For years, surveys have shown that smaller banks, including online-only institutions, offer checking account customers some of the best deals in the banking industry. Bigger banks, by contrast, continue to boost revenues by slowly raising monthly maintenance fees, overdraft penalties, and ATM fees. Big banks get away with this because they have the resources and market power to pull it off.
It’s the same with big cable companies and wireless telecom companies. All the major players in these industries spend massively to draw customers in, and then they nickel-and-dime consumers to recoup costs and generate big profits. Customers hate paying additional fees, but they feel trapped by the high costs and headaches involved in switching providers. That explains why these industries always rank near the bottom in surveys measuring public trust and respect.
In the business world, such behavior is perfectly ethical and legitimate. But most of us don’t live in the business world. Rather, we live in civil society, where anyone who befriends us with the goal of taking advantage is considered selfish, amoral and untrustworthy. Within each of us, there is a natural human desire to associate only with those who mean us well and are good at what they do. We have an innate preference, dating back to the Stone Age, to seek out relationships characterized by the twin qualities of “warmth and competence.” We have a similarly primal urge to punish those who betray these principles.
The bad news for big banks and the others is that mobile and Internet technologies have spread the social expectations of warmth and competence throughout the business world like never before. Social media campaigns on Twitter and Facebook (FB), for instance, have already brought countless bad-acting companies to heel. In recent years, online uprisings by angry customers turned back multimillion-dollar fee-raising attempts by both Verizon Wireless and Bank of America (BAC).
The business landscape has changed forever, and companies of all kinds need to re-shape their customer relationships in line with this new level of social accountability if they want to thrive. First, these companies need to become more self-aware as to how their policies, practices, and processes are perceived by customers from a warmth-and-competence standpoint. Perception is reality when it comes to these subconscious drivers of customer behavior.
Second, they must make fundamental changes to the way they serve customers and generate revenue so that their profit-drivers are better aligned with the warmth-and-competence principles that govern society. Customers don’t mind paying fees if they receive value in return. People pay a $79 annual premium for Amazon (AMZN) Prime because they consider it worth the extra expense for a better shopping experience.
Third, they need to rebalance their priorities with a longer-term view of all stakeholder interests, rather than just the short-term needs of shareholders. A longer-term view can still yield short-term benefits. The upstart online Ally Bank was recently recognized by the Pew Charitable Trusts as tops in the nation for its transparent practice of disclosing checking account fees. Ally, which charges no monthly fees and no ATM user fees, claims a 94 percent customer satisfaction rate. It announced in July that deposits had grown by 32 percent over the previous year, to $40 billion.
Fast-growing companies such as Ally Bank are able to engage customers online, winning loyalty by appealing to the natural human desire to patronize socially accountable companies. For now, big banks, cable companies, and wireless carriers can continue to twist customers’ arms for quick profits, thanks to high switching costs. But time is rapidly running out on this exploitative practice. The short-term gains the giants have briefly enjoyed will pale in comparison to the painful long-term consequences of having flouted human nature for decades.