I just got back from vacation and there are two messages in my inbox that are worth sharing. The first is a request for me to be an expert witness for a bank engaged in a lawsuit with a former client. The other is a notification from a former colleague about some significant changes that are being introduced at a bank I once worked for.
The lawsuit stems from the mishandling of a line of credit that lead to a sole proprietor commercial client leaving the bank with substantial amount of money which was under collateralized and never paid back. On the surface of things the case looks very cut and dry. However, as I learn more about the events that allowed the situation to occur it is clear that, although the bank is in the right, their lack of proper training and reliance on centralized process generated the issue.
The mail from my former colleague details the final steps in a long list of process centralizations at a bank that will turn front line retail lenders into glorified data entry clerks. Removing credit decisions, monitoring of applications, collection of required documentation, and the provision of credit advice from the front line staff dealing with the client and moving it to various centralized departments.
I wrote recently about the need for more artisans and less assembly line workers in banking today. In the case of the lawsuit the commercial lender was, at the time, in his twenties and lacked the experience that would have identified the client’s problems and stopped the activity that ended in a significant loss for the bank. The mentorship and sober second thought on the client’s situation and the transactions that were unfolding were centralized and only available by phone, fax, email, and enforced quarterly if at all. Even though the client committed fraud and did not act in good faith the real culprit is the inability of the bank to significantly develop the skills of the commercial lender and correct the small errors that built up to a significant loss.
The further centralization of the retail credit processes, described by my former colleague, in the name of operational efficiency only adds to the assembly line mentality within a bank. The risk is not only financial, as no one is truly concerned about the client’s big picture and responsibility for the banks exposure is diffused throughout various departments, the risk is that in the haste to reduce operational expenses you create a mentality that sees the client as only one small piece of the assembly line. You eliminate the ability of one bank representative to solve all of the client’s issues and create a maze of an organization that even your staff will have problems navigating.
Successful banks will realize that the assembly line approach to banking will further commoditize their services and eliminate their abilities to differentiate themselves in their markets. Assembly lines also attract and develop assembly line workers, not career focused artisans that will continue to add value to your organization. It also creates a culture of diffused responsibility that can lead to unnecessary risk and exposure. To transform your bank successfully make sure that all processes allow you to know you client as an individual, treat your client as an individual, and develop your staffs competencies across entire end-to-end processes. If your transformational processes do not support this than sometimes doing nothing is better than continuing down a path towards the wrong thing.