Are banks rediscovering the value of customer loyalty?

ADELAIDE, AUSTRALIA - DECEMBER 01: A general view of Commonwealth Bank on December 1, 2016 in Adelaide, Australia. (Photo by James Elsby/Fairfax Media) Generic ATM, CBA, branch
ADELAIDE, AUSTRALIA - DECEMBER 01: A general view of Commonwealth Bank on December 1, 2016 in Adelaide, Australia. (Photo by James Elsby/Fairfax Media) Generic ATM, CBA, branch

I want you to imagine, just for a second, the worst "service" business you could think of. You're likely imagining one with a high level of distrust among consumers. One that charges you every single time you use it. One whose peers have been hit by scandal after scandal. And one whose motives seem conflicted - between helping you and making as much money out of you as it can.

If you're imagining a company in the Australian banking sector, you'd be right.

We trust our banks with a lot. Our savings. Our mortgages. Our credit. And often our share portfolio. Not to mention the broader financial stability of the Australian economy. Yet while we "trust" them to keep those things safe, we don't really trust them to be looking after our best interests. The bank chief executives themselves effectively acknowledge the trust gap.

And it's no wonder. Fees to withdraw our own money at an ATM. Fees for "account keeping", which, in the age of electronic banking, seem extraordinarily high, with respect to the actual cost of having us as customers. Fees for being overdrawn. For using a teller. For converting our money into a foreign currency. And a whole lot more.

Now, don't get me wrong. These are commercial businesses, and they're entitled to set fees and charges as they wish (within the law, of course). But it's evidence, to my mind at least, of an industry that has lost its way. So comfortable is the oligopoly of large banks, they don't have to worry about the customer experience.

Well didn't, in any case.

Because, as house price growth starts to cool - and with it, the prospects of endless resultant profit growth - there are signs that the banks finally get it.

Faced with fires on a handful of different fronts, Commonwealth Bank recently announced it would drop ATM fees. The other big banks followed, quickly. CBA, by dint of new insight, or desperation on the public relations front, seemed to have realised that having consumers curse you each time they use one of your machines is a bad way to engender loyalty.

Westpac, even more recently, decided to cut monthly account keeping fees to no more than $5 per month for many customers. How it ever decided charging more was good for business is beyond me.

Actually, it's not. Charging a customer $5, $10 or $15 per month for the privilege of having an account with one of our largest banks simply wouldn't be sustainable if there was genuine competition in banking. That's between $60 and $180 per year. And you're likely earning no interest on those savings, either - so having a bank account actually costs you money, despite your funds being lent out at a profit.

So the very fact they can - or could - get away with it is prima facie evidence that there's insufficient competition in the sector.

But what's that on the horizon? The four horsemen of the banking apocalypse: lower house price growth, non-bank payment apps like ApplePay and Android Pay, "pay-later" products such as Afterpay, and a seemingly endless run of scandals.

None of the banks will admit they're scared - it would be bad business to do so - and new Commonwealth Bank chairwoman Catherine Livingstone is playing the PR game to absolute perfection when it comes to trying to convince us that her bank has turned over a new leaf. And it may well have - but either way, justice is being seen to be done, which was vital.

Foolish takeaway

The banking sector has long talked about how to regain the trust of consumers, but it used to do it in terms of marketing campaigns and public relations. It seems that CBA and Westpac might finally be realising that the best way to earn our trust is to deserve it - and to become, again, places we want to do business, rather than painful necessities.

Whether that's enough to combat weaker house price growth, disruption and an unsympathetic federal polity remains to be seen, but if the banks have truly rediscovered the value of customer loyalty, these recent changes won't be the last.

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Scott Phillips is the Motley Fool's director of research. You can follow Scott on Twitter @TMFScottP. Email: The Motley Fool's purpose is to educate, amuse and enrich investors.

This story Are banks rediscovering the value of customer loyalty? first appeared on The Sydney Morning Herald.