Flyin'Dutch' wrote:rikur_ wrote:No doubt many of us who consider ourselves 'good customers' of banks, just lose them money.
You've fallen for the 'woe us' bank drivel like so many others.
Your personal account may not amount to much but a couple of million of folks like you means that they sit on a decent amount of money which they can use as leverage for their other activities.
In order to sell their other products they must have a decent size customer base as a percentage of customers will buy them or use overdrafts/credit cards etc.
That for them 'good' current accounts cost them money is nothing more than the spin they put on it.
The reason why they behave like this, i.e. treat people with utter contempt is because they are arrogant and are too big to fail - we have seen the evidence of that over the last 10 years.
It isn't going to change anytime soon.
Long post alert.
I've picked this out for a reply because it strikes me as very representative of the view of the general public. I'd also preface the following comments with an acceptance that banks definitely don't always get things right, they do apply a certain amount of spin to things, and they do not behave at the personal level as most of us would like to be treated.
However, banks and bankers are not the devil incarnate. Those generalisations are no more fair than saying the NHS is hopelessly inefficient, and doctors are greedy and overpaid.
Banking is a highly complex business, and not well understood by the general public. There have been volumes written about bank balance sheet management, and it is as much an art as a science. The issues surrounding capital adequacy and solvency are complicated, and the subject of close regulatory scrutiny. They are also extremely important to the economy at large. The general concept of fractional reserve banking is not inherently evil and one big con trick to make bankers rich. It is a - highly regulated - way in which government works in concert with the financial system to expand the money supply in a controlled manner that enables general economic prosperity for all of us. Without the availability of that expanded funding, and the processes by which it is made available, the overall level of economic activity would be much smaller. We all benefit from banks and banking. If that wasn't true, the government would close them down.
Of course, mistakes are made, and some bankers are highly paid - in some cases deservedly so - but it is nearly always wrong to make extremely broad brush generalisations.
Now, if we strip out investment banking, which is actually the side of the business where the biggest and most highly visible cock ups and accusations of overpaid bankers eminates, the rest can largely be split into retail and corporate banking. Retail banking is managed in a behaviouralised process, and corporate on a mix of more individually managed and behaviouralised manner depending on the size of the customer. The costs of serving customers makes this an inevitability.
As an analogy, I have a large garden with many fruit trees. I care for my grass. I cut it regularly and I want it to thrive. However, I have acres of the stuff, and the notion that I could go round and cut each blade individually is a non starter, so I cut it with a tractor. The fruit trees on the other hand are different. They get a more personal service. The productive trees are loved and cared for, and the less productive ones pruned and managed to help improve them. That doesn't mean the grass doesn't take more time and effort - it does - but it can't get such individual attention because there just isn't enough time.
Banks cut their retail customer grass with a tractor. They might try and segment out a small section for a slightly better service just as many people with large gardens have a small bit of special lawn next to the house that gets more care than the rest of the paddocks, but even that is only a marginal improvement.
Banks spend an absolute fortune on systems to serve retail customers, just as my tractors cost a lot on money to buy and run. There are, without a doubt, individual retail customers that are costing the bank money, as rikur notes, although it is not so simple when you look at things from a marginal cost perspective. However, banks definitely make more money from loans and borrowing on credit cards than they do from a customer who keeps a small balance on a current account which they use to process lots of payments and cash withdrawals. Even with credit cards where income is generated from transactions as well as lending, most accounts that are paid off without paying interest do not make money because they are, in effect a free loan. Such customers do not generate enough income to cover the fully allocated costs of serving them. Indeed, nothing like.
That doesn't mean banks don't want such customers. Liquidity and capital issues mean that banks want a large spread of business, and retail plays a big part in that. Current account deposits are a valuable source of free funds, and even though banks have to take into account the fact that customers could all come in and take all their money out on one single day, in practise that doesn't happen, and banks can count on a certain amount of stable core deposits. Again, the management of this is quite sophisticated.
Anyway, back to Rob's comment that kicked all this off. Is it cheaper to keep a longstanding and loyal customer than it is to market to new ones? Sadly, it doesn't work that way. The bank doesn't, and cannot, treat its retail customers with such personal service. The reality, as others have noted, it that people don't change their bank very often, so retail banking models will take that into account. The days of local branches where the manager would have known Rob personally and would have done all they can to persuade him to stay are long gone. Retail banking is a highly competitive business, and would not be profitable if such personal service were given at the retail level. Unfortunately, the world has moved on, and the long period of low interest rates has been a difficult time generally for retail banking. Banks are a business. Profit isn't a dirty word, and bank managers have responsibilities to shareholders as well as customers.
As a person who worked in banking, I accept and understand this as inevitable. As a bank customer, I share some of the frustration expressed here. However, it is the reality.
And, one final point, although we all hear tales of bankers earning fortunes - that does of course happen - life as a retail banker is not so cosy. It is probably the least well remunerated segment of banking, and many of you wouldn't want to get out of bed for what most of these people earn. Add in the lack of employment security where banks have been closing branches at a prodigious rate, and if any bank employees deserve to be cut a bit of slack it is this segment.
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