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Lending to American consumers, businesses and other entities is, as best practiced, far from a simple business. Going beyond this to dabble in opaque markets will inevitably degrade the competence with which banks' basic business is conducted.
July 3 -
The perils of commoditization have long prodded bankers to innovate, lest price become the sole determinant of success. But what happens if innovation itself is regulated away as an option?
July 31 -
Confusing fees, perplexing choices, interactions that can be painful. Retail banking is full of complexities that keep consumers baffled. But will people pay for a simpler experience?
February 1
Kaiser Federal Bank was looking to rebrand itself last year, and the Covina, Calif., institution wanted a name that would appeal to a broad segment of consumers in southern California.
The name the bank settled on was
"We are here to make life easier for our customers," explains chief executive officer Dustin Luton. "That was essentially our brand."
The name was changed in November and $890 million-asset company is focused today on living up to its new moniker, Luton says. He points to Simplicity Bank's efforts to ensure that whoever answers a customer's phone call is able to resolve the issue without transferring the caller to another department.
"I just think the world today is so complex," says Luton. "You get to a point where people just want things to be made simple for them."
It's a message more and more banks are trying to convey to customers.
TD Bank and Regions Financial (RF) are among the institutions that offer accounts they tout as "Simple Checking." U.S. Bancorp (USB) provides what it calls a "Simple Snapshot," a one-page summary of its checking accounts' key terms. Citigroup (NYSE: C) is marketing its Simplicity Card, a credit card with no annual fee and no late fees. All of these products have been introduced since 2011.
The marketing push behind simplicity comes as banks contend with new pressure from regulators to make their products easier to understand. The landscape remains somewhat murky, but regulators appear more favorably inclined toward products that are simpler, says Jo Ann Barefoot, an industry consultant at Treliant Risk Advisors.
The big unanswered question is: how deep will the industry's changes go? Simplicity is a broad concept that is open to multiple interpretations. So are banks merely putting a new marketing gloss on hard-to-understand products? Or will this be the dawn of a new era?
"I do think that banks are grappling with it, and that simple is much easier said than done," Barefoot says.
The Obama Administration's
That so-called plain-vanilla option was later torpedoed in Congress. Still, a regulatory preference for greater simplicity in consumer banking products appears to be one legacy of the financial meltdown.
While the CFPB does not have the authority to require banks to offer simple products, it can use carrots and sticks to move them in that direction.
So far, crackdowns by the Consumer Financial Protection Bureau have focused on complex, hard-to-understand products, such as credit card payment protection plans. It has not zeroed in on checking accounts but it is encouraging easier-to-understand disclosures. "Ideally, consumers would have a simple way to evaluate checking account costs," the CFPB said in a 2011 statement.
Banks are responding to the regulatory encouragement by simplifying their product presentation, says Steven Reider, president of Bancography, a consulting firm in Birmingham, Ala.
"Historically, banks had just an absurd array of six, seven, eight checking accounts," he says. "It was not only confusing to the consumer; it was confusing to the sales representative."
Credit cards were also long plagued by hard-to-understand disclosures, but a 2009 reform law required simpler explanations. "I'm not sure the industry would have ever moved toward that if it had not been mandated," Reider says.
Reider argues that smart bankers will get ahead of the regulatory curve by moving toward more transparent products. "It can't just be a marketing message," he says.
There are other good business reasons for banks to simplify their product offerings, says Ron Ashkenas, senior partner at Schaffer Consulting. In the 2009 book "Simply Effective," he argues that consumers get overwhelmed with the sheer number of choices they face in their daily lives.
Ashkenas points to the grocery store chain Trader Joe's as an example of a company that limits choice by offering fewer products. "And consumers love that. It makes it much easier to shop."
Last November, the CFPB launched Project Catalyst, an effort aimed at encouraging consumer-friendly financial innovations. Simple Finance Technology Corp., a Portland-based startup, is one of three firms providing data for the project.
The company which is widely known as Simple.com, and is unrelated to Simplicity Bank partners with Bancorp Bank of Wilmington, Del., to offer a transaction account for consumers. The account, which carries no monthly fees or overdraft charges, is designed make it easier for consumers to save.
Adam Erlebacher, Simple's vice president of operations, says the company's name has nothing to do with marketing. Instead, it's an expression of the firm's values.
"Our main goal is to align our interests with those of our customers," he says. "Simplicity is kind of a defining expression of that."
Simplicity Bank adopted its new name in an effort to shed its former image as a credit union serving employees of Kaiser Permanente, the California-based health insurer. (It converted from a credit union to a bank in 1999).
One benefit of the company's rebranding and the simultaneous push to align the bank's practices with its new name has been that employees understand their roles better, CEO Luton says. "We're all in a boat, and all of our oars are going in the same direction."
Simplicity Bank has been advertising largely on small billboards around Los Angeles. The efforts are generating buzz, but Luton acknowledges that they have yet to translate into a meaningful increase in business. "These branding campaigns take years," Luton says.
He also says that internal efforts to simplify the customer experience are a work in progress. While Simplicity Bank is making strides in its efforts to respond more efficiently to customer service calls, he says simplifying the products is hard because banks must adhere to regulatory requirements. That suggests there may be a tension between the new regulatory preference for simplicity and decades of existing regulations that remain on the books.
"It's very difficult to make products that simple," Luton says. "You've got to have so many disclosures."
