions we apply often prevent the majority of new customers from instant gratification, which as I put my marketing hat on, is so critically important to the welcome. Here’s your chair or we deposited $25 into your account.
We need to think about it differently. We need to recognize that there’s a small minority of people who are going to get a chair without being a customer. Here’s how to deal with it. Say 10% who open a new account have no intention of maintaining it. Pull the cost of those chairs into the cost-benefit analysis, i.e., each new account really costs you $11, not $10. People want instant gratification. Give it to them. Don’t worry about the small number of people who are going to take advantage of the system.
Dallas: That brings me to the last one, fine print in communications. Banks don’t realize how easy it is to avoid fine print by doing one of two things, either remove the word or phrase that’s triggering the fine print. For example, [it’s not 06:04] free, don’t use the word free. Another example is if you don’t need to place conditions on getting somebody a $10 item for opening up a new account, great, you just eliminate all that disclosure, all that fine print.
The other option you have when it comes to fine print in communications is to place the fine print, [usually 06:24] disclosure into the body copy. Simply make it the same size of all the other printed material. Don’t make it small. If you must use it, and it’s a regulated industry so, it’s going to be hard to eliminate it all together, but you end up with some disclosure in there, just don’t make it small type.
Dallas: Yeah. Who do we think we’re fooling when we say free checking asterisk and put that in all the marketing messages and people look at that and without reading the fine print, they’re like, “Yeah, I know what that is.”
Joe: Exactly. It turns people away. Not only will people not open those accounts, but then, you’ve damaged your brand by putting that asterisk in there because now, here it comes again. What’s the catch?
Dallas: Yeah. One of the things you said as you went through the three things there, we talk a lot about pricing and how pricing should do a couple of things, reflect your appetite for the behavior and really think about how it’s communicating to the market place. In your example of charging for those electronic transfers, what do banks want to do? They want to move customers to those self-serve electronic channels that as you put it are almost free. Why would we charge them for that? Push them away from those channels that we’d love for them to use and instead, we charge a punitive fee just to try to get some of that non-interest income flowing.
Joe: I couldn’t have said that any better so I’m not going to charge you.
Dallas: Here’s another concept that we’ve talked about, a related thing. Let’s hear your argument for why banks should have a chief customer officer.
Joe: All right. I think it breaks down … Again, I’ll use the rule of three, right. Successful banks are supported by three pillars, financial management, risk management, ability to serve the customer. Banks have a chief financial officer. They have a chief risk officer. Maybe a chief credit officer, maybe both. They need a chief customer officer, too, because we’re in the business of serving our customers’ financial needs. It’s not any less important than having a CFO or a head of risk management.
The role of a chief customer officer could be or should be really to create a constant focus on the customer as it relates to what the bank does. This is your ombudsman, but it’s more than that. It’s also somebody who oversees the collection and distribution of customer satisfaction metrics. It also be the ones to remove the silos that exist, particularly among business lines that prohibit a holistic approach to serving people.
We really need to move away from this, that account isn’t profitable and focus on this, that ideally that household is profitable or that person is profitable. Too often, we look at it by account. That’s not the way to do it. Think about it [inaudible 09:35] we want the person to have multiple products and services with us. Holistically, what is the bottom line? What is the profitability? How are we serving that customer? Those are just a few examples.
I would argue that if you take the CFO’s job description and the duties of the finance department, you replace the word chief … instead of making it chief financial officer, you call it chief customer officer. You take the roles of finance into department as roles and you apply it to a customer department. It’s a remarkably similar approach. Finance isn’t responsible for every dollar. It sets expectations for the organization, which then each department is expected to live within its means or to deliver on its revenue projections for the year. Same thing with the customer. Everyone’s job is finance. Everyone’s job is serving the customer.
Dallas: Yeah. I think the real value of putting a person there with a C level title, it’s a similar concept. We talk about a chief pricing officer and I think it’s a related struggle in that those are cross-functional things. Pricing touches all different parts of the bank. Customer interaction touches all different part of the bank and so, it’s being able to cross those boundaries between the silos that naturally form so that you can give that customer a consistent streamlined experience with the bank, instead of with all these choppy experiences between the groups, even all the way out to that holistic view of that customer. A lot of the banks we talk to, they struggle to get that data all in one place. What do we have with this customer and what’s it worth? Those are bridges that have to be crossed and it takes somebody really pushing on that constantly from that perspective, from how do we engage with that customer across the platform and how do we make that better. I really like that idea.
Joe: As do I. Just to touch upon one thing that or just to refer back to one thing you touched upon, how do we get our arms around that data, that is the … We have all the data, right.
Joe: We know so much about our customers, yet our ability to put our arms around it and not use it in a way to predict the next most likely product to buy, which some try to do. Think about it a little bit differently. How can we serve them better? That may result in a new product. It may not, but what it will engender, however, is loyalty and at the end of the day, that’s what we’re trying to generate. We’re trying to generate loyalty. Loyal customers are ultimately happier, more profitable, long-term customers who are more forgiving of any mistake you may make and less apt to distance themselves or run to the nearest disruptive technology that’s [crosstalk 12:23].
Dallas: Right. Yeah. You gave a couple of examples of how banks are going the wrong way about creating that loyalty and actually doing more harm than good. What are some examples where you see banks that are really … ? What are some actions they’re taking to really build that customer loyalty?
Joe: It can be little things and if I can, I’ll [talk about 12:41] my own bank …
Joe: … which has employed a few successful tactics and is always on the lookout for other ways to improve our customers’ experience. Eastern Bank has done little things such as this one. On our customer’s birthday, we send our customers an email letting them know that in honor of their birthday, we’re making a donation to a nonprofit called Birthday Wishes, which provides birthday parties to kids in homeless shelters.
The feedback we have received from that has been stronger than anything else we have ever done. People feel great. One customer wrote, “To know that homeless child will receive some joy on their birthday is remarkably touching and equal to any gift that I could possibly receive today.” That sentence is something I keep on my desktop here on my computer because it reminds me of what we’re capable of doing and bringing that level of joy to customers with something as simple as making a donation in their honor.
Dallas: Yeah, and it’s really about an experience, instead of just something else they’ll throw in the trash with your logo on it.
Joe: All banks give back anyway, right?
Dallas: Sure, right.
Joe: Why not [from the 13:55] customers? Why not do something in the honor of the customers as opposed to showing up with a big check?
Dallas: Yeah, yeah, makes sense.
Joe: Beyond that, one of the other things we do is whenever we have a discussion on an important topic, our customer experience manager will often bring the “customer chair” to a meeting, a chair with the word customer written on it so that we can figuratively bring the customer into the conversation, so that we can point to the customer as if they are there. Believe me when I tell you it changes what people say. It changes how people think. Now, we didn’t create that, the customer chair, but we know a good idea when we hear it. We certainly welcomed that one.
Here’s some other good ideas. Huntington Bank in Ohio, it’s got a 24-hour grace period for overdrafts. In other words, you overdraw on a Tuesday. That Tuesday night, late that night you get an email from Huntington notifying you that you’re overdrawn, but you can avoid the fee, $30, $35, whatever it is, if you put your account into the black by end of business day on Wednesday. Now, here’s why that’s great. We all have chronic overdrafters, people who have low balances and overdraw several times a year. That’s not who this is helping.
Joe: Those people, we can’t save them from themselves. However, there are otherwise solid customers who for some unknown reason made a mistake in their balance, thought they had more money in there.
Dallas: Yeah, forgot to transfer or whatever the case may be.
Joe: Forgot to transfer and got hit with a fee and when they see it come across, they are mad. Inevitably, they call our call center or they a call center, any bank’s call center, and they complain. You know what we do?
Dallas: We waive it, yeah, yeah.
Joe: Exactly, exactly, but you know what, that customer is still … It makes them feel better, but they’re not 100%.
Joe: Because you still with all the technology you have, you still couldn’t avoid that good customer from getting hit that one time. That’s why I think that the grace period that Huntington Bank employs is just brilliant.
Dallas: Yeah, I like that idea.
Joe: I’m also [crosstalk 15:57] Frost Bank in Texas, theirs is more of a communications … They do a lot of things really well. One of them is they have a pamphlet, a manifesto of sorts called what Frost believes. It’s a simple brilliant outline of what it means to do business with Frost, whether you’re a customer or an employee. It says we will not put anything in this size print, and it shows fine print, that we wouldn’t say in this size, and it’s showing normal size print. It talks about what it is to do business with them and it is a code they live up to and it is code that is different than a lot of other banks. You know what? Frost regularly has the highest satisfaction rating in the country according to JD Power and Associates. Guess what? It doesn’t offer free checking.
Joe: In fact, they are among the highest in terms of highest percentage of customers paying a fee, yet they also have the highest satisfaction in the country about their fees and the reason is they’re upfront about it. They tell you that it’s coming.
Dallas: Yeah, and they’re providing value for that fee.
Joe: Exactly, they do provide value. Their service is excellent. You need to be upfront about fees and Frost is, and you provide value in the form of outstanding service. People pay for value.
Dallas: Generally, when we talk about customer loyalty, the tendency is to think retail banking. That’s at the top of everybody’s mind and it’s where we have the most interactions just number-wise. Can the same lessons be applied to commercial banking? Can those commercial type accounts, be they deposits and loans, can we treat those the same way and build some of that same kind of loyalty?
Joe: I consider commercial banks to be the leaders in service. They’re among the best when it comes to providing service and generating loyalty. We’ve often heard it said how do you build a commercial bank? You hire successful commercial bankers from your competitors because their customers will follow. The reason why the customers follow is because they follow the banker, the one who is taking care of them. The other rules, the rates, obviously, interest rates matter whether it’s on deposits or loans.
Joe: What they really want is knowing that banker is available to them. I believe that commercial bankers set the tone for what the rest of the bank should be able to do. The best commercial bankers are attentive to their customers’ needs, are upfront about rates on deposits and loans. They bring in colleagues from cash management to assist with specific programs, make sure they provide real value.
Here’s another example, again harking back to my bank, Eastern Bank. One decade ago, we bought an insurance agency. In addition to bringing cash management, wealth management and international banking expertise to our commercial customers, we’ve got insurance pros in our commercial insurance lines of business who were able to step in to assist. Again, it’s another example of how a bank can provide value. It also underscores the importance of it’s not about one loan, one deposit. It’s about a holistic approach to serving the needs of a customer. We do it well on the commercial. Banks tend to do it well on the commercial level. They can do it on the consumer level as well.
Dallas: Yeah, and that basic concept of somebody taking some ownership of that relationship with that customer and really, they don’t have to know all things and be all things. They just have to be the quarterback of that relationship and pull in the resources as needed to make sure that the customer gets what they need.
Joe: Perfectly said, the quarterback of the relationship. They don’t need to have all answers, but they need to be able to get them really quick and to be able to use the organization’s resources in order to help their customers. Those resources exist on the consumer side as well.
Dallas: Yeah, absolutely. Joe, I think that’ll wrap it up for this episode. We really appreciate your time and we love to have on successful banks like Eastern and forward thinkers like you on to share what you’ve learned and the things you’re seeing, and valuable for us and hopefully to our listeners also. Really appreciate the time.
Joe: Thank you for having me. It’s been a real pleasure being with you.
Dallas: Good. Also, a big thanks to everybody for listening. We’ll provide links to a few resources in the show notes for this episode. You can always find those at precisionlender.com/podcast. If you like what you’ve been hearing, make sure to subscribe to the feed in iTunes, SoundCloud, or Stitcher and we’d love to get ratings and feedback on any of those platforms. Thanks for tuning in. Until next time, this has been Dallas Wells and you’ve been listening to The Purposeful Banker.