What to Learn from Wells Fargo’s Mistakes

Earlier this year, financial giant Wells Fargo attracted widespread media attention when it was revealed that in the past five years, it had opened as many as 2 million new credit and bank accounts without its customers’ authorization. Many wound up paying fees on ghost accounts they never opened.

In September, Senator Elizabeth Warren (D-Mass.) went as far as to call on Wells Fargo’s CEO, John Stumpf, to resign. He did just that in October, but not before the company acknowledged that it had fired 5,300 employees over unethical selling practices in the past few years. The bank was also slapped with $185 million in fines and ordered to refund $5 million to the customers affected.

While much of the blame was initially placed internally on lower-level reps, the public consensus has been that the problem emanated from much higher up within the organization, with top-level executives reportedly allowing these practices to go unpunished and even encouraging such behavior as long as it was deemed profitable.

“When you set aggressive goals that are not achievable, people will do anything,” points out Lior Arussy, president of the Strativity Group.

“This is not one person, not two people, and not just one branch,” says Arussy, who calls it the product of “systematic goal-setting that was disconnected from reality. It shows us that this kind of aggressive goal-setting can really turn people into liars and cheaters.”

Richard Shapiro, founder of the Center for Client Retention, states that a common problem is that many companies have a tendency to reward the acquisition of new accounts rather than holding on to existing ones. “If [Wells Fargo] had an incentive program that focused on retention, as opposed to acquisition, you probably wouldn’t have this case,” Shapiro says.

Unfortunately, many organizations tend not to give as much attention as they should to the accounts they have already won. “And that’s because, as they get more new ones than they lose, they think they’re ahead of the game,” Shapiro says. This is what led Wells Fargo down its ill-fated path.

In Arussy’s view, one of Wells Fargo’s fundamental mistakes was a common one: It touted customer centricity but contradicted itself with actions that put customers at risk.

Arussy further points out that the scandal took place in spite of the fact that the company had a “full-fledged customer experience department” that claimed to have its clients’ interests foremost in mind.

This was certainly not the case. For one thing, opening new accounts can leave lasting marks on the customers’ life outside of their relationships with a bank. ”When you start fooling around with people’s accounts like that, it can absolutely, positively impact in a negative way customer credit ratings,” Shapiro says. “And those kinds of things are very difficult to change.” A lowered credit rating, for instance, can affect a person’s chances of qualifying for a car, school, or home loan.

In light of this, Arussy urges companies to ask themselves, before they commit to such declarations of customer centricity, if they really love their customers. “I’m sorry if it sounds a little corny,” Arussy says, “but this is the critical, principal question: How do you approach a customer? Is it someone that you’re trying to better, or someone that will better you?”

Among other things, the commitment means only selling customers products that are appropriate for them. It also means putting checks and balances in place to ensure client security. “The fact that technology allowed this to happen, and customers only found out afterwards, when fees were applied to their accounts,” is a major failure, Arussy states. He notes that in such situations, personalization technologies and algorithms can be used to set boundaries on what customers can do, which will ensure that they are being protected.

While not all customers will be quick to jump ship or switch banks, and Wells Fargo will likely restore its reputation in the long run, experts agree that the scandal will have an effect on customer trust and account usage.

New client acquisition also will suffer, Shapiro suspects. “If somebody’s moving into a new area, and they want to change banks, I don’t know how fast they’d want to go with Wells Fargo,” he says.

Experts also agree that it will take much more than a generic apology to restore consumer trust after such a scandal. Shapiro says it might help to personally call customers or send them a letter, to assure them that “this will never happen again, and if you have issues, you should call me.”

Shapiro also urges companies to seek more involvement from independent third parties, such as an ombudsman’s office, which would allow both customers and employees to effectively, and comfortably, report misconduct without having to raise their hands and draw unwanted attention.