Tuesday, March 30, 2010

Banks - win a credit card dispute and lose brand integrity

Many of my discussions are about how financial institutions can improve their processes to serve customers better, improve their brand and reduce costs. It seems that during tough times, and when customers are at their lowest, banks are playing tough, and forgetting that all the improvements in processes are worthless if you kick a customer when he is down. Fraud cases, and unexplained transactions on credit or debit cards are one of these areas when a customer feels exposes and the actions of a bank can make a huge difference in whether the customer stays or goes. I talked about how business account holders in the US are suffering this at the moment. It seems that personal account holders in the UK are seeing nasty dispute resolution tactics being employed as well.

The Light Blue Touchpaper blog by Ross Anderson of Security Research, University of Cambridge, describes how his recent experiences show banks are pushing customers to the courts to resolve issues (a summary of the post is on the Finextra blog). In Ross's experience, the process used by banks to try and resolve dispute cases appears to be designed not from the point of view of efficiency or speed of processing, but in fact to put as many hurdles in the way of the customer as possible. The hope appears to be that the customer will eventually just back off, pay the charge, and the bank can save some money. As I've discussed in the past, one in five cases of customers suffering identity theft switches banks. I bet that significantly higher percentages switch banks when they feel their bank is trying to avoid its obligations to handle disputed transactions.

Ross walks us through his experiences with dispute resolution at NatWest bank in the UK, when several months in, the bank shows its true colors - effectively saying, 'we delayed you so long by only responding to one piece of correspondence per month, now you are out of time':

The following month they wrote back saying that “we are governed by MasterCard International, who are the governing body for credit card transactions” and had to abide by their rules, under which our complaint was now out of time. This is nonsense on stilts; my contract is with the bank, who may not debit my account without my mandate, and if the bank enters into a contract with MasterCard that prevents it from discharging its obligations to me then that’s the bank’s problem, not mine. The bank suggested i get legal advice, or go to the Citizens’ Advice Bureau, Local Trading Standards or the Financial Ombudsman Service. Now I documented the failings of the Ombudsman in an earlier post, so I decided to go straight to the heart of the matter and sue the bank in the small claims court.
The bank settled at once.
From the bank's perspective, they probably find that the majority of customers just roll over at this point. The processes, designed to be as efficiently ineffective as possible, just lead people to give in. As Ross goes on to say:
This may be entirely rational behaviour on the bank’s part. If it can fob off most complainants with tiresome call-centre procedures, or tell them they’re out of time, or pass them off on Citizen’s Advice, then it will only have to refund the minority who ignore this flummery and go to court. Even then, the bank only has to pay an extra £25 for the court fee.
I have experience similar delay tactics, admittedly several years ago, from a bank reporting an odd Visa transaction. Their handling of the situation was not much better, although eventually they had no option but to pay the fee since the receipt they produced did not have my signature, or (since this was while I was in a country that insisted you write ID or passport numbers on credit card slips) a passport number that even matched my nationality. It would have taken someone in the back-office less than two minutes to resolve the issue without ever getting me involved for months. They failed, and thoroughly annoyed me.

If you are brought in to look at the metrics for dispute resolution, I wonder if you just count the amount of cash paid out as a key performance indicator, or the number of customers that switch banks and subsequently flame your brand online due to their experience. And which costs more? For the financial institutions I have worked with, they claim the cost of customer acquisition is hundreds of dollars or pounds, so it is hard to see why you would work so hard to avoid paying a small disputed transaction. I would love to see evidence where a very different approach that tried to resolve issues effectively and rapidly could leave a customer that is happy with the professionalism, customer service and integrity of the bank. Anyone wish to share their positive experiences?

A well organized department of a bank will do what is necessary to raise their game to meet whatever targets they are set. If those targets incorrectly (in my opinion) exclusively aim to reduce dispute payments, rather than balancing that with customer service and brand integrity, it is no surprise that we will see more use of legal threats to get issues resolved. I am looking forward to seeing the UK newspapers (please save them for this reason alone) picking the worst corporate offenders to strip down in public, as they tend to do so well. Profits do not come from saved disputes -- they come from happy, profitable customers.

A post from the Improving It blog

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Roger said...

This is an excellent specific example of a very general, serious ailment currently affecting many businesses: the Key Performance Indicator, or KPI.

The basic idea of a KPI is to drive improvement by making performance measurable. Where this goes horribly wrong -- and in my experience, it nearly always goes horribly wrong -- is that it is very, very difficult to distill a complex service or job down into a single number in a sensible manner.

Instead, the (probably harried) supervisor comes up with the first half-sensible KPI he can think of, the employee agrees to it because he doesn't want to rock the boat and hasn't time to spend a few days analysing it, and another pit is prepared for unwary feet.

At this point, one of two things will happen:
a) a diligent and honest employee will ignore the perverse misfeatures of the KPI and just do his job as well as he is able. As a result, at salary review time he will be punished for his honesty, eventually become disgruntled, and leave. OR
b) a cunning and sociopathic employee will rules-lawyer the KPI to death and achieve maximal annual bonuses whilst leaving behind a trail of carnage.

Surreptitious Evil said...

While the concept in both the post and Roger's comment is unarguable - it doesn't make sense in the precise context. A disputed transaction is recovered from the merchant via their merchant acquirer therefore the base incentive for the card-holder's bank is actually to capitulate immediately.

However, there is a startling lack of delegation within most banks - so the pain of going through the steps and tying up the layers of call-centre hierarchy may force teams down the 'fob them off' route. Of course, we also have to factor in the deliberately appalling customer service we have come to expect as our just reward for giving them our business!