Instead of implementing technology to create improved processes, financial institutions are implementing technology and not thinking through the processes.

Retail banking has been around for over 400 years, so it should work by now. It appears that this is not the case, particularly as we increasingly automate banking services. The services are fine as long as the process works, but when things go wrong, the cracks begin to show. The issue is that financial institutions have forgotten, or do not understand what business process re-engineering (BPR) means.

In recent years, there has been an explosion of spending associated with BPR. Yet, as we change processes, disintegrate and reintegrate business functions, right “source” and right “shore” our operations, we increasingly cause fragility around our people, product, process, and systems. This came to mind during three unfortunate encounters I experienced with my bank over the last year or so. The three incidents exemplify a financial institution that has misaligned people, process, and technology and the visible illustrations of the results are quite telling.

Before going into the exact issues, I need to give you a little background on my deposit account– to provide some context. The account I use is for privileged customers who are willing to pay a small fee for a few bells and whistles. The bells and whistles include a pre-authorized overdraft facility of up to $15,000 without notification, a concierge service, automatic insurance on all purchases when using the account card, travel insurance, discounts on restaurants, and so on. It is apparently targeted at the “mass affluent,” and yes, I may be one of the masses, but I also like personalized service and offers, ok? Now that you know the sort of account I'm talking about, let's look at three examples where people, process, and technology breakdown.

Case One: The Overdraft
The first is an issue in process and technology that involved a number of factors, beginning with my account manager changing a flag on my account. The change was a short-term measure to allow an increased overdraft limit, due to some major fund transfers I had to process during a busy investment month. The problem was that the flag was set in place for a month and when it reset—a pure binary '1' and '0' part of the programming on the bank's database—instead of reverting to its original overdraft amount, it flipped over to zero (i.e., no overdraft facility at all).

Now, I pay quite a lot for that overdraft facility, as it allows me never to have to think about my current bank balance when paying for things and ensures that I am not penalized for going into a negative balance position. The facility is a standard product that this particular institution offers to its best clients. Therefore, when that flag reverted back to a zero credit limit, as in no overdraft facility, it did cause me an issue.

It happened at 5:45 on a Friday night during a bank holiday weekend, the worst possible time as, apparently, it could not be fixed until Tuesday. On that fateful Friday, I happened to ask for cash back in the local supermarket, and the request was refused, as was my payment with my bank debit card. (Lots of people behind me going “tut, tut,” and I thank the stars for credit cards.)

Leaving the supermarket I was immediately on the phone to the bank call center. The conversation went something like this:

Anyway, the conversation went on for a while longer, with two supervisors and a team manager involved. Conclusion: the database had reset my account to zero after my account manager had temporarily increased my overdraft limits (system and process error), and the call center folks could not do anything about it because it could only be dealt with at branch level (process error).

Result: one very angry customer who was left cashless during a bank holiday.

So, I am now aware that my bank's call center and branch systems are separated. I also know that the system does not work with the branch processes, or possibly vice versa, as it had not reminded the branch staff to reset the overdraft flag back to the previous level after a temporary change.

Well, that was a temporary setback I could live with, but once bitten, twice shy. And the second incident was slightly more inconvenient.

Case Two: The “Featured Benefit”
This problem involved one of the featured “benefits” of my all-in-one account: travel insurance. I have had this account for about 10 years and never felt the need to use the travel insurance, but always felt reassured that it was there. Therefore, when I lost an iPod, a camera, and about $300 in cash in a Las Vegas hotel, I thought, “Aha, time to use that travel insurance.” So I immediately called the bank.

Now, as mentioned, I have spent 10 years believing that because I pay for my bank account with the free travel insurance, then I will be covered by that policy. I was always confident that, should I come down with some sickness while overseas, the bank's insurance would pay for the hospital fees; or that, should I be abroad and some reprobate stole my wallet, the bank's insurance would pay. That's what travel insurance means to me. But, no. It turns out my bank defines travel insurance as holiday insurance.

The claim was rejected because it was not a package holiday. Now, you might tell me that there's more to this than meets the eye, but the claim was rejected because I bought the flights with American Express. Apparently, the bank's insurance would only pay if a complete package of flights and hotels were booked and paid for using the bank's cards. The reason for citing this second example is that it highlights two issues: a process issue and a product issue.

The process issue is that the travel insurance call center never received or processed a call unless it was the third Thursday in the month with a “y” in it.

The product issue is more fundamental, in that the bank's promotional materials for the deposit account have all these bells and whistles but, in reality, customers either do not want them or do not use them. I had not thought about using the travel insurance feature for the 10 years I had the account, although the fact that I knew it was there meant that it provided a reassurance. In reality, what that feature achieved is a product cannibalization whereby this add-on to the account, when triggered for use, actually proved to be worthless and, worse than this, brought into question my whole relationship with the bank and whether to keep my account with them.

Therefore, the most telling message from this story is that the tiny things the marketing department sees as product features may actually be product weakeners if they do not support the relationship. Beware account cannibalizers and focus upon account stabilizers.

Case Three: The Address Change
On to the third and final example. When I changed my address in August 2006, I printed off a standard letter to all my service providers with details of the old and new address, and then wrote onto the letter the account numbers and so on, signed and posted the letters off to all my bank, insurance and related firms.

Everyone changed my details without question... except my bank.

They sent a letter back with a form attached.

The reason for the form, as became clear, is that the bank had implemented new procedures related to fraud and identity theft. As a result, the old way of allowing customers to send a letter with a signature saying “I've moved” is no longer good enough. You have to fill out much more information on a standard bank form.

However, this was not what the bank's cover letter said. In fact, I have no idea who dreamt up this letter but it was very poorly stated and read something along the lines of the following: "Thank you for informing us of your change of address, but we no longer accept those pithy little letters. Instead you have to fill in the form we enclose and, if you do not, we will continue to write to your old address until you do so."

Now, if they had said, "Due to new procedures to protect you from identity theft, we would like you to complete the attached form; after all, any old Tom, Dick, or Harry could have sent us a letter with a signature," I might have filled in the form. Instead, I felt a little bit angry that my address change letter was not good enough. Luckily, the bank's letter finished with "if you would rather talk to us, then call our special house moving hotline number."

Back to the trusty old telephone and house moving hotline.

This last example shows, yet again, fundamental process errors in the bank's internal operations—in particular, the lack of thought as to how all of the pieces fit together. In this case, there are a number of pieces:

• an address change form;
• how to write a covering letter that explains to customers exactly why the form is relevant;
• an address change call center that is in-operational due to the fact that it is permanently engaged with people who do not like filling in forms; and
• a main call center that is stripped of any empowerment to make anything happen for anyone, in particular address changes.

Business Processes Disconnected and Gone Awry:
The bottom line is that these three examples, which all occurred in the last year, demonstrate a catalogue of cracks in the processes of my bank. The cracks between the branch systems and the head office systems. The cracks between the account manager's processes and the customer service representative's processes. The cracks between the address change department’s procedures and the head office procedures. You may now be asking yourself: "Why the heck does Chris stay with a bank that treats him this way?" I can give you two reasons why.

First, I do not believe that the cracks in my bank’s processes are unique or even unusual. Every bank has these issues and has had them for decades. The issues today are exacerbated by pressure on efficiency ratios, shareholder returns, and reward, bonus, and incentive structures, which mean that a bank staff and management focus upon those areas where they get the most rewarded and banks' processes and procedures are implemented at the lowest cost possible. Hence, the cracks appear as management and staff focus upon cross-sell and acquisition, and processes and procedures are stretched by marketing and regulatory burdens.

Second, and more importantly, my bank has a secret weapon. His name is Oz and Oz is my account manager. The difference with Oz is that he knows my voice, my attitude, my demands, and my demeanor. Therefore, if I ever have a problem, I just call Oz. Oh yes, and by the way, Oz is a human who actually behaves the way that bank managers used to behave, as in talking to customers as customers, not just numbers.

The debate about BPR goes back to the essence of the lessons we learned a decade ago, which focused upon “Don't Automate, Obliterate.” That was title of Michael Hammer's seminal 1990's Harvard Business Review article that created the BPR business. The paper said that before you automate, completely rethink the process in light of the automation.

BPR had a few simple steps:

• look at the process;
• question everything about it;
• rethink how it works; and
• focus upon optimization of every customer interaction.

Only after completion of these simple steps should technology be considered. Then implement the right technology to make the whole thing work seamlessly, in an integrated fashion, which supports the human involvement in the process. These simple steps are the lessons that banks seem to have forgotten in the last 10 years. Instead of implementing technology to create improved processes, banks are implementing technology and not thinking through the processes. The three incidents outlined above illustrate this point well.

BPR mandates a few other cornerstones, such as trusting customer-facing employees with empowerment to solve the customer's issues as those issues arise; such as talking with customers as humans who have needs to be served. After all, banking should be about humans dealing with humans—the nature of service—not machines dealing with humans, which is the nature of self-service.

This is the other misnomer about banking.

Banking is a service, and service is provided between people. People are the factor that makes the difference, not technology. People who are supported by good processes and systems will always outperform people who are not.

My bank would have lost my business long ago if I had to rely on their people, process, and systems. I am lucky enough to have an Oz, but my bank should not need an Oz if things worked properly in the first place.

Here's to the human bank where people are at the fore, supported by good processes and good technologies.

Chris Skinner is chief executive of Balatro, a U.K.-based financial services consultancy. He is a regular contributor to Banker magazine and the author of two books released by John Wiley & Co. in 2007: The Future of Banking and the Future of Investing. Plan to attend his presentation, "The Future of Financial Services: Understanding Your Strategic Advantage in the Global Marketplace," at the Seattle Bank's 2007 Management Conference to be held on May 23 and 24 in Seattle. Register online today to attend!

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