Hair on Fire: Banks Fight Consumer Protections (Again) (10/11/2009)

[OLD POST - LINKS MAY NOT WORK]

Way back in the mists of time… somewhere around the end of the 20th Century… America’s banks were up in arms about pending consumer protection regulations. The issue was ATM safety. And how they handled the issue should be of interest to consumers, legislators, p.r. pros, and banking industry execs alike.

A headline in EFT Report, an industry newsletter, blared… “Beware of ATM Security Legislation: You May Be Next” (12/9/91). And indeed, ATM safety legislation soon sprouted from coast to coast, in cities big and small.

One might wonder what horrifically onerous demands were being made on behalf of customers.

Well, the most horrific and onerous demands were being made in New York City, the epicenter of the ATM safty movement. NYC was about to destroy the fabric of the American banking system by mandating “expensive safety features” at ATM terminals. Features like “surveillance cameras”… “adequate lighting”… “mirrors and reflective surfaces”… and “locking devices” that only allow cardholders to enter.

All of these safety precautions we take for granted today. And in no way have they dented the banks’ ability to profit from their ATM networks. In fact, ATMs are a robust profit center: according to bankrate.com, banks haul in more than $2 billion annually from ATM charges.

BANKS’ PR STRATEGY: PULL OUT YOUR HAIR, DOWNPLAY THE PROBLEM, AND ACT LIKE A VICTIM
The idea of questioning the need for ATM safety precautions may seem like a fool’s errand today. But at the time, the industry was running around like its hair was on fire… like it was the end of the world. According to the industry publication, ATM & Debit News: “a black cloud continues to loom over ATM deployers.” (9/12/93)

A mushroom cloud no doubt.

John Byrne, who at the time was senior counsel to the American Bankers Association (ABA), tried to wiggle out of the issue by blaming the media and downplaying the significance of ATM crime: “The national statistics suggest that the incidence of ATM-related crime is very low, but if you read the papers you’d think exactly the opposite is true.”

The same article in the American Banker had this to say: “To place the statistics in an anecdotal context, one banker compared ATM crime to airplane crashes. Both are attention-getting, he said, but not particularly common.”

Wow. Somebody was really off his talking points that day. What do you suppose would happen to an airline that tried to fight passenger safety regulations with a claim that crashes are too rare to be worth the effort?

RAISE FOOT… POINT GUN… PULL TRIGGER

What’s most instructive about the banks’ approach to messaging is not how lame it was… it’s the fact that it was entirely self destructive. It was, of all people, an industry consultant who hit the proverbial nail on the head with this insight:

“It is as important for customers to feel safe as it is for them to be safe. You can throw around all the numbers you want, but studies show that threats to safety — whether real or imagined — can curtail transaction volume.” (American Banker, 12/7/92)

So there you have it. If people don’t feel safe using your product, then they won’t.

Banks were faced (as they are today) with a classic perception problem: one of their own making that couldn’t be solved except by embracing an enlightened approach to doing business. Unfortunately (and with futility) they stuck to their guns and refused to see how doing business differently might actually HELP them.

Instead, they chose simply to deploy lame p.r. messages to defend the status quo.

It didn’t work then and it won’t work now.

EVENTUALLY BANKS LEARNED (AND PROMPTLY FORGOT) A VALUABLE LESSON

Several years into the ATM safety movement, the banks finally started to figure it out.

In Chicago, the local ATM network operator worked directly with the City Council to head off mandates. In Florida, the president of the southern AMT network (HONOR) actually lobbied in favor of statewide rules — he was afraid of a patchwork of local rules that truly would would make compliance difficult and costly. In Georgia the same lobbying trategy was implemented, successfully.

In New England, then-president of the YANKEE-24 ATM network, Richard Yanak, said: “It makes sense to be proactive to the extent that we can take responsible steps to put in place a framework that protects the consumer and is not overly burdensome.” Despite the mangled syntax, it’s a nice thought.

And John Bannion, then president of the HONOR network admitted that while most areas of [ATM] operations should not be regulated, “It makes sense for ATM safety.”

Lessons: sometimes the critics are right; some things that look purely like perception issues are revealing fundamental flaws in your business; sometimes fixing them (as opposed to fighting them) can actually create new opportunities and improve your business.

DEFENDING THE STATUS QUO: THE BIGGEST MENTAL BLOCK OF ALL?

As Washington debates new consumer protections, the financial services industry has forgotten some key lessons of the past…

Take the credit reporting agencies for example: they fought transparency tooth and nail, claiming that they owned all rights to consumers’ credit histories. Yet, after a bruising p.r. battle that lasted more than a decade, they lost. And guess what: now they make oodles of money selling consumers credit reports, identity protection products, and other types of services that would never been possible if they had not lost that war.

The same can be said of the ATM safety movement. ATMs are now more profitable and plentiful than ever.

The US auto industry successfully fought fuel efficiency and other regulation for decades; it ended up entombed by its own negligence and poor strategy.

Right now, banks and other financial services companies are in a similar mess. Their reputations are in tatters, and deservedly so. They are getting pummeled in the press, and deservedly so. They are being hit from every angle to provide consumers more help, and take a breather from fleecing them for every possible nickel and dime — e.g., having to roll back overdraft fees.

They are losing the war. But if they were smart, they’d admit the limits of “messaging” and address the weaknesses in their business model. They’d also take a lesson from the past and see that “threats” to their way of doing business might actually be opportunities in disguise.

The odds of that happening are pretty slim. But one can always hope…