Wells Fargo today announced the new & revised incentive plans for its bank branch employees (refer CNBC news). This is a fall out of the scandal that shook the banking industry in US & worldwide last year. It has repercussions for Indian bank as well and we will discuss the same in a moment.
The scandal rocked the US Banking system and was all the more shocking as Wells Fargo was one of the more reputed banks and was largely unscathed earlier. It had a ripple effect on banks in India as well, if not financially but at least from an internal strategic review of its own processes & policies. People looked with more focus towards one of the largest private sector banks in India which is known to follow Wells Fargo model and has several tie ups as well.
For the uninitiated or just to rekindle your memory, Wells Fargo bank was accused of opening more than a million of fake bank accounts and issued nearly half million unauthorized credit cards applications, leading to multi-million $ fee income for the bank (refer Forbes article). This seems to have happened over a period of 5 years till some investigations brought this to highlight sometime by Oct 2016. The whole saga left a serious blot with Wells Fargo ending up paying $185 million fines and with a few top executives being forced to exit. The genesis of this scandal seem to stem from the earlier CEO (John Stumpf) push for more cross & up sale of Wells Fargo product to its customers. With very demanding sales quota and incentive driven by sales target, the employees of the bank seems to have taken unethical means by opening lot of fake accounts w/o customer knowledge & permission.
Now how does this correlate to Indian banks? In last decade, banks in India have been under a lot of pressure to shore up their profit margin, relook at employee productivity and showcase YOY significant growth. At the same time, the big consulting firms came up with their own vision of banking transformation, focusing on how bank branches can be used as point of sales & move the banking operations at the back (centralized). The advancement of technology, core banking system makes it all the more possible and the idea in itself was fabulous as it meant operational efficiency (thru centralization) and revenue increase (increased sales through cross sale/ up sale by branch staff). Nearly all banks embraced these core principles within a certain degree of variation.
So branch people, who were mainly providing customer service & operational support, suddenly saw themselves selling banking / 3rd party (e.g. insurance etc) products to customers. The appraisals which were largely very static till that time became suddenly disruptive as they now started to be measured against sales targets. Problem was manifold, many staff was not really accustomed to selling and then under pressure to meet targets, the quality of accounts opened went for a serious compromise as quantity become more important. The banks were also under competitive pressure so some of them started allowing ‘zero balance’ accounts etc and one could see branch staff trying to woo customers just to open an account. The problem and its predicament are much more severe on quarter & year ends. And this has been continuing with some amount of modification till date.
What Wells Fargo has done primarily with the revised incentive structure, is to make the incentive part of the salary component lesser (increasing the fixed part) and tying the incentive to account usage. The later part is very important as it immediately takes away the focus from ‘quantity’ to ‘quality’. The idle accounts will no longer earn bonuses while active, transacting accounts will do.
The banks in India should seriously start looking at it, both private & the public banks. The challenges is that the misspelling do happens, the quantum is not much known but problem is that as a country we are not mature enough to get this investigated & penalized. But irrespective of the fines etc, a focus on quantity will only lead to further damage to the quality of accounts. It also impacts customer experience as they are disturbed by push sell across all channels (branch, SMS, calls etc) and also impacts the morale of branch employees also. Banks needs to wake up to these challenges and really look at their policies & processes; else we can see a ‘Wells Fargo’ repeating in India as well.
Hope the ‘Wells Fargo’ scandal & the consequent actions it has taken, acts as a clarion call to all our bankers!