One of the biggest banks in the U.S., Wells Fargo, made one of the biggest mistakes in recent banking industry history. By pressuring their sales staff to grow the number of customer accounts by nearly any means necessary, they wound up crossing some major ethical and legal lines and created a scandal that has hurt the bank in more ways than one.
In September 2016, after the scandal broke, Wells Fargo’s stock (WFC) fell to the lowest levels seen since early 2014, and the bank saw profits drop 2.6% for that quarter. Regulators issued $185M in fines, and lawsuits are lining up from consumers, employees, and shareholders. CEO John Stumpf was publicly grilled by Sen. Elizabeth Warren, the video of which quickly went viral, and he retired shortly thereafter.
This could happen anywhere.
There is nothing particularly special about Wells Fargo that made it the breeding ground for shady practices. In the competition for customers, all banks face continuing pressure to prove their success to shareholders and grow the business. Wells Fargo may have had the audacity to push the envelope into scandalous territory, but in theory, this could have happened anywhere. So what can banks learn from their mistakes?
1. Don’t sacrifice Quality at the expense of Quantity.
Wells Fargo was driven to these practices by a hunger for more – more customers, more accounts, more sources of revenue from fees associated with said accounts, more impressive numbers to show shareholders. Obsessing over the numbers is not the only way to grow a business. Ideally, customers choose you and stay with you because of the quality you provide. When a bank constantly strives to improve the quality of its customer experience, everyone wins.
2. Don’t assume customers will tolerate anything.
Wells Fargo is one of the oldest and most recognized names in banking. Once a business is that established and secure, it’s easy to fall into the trap of assuming that customers will tolerate misbehavior like aggressive sales tactics or public scandals. Switching banks isn’t easy, especially once a customer has multiple accounts and assets tied up with one institution. Maybe Wells Fargo assumed that the potential risk of angering or losing customers was too low to worry about. That’s a dangerous assumption to make; it’s safer to assume that customers are always watching and waiting for you to give them an excuse to switch to a competitor. Customers have already been letting Wells Fargo know how they feel: branch visits fell 10%, checking accounts 25%, and credit card applications 20%, compared to the previous year.
3. Don’t gamble with regulatory compliance.
There is simply too much at stake to risk weaseling your way through the maze of financial regulations or playing in the gray area. Fines, lawsuits, and brand reputation scandals are nothing to trifle with. Wells Fargo will likely survive this crisis, but they have a long and uphill road ahead to recover from the damage to their brand. Banks need to hold themselves accountable for compliance before regulators or customers force them to do so. (More insights into proactively protecting yourself from non-compliance risks: keep reading.)
Wells Fargo’s mistakes will likely go down in banking industry history as examples of What Not to Do. Don’t let the same thing happen to your bank, whether you’re a national household name or a regional staple. If you’re going to earn press headlines, make sure they’re good ones. Listen to the Voice of the Customer, build an internal culture to support customer experience quality, and stay on the regulatory straight-and-narrow.
Our readers in the banking industry may also be interested in:
- New Challenges in CRM: The Complete Digital Banking Experience
- How Banks Can Evolve Alongside Their Customers
- Are Co-Branded Credit Cards Putting You at Risk?