Newsletter: Published Tuesday, 07.11.18
It turns out that lots of people seem to hate banks.
Which is, you know, a shame, because by and large they control and house all our money.
Only one in five Australians believe banks act ethically.
And one in four Australians think banks take responsibility for their mistakes and keep their promises to customers.
[This is from the Deloitte Trust Index that was released last week.]
Now of course, there are many defences to the bank’s actions in recent times.
The strongest of which is probably they are just too big for the executive to have any idea of what is going on in the various branches and departments.
And the sales staff have probably been incentivised to hit targets more than they are to engender happy and well-cared for customers.
But let me tell you a quick story about my Mum which illustrates why people hate banks.
Mum is still paying off her mortgage (with a bit of help from my Dad).
That’s a joke, he helps a lot.
Anyway, they were watching TV one night when an advertisement flashed on; their bank was offering new customers a home loan package deal of 3.6%.
Mum and Dad have banked with their bank for 25 years.
They had their small business loan with them, they had their credit cards with them, and they have their mortgage with them.
Their mortgage was 4.04%.
It seemed peculiar they had missed the notice their bank was offering lower home loan deals.
So the next day Mum called them up and asked about it.
What followed was an awkward conversation where the bank’s customer-service lady tried to explain the 3.6% deal was only for new customers.
And Mum reminded her that cumulatively over 25 years, she (and my Dad!) had probably paid in excess of $200,000 in interest to the bank from the various products they used.
Which, is, you know, not an insignificant amount for two people. They had run a business using this bank.
And then Mum was forced to ask, why hadn’t this new deal been extended to existing, loyal, customers?
The ones who had paid the bank like $200,000 over time.
It was an uncomfortable moment, because the poor customer-service lady on the other end of the line couldn’t really answer that.
I mean, the answer is obviously Because we hoped you wouldn’t notice.
And perhaps more forensically, Because we are pretty greedy.
But she couldn’t say that! She’s just doing her job and fielding questions on behalf of the bank!
After what certainly, most definitely, was a calm and friendly discussion, Mum managed to secure her (and Dad!) a lower interest rate that will ultimately save them around $45,000 for the remainder of their mortgage payments.
Nice one, Mum!
The point is, lots of customers out there will just go on paying the higher interest rate because they just don’t know they could be getting a better deal.
They kind of trust the bank to tell them that.
But, the truth is, the bank probably won’t tell them that. Which is why people hate banks.
Now let’s talk about the future.
At Spaceship, we tend to argue we’re moving towards a world where meeting evolving customer demand is the key to being a successful company.
(And shock horror, it’s probably more important than returning value to shareholders.)
Alphabet (Google) for example, will probably never issue a dividend, because all the money it makes it re-invests back into itself so it can dish out better products and experiences to the people who use its stuff.
Amazon has fastidiously built its entire business around the easiest, cheapest way for people to buy stuff online, from anywhere and get it straight away.
It’s very difficult to beat these companies on price because they are obsessed with being the cheapest and the best.
They know that happy, well-served customers will come back again and again because they are getting good service and a good deal.
Alphabet and Amazon are betting that’s where the value is. The customer coming back again and again.
In a world where the internet has made starting a business and doing things cheaply really, really easy, if the customer feels ripped off, they can just shop around for another deal.
The existing Australian banks are betting we are too lazy to do that stuff.
And maybe folks who are my Mum’s age (which is very young and youthful) are too lazy and unlikely to change banks just for a better deal.
But at Spaceship we are betting that you aren’t.
🚨Insert plug here about why our Voyager managed funds are so affordable.🚨
But also note that’s why, in picking companies to include in our Spaceship Universe Portfolio, we invest in companies that have that customer-focused attitude.
Ultimately, we think, those businesses will win out.
The basic premise is: if the customer has a frictionless, cheap and good experience, they are likely to like your company more, spend more money over time and generally increase your market share, revenue and profits.
It’s a nice mix. And the likes of Amazon and Alphabet and other contemporary businesses work hard to keep “the benefit of the customer” at the heart of their value set.
This header is a screen shot of Arthur Morgan, following the Valentine Bank Heist in Red Dead Redemption II.