Michael R. King is associate professor of finance at Ivey Business School
"Would you like fries with that?"
When we go to a fast-food restaurant, we are used to receiving up-sell offers that may not necessarily be good for us. But what about when we visit our bank branch?
Last week, the CBC reported stories of three TD Bank employees who felt pressured to up-sell customers on products they may not want or need – even products that may be inappropriate for their customers. Many current and former employees from a range of financial institutions contacted the CBC with similar stories. After TD's share price fell 5.5 per cent last Friday, CEO Bharat Masrani issued a statement on Sunday recognizing the importance of trust and doing the right thing for TD's customers. While TD's stock recovered somewhat on Monday, the reputational damage will take time to heal.
What is driving the up-sell dilemma facing bank branch staff? Everyone knows that banking has had a sales culture for a long time. But why does it seem to have become significantly worse over the past five to seven years? The answer is information technology and data analytics.
Following large investments in IT and using the methods pioneered by Google and Facebook, our banks now know – in real time – what products we have, how often we use them, and how profitable they are. Rather than waiting for a customer to ask for a product ("a pull"), front-line bank staff are being directed to make up-sell offers ("a push"). Empowered by this technology, your bank teller has become a salesperson.
This situation is here to stay. We are in the age of the technology-enabled company, where businesses use big data to target offers at customers. As consumers, it is our responsibility to ask questions, to be informed, and to say no to something we don't want.
In a strange way, we are all to blame for the pressure on bank tellers. Many Canadians have stopped visiting branches altogether, preferring to bank online, through a call centre or using a mobile app. These digital channels are much cheaper than brick-and-mortar branches, which have gone from being profit centres to cost centres. So blame the computer, the iPhone, and big data.
Our changing consumer behaviour has changed the role of front-line staff in bank branches. They used to play a service role. The bank teller knew your name and socialized with you while they handled your requests. Tellers would refer a customer to a branch salesperson to handle special requests such as applying for a loan. The bank used a month-end activity report to recognize top employees and to create sales campaigns for new products. Banking was personal, friendly and local.
Flash forward to today, and the banks use data analytics to profile customers in real time. The banks are now capturing more data in a month than they captured over the first 150 years since Confederation. Now, when a customer comes into a branch, the staff is under pressure to use this opportunity to sell more products. The bank teller has become a financial adviser and is prompted by a software program to make offers that customers are likely to accept based on an analysis of their behaviour. The banks view this as "serving our customers better by leveraging their data and offering more service."
But as with all technology, there is also a cost. The banks use these systems to monitor their front-line staff in real time and to identify underperformers. This monitoring puts employees in an uncomfortable position where they feel pressured to use their customer relationships to push products. Not all bank employees signed up for this sales role, particularly ones who have served loyally for many years.
This raises two ethical issues.
First, some staff may be crossing an ethical line by pushing products that the customer may not need or understand. Some of the most vulnerable are older customers, who are used to trusting their bank staff. If the costs for these products are not disclosed up front, customers cannot make an informed decision. This behaviour is wrong and unethical. For their part, front-line bank employees may be feeling forced into this situation against their best judgment and values. They view their jobs as being at risk if they don't sell.
Second, leaders in these banks cannot turn a blind eye to the potential for abuse that this system is fostering. By creating incentives to up-sell and monitoring employees in real time while announcing staff cuts and branch closures, it is easy to foresee the negative consequences. Front-line staff need training and support. They need to hear from bank leadership about what behaviour is acceptable and what is not. All bank CEOs and leaders need to clearly state that front-line staff must do what is right for the customer, even at the expense of lower sales growth. Because sooner or later, customers will either stop coming into the branch to avoid up-selling or will move to competitors where this practice is less prevalent. Trust, once lost, is very hard to rebuild.
Part of this problem is technology, but part of it is consumer behaviour. If we don't visit our bank branches because we view them as "pain-points," then the branches become a cost-centre, not a profit-centre. Sooner or later, staff in traditional branches will be replaced with self-service branches run by technology.
And then it will be a digital teller that nudges us to buy more fries with that burger.