In June 2021, Ally Bank showed customers that it’s an ally for them in more than just name.
It was then that the bank announced it was immediately eliminating all overdraft fees on its accounts, ending a centuries-old banking practice that has boosted industry revenues, but also raised the ire of consumer advocates and regulators.
Overdraft fees are fines charged by banks when a consumer has insufficient funds in their account to cover a withdrawal or payment. These fees are generally in the range of $35 per overdraft, so a consumer could conceivably be hit with over $100 in fees in a single day, if multiple transactions can’t be processed due to a low account balance.
Banks collected over $30 billion in overdraft fees last year – and that’s even after many institutions relaxed their overdraft rules in recognition of consumers’ pandemic-induced financial strain.
What’s worse, many banks (40% according to a 2016 Pew Research study) work to maximize their overdraft fees by strategically sequencing their processing of consumer transactions. The practice, known as “debit resequencing,” involves executing transactions from largest to smallest dollar amount, thereby triggering more per-item overdraft fees. (So a $500 payment is processed first, dropping the account balance faster to make it more likely that subsequent smaller transactions will generate overdraft fees.) As far as illustrations of customer-unfriendly business practices go, it doesn’t get much worse than this.
Ally, unlike other banks, never sought to maximize overdraft fees through creative transaction ordering. Ally had long embraced a policy of charging a maximum of one overdraft fee per day per account – which, if you must charge these fees, is certainly a more customer-friendly way of doing it.
But now, with the complete elimination of these fees, Ally has challenged the banking industry’s status quo and further differentiated itself along the customer experience axis. The approach is reminiscent of Southwest Airline’s Transfarency strategy, where the carrier rejected many of the annoying (and loyalty-sapping) ticket change and baggage check fees that are charged by most every other U.S. airline.
Ally’s approach also invokes the spirit of T-Mobile’s “Un-Carrier” strategy, where the wireless service provider sought to disrupt and dominate its industry by delivering a customer experience free from common annoyances like inflexible two-year contracts, expensive data overage charges, and exorbitant fees for international roaming.
Ally’s latest move, like those of Southwest and T-Mobile before it, is grounded in an unwavering commitment to customer advocacy. It’s a strategy I wrote about at length in my book From Impressed To Obsessed, and it’s a principle that can generate a customer loyalty lift for most any business. After all, it’s rare that people see a business putting the customer’s interests ahead of the company’s. So when that actually does happen, it leaves an indelible, positive brand impression that drives repurchase and referral behavior.
To begin unleashing the power of customer advocacy in your business, consider these three steps:
- Reflect on common customer frustrations. Think about the typical customer annoyances that are associated with your industry – business practices that feel exploitative to customers by appearing to advance the company’s interests over the consumer’s. Those business practices are likely prime targets for customer experience innovation.
- Be bold and break with tradition. If you were to follow T-Mobile’s lead, what would it look like if your company became the “Un-“ version of the typical player in your industry, bringing a refreshing, contrarian approach to the business? Creating disruption through customer advocacy often requires dispensing with traditional business practices and experimenting with new, unorthodox approaches.
- Turn pain points into proof points. A business strategy oriented around customer advocacy must be about more than just good annual report copy. It’s tangible demonstrations of advocacy which resonate most strongly with customers – Ally forgoing overdraft fees, Southwest letting bags fly free, T-Mobile doing away with data overage charges. These are all examples of turning common customer pain points into compelling brand proof points.
Critics might counter that customer advocacy is inconsistent with the maximization of shareholder value. After all, Ally’s recent move – not unlike the actions of Southwest and T-Mobile – has an undeniable financial consequence. Revenue (in the form of overdraft fees, baggage charges, or wireless contract penalties) is being left on the table.
That’s a shortsighted view, however. These companies are smartly playing the long game. They recognize that sacrificing some revenue in the short-term is the right long-term decision if the resulting customer experience is more appealing, more differentiated, more magnetic.
Indeed, if smartly orchestrated, the long-term gains from such an approach will often eclipse any short-term financial impacts. It’s a dynamic that’s been demonstrated quite convincingly by Watermark Consulting’s Customer Experience ROI Study, which vividly illustrates how the stocks of companies that lead in customer experience tend to outperform those that lag.
It’s a performance pattern with which Ally, Southwest and T-Mobile are also quite familiar. Over the past half decade — despite forgoing certain significant sources of revenue in the name of customer advocacy — each firm’s total shareholder return has been at least double that of its respective Dow Jones industry stock index.
Those statistics underscore a simple but powerful conclusion: When you advocate for customers in a credible and tangible way, you’ll win allies all around, from consumers to shareholders.
[A version of this article originally appeared on Forbes.com.]
Jon Picoult is founder of Watermark Consulting, a customer experience advisory firm that helps companies impress customers and inspire employees, creating raving fans that drive business growth. Author of “FROM IMPRESSED TO OBSESSED: 12 Principles for Turning Customers and Employees into Lifelong Fans,” Picoult is an acclaimed keynote speaker, as well as an advisor to some of world’s foremost brands. Follow Jon on Twitter or Instagram, or subscribe to his monthly eNewsletter.