> Posted by Joshua Goldstein, Principal Director for Economic Citizenship & Disability Inclusion, CFI
“Customer-centric” is defined by businessdictionary.com “as creating a positive customer experience at the point of sale and post-sale.” Gerhard Coetzee, Senior Financial Sector Specialist at CGAP, and his team are exploring how customer-centricity can be best customized and then operationalized for low-income people, in particular the unbanked and clients of financial institutions (FIs), with a strong emphasis on “customer empowerment.” At a recent persuasive presentation at CFI, he discussed his approach.
The mandate of Coetzee’s study, launched last year, is to come up with a series of clear recommendations for financial service providers on how to give customers greater control over their financial destinies. Coetzee makes a strong case that “front-line staff” may do a poor job in communicating the advantages or disadvantage of one product over the other. But I believe that he should consider giving more weight to the pivotal role that well-trained and long-serving loans officers and other front line staff may play in an FI achieving customer-centricity.
Basic trust is the foundation for a customer’s positive relationship with an institution. It seems to me that a loan officer is instrumental in creating and maintaining that trust. But since loan officer turnover tends to be high, it seems pretty obvious that such transiency will undermine the building of lasting, trusting relationships between a customer and a bank – especially if the customer smells the nectar of teaser rates at some other lender.
So I believe CGAP’s study should try to determine whether not only customer retention but loan officer retention is a key indicator of a customer-centric institution, as common sense might suggest. “Loan-officer-centricity” may ineluctably lead to customer-centricity. The theory is that keeping the same loan officers in place will lead to greater client retention, adoption of new products and in the long term greater profitability – even if in the short term there are costs to operational efficiency.
The payoff in long-term profitability will only occur if staff retention leads to an increase in repeat customers. We are not talking about the kind of client that takes out one loan and then never tries another financial product with the bank again. In such cases the relationship with the loan officer is inconsequential and the cost of training and retention wouldn’t be worth it.
My colleague Abhishek Agarwal, India Country Director for Accion, counters my arguments that loan officer retention, prima facie, is such a good thing. He believes that in India at least, loan officers who stay in one position for too long lose their drive and effectiveness. Indeed, he believes that keeping them on the payroll longer, by providing higher base salaries, does not incentivize them to work harder to obtain and cultivate clients but in fact makes them lackadaisical and less ambitious.
But let us look at a company in another industry where customer-centricity to some extent seems to have been achieved: Starbucks. Their results suggest that customer gains and retention go very much in tandem with barista job satisfaction and the duration of their employment. In addition, loyal customers try out more new products. So as a thought experiment let us play with the idea that the barista could be seen as the imperfect equivalent of the loan officer.
“On June 16th Howard Schultz, the boss of the coffee retailer, told a meeting in New York of hundreds of top-performing employees—and their families—that the firm will pay for their university education. From later this year, it will cover all the tuition fees in the final two years of college for staff who work at least 20 hours a week, and may also contribute to the cost of their first two years…Starbucks already offers good health-care benefits and employee share ownership. He thinks shareholders will benefit because employees will be more motivated and loyal. Although the attrition rate at Starbucks is well below the fast-food industry’s average of around 110% a year, it is still said to turn over two-thirds of its workforce annually. Reducing that, and thus the cost of recruiting, training and integrating new workers, could save a fortune.”
Think about the barista and the different drinks as product offering and how this lesson on barista work could be applied to loan officer and product offerings.
Or here is the testimony of a former Starbuck’s barista, “If a customer feels ownership of a drink, he or she will be inclined to come back and order it day after day. It was a rare customer who ordered just a plain cup of coffee. Starbucks is all about ‘mass customization,’ about meeting customers’ many individual preferences while maintaining low costs. To study the names for the many beverages, I was sent home with a set of dice stamped with different drinks and modifiers.”
As MFIs work to diversify and get acceptance for new product lines as well as retain their clients, the argument from the Starbucks playbook is that a better-compensated, long-serving and more motivated loan officer will mean customer-centricity is more likely to be achieved, and with it greater profitability.
Image credit: Daniel Gueorguiev
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April 8, 2015 at 12:14 pm
Bobbi Gray
Joshua, great post. I’d agree on the role of the loan officer here. Freedom from Hunger a few years ago undertook a project to listen to the frontline fieldworkers; specifically, to listen to the credit officers of financial service providers who utilize the village-banking model as a platform to provide financial and non-financial services to groups of poor women (https://www.freedomfromhunger.org/voices-frontlines-research-project-focused-listening-microfinance-credit-officers). Freedom from Hunger worked with five microfinance institutions in Latin America to conduct this research. We interviewed credit officers, supervisors, and clients, to answer five key questions: 1) What motivates credit officers? 2) What is the state of the relationship between the credit officer and the client? 3) What can we learn from credit officers about the people they serve? 4) How can we better support credit officers? and 5) How faithfully are programs, policies and procedures carried out by credit officers? What struck me from this process is how important the social mission of the institution drove both the type of person that was recruited to play the role of a loan officer and how this internal motivation to “help their community” actually determined how successful they were at their job…and how successful the organization was. While all the partners at one point recruited “banking/accounting”-type people, these people were not as successful or satisfied with their jobs as those that came from social work, health, and other backgrounds. Our partners found it was easier to train a person motivated to work with vulnerable communities about banking than the other way around. It’s important to make sure people who don’t come from financial backgrounds to receive the right sort of training and support, of course, so that they can be effective at their jobs, but–at least for those providing services through village banking and who are tasked to provide other non-financial services as well–starting with a person already motivated to work with your target clientele was found to be important. I think this focus on recruiting and supporting the right staff is important to success. CRECER in Bolivia has both been SMART certified and received Leader status under Truelift. I do think this is due to their commitment of recruiting the right people, putting strong training and support systems in place for their staff, and this results in both high customer satisfaction and improved outcomes for clients.
April 8, 2015 at 12:34 pm
Joshua Goldstein
Thanks, Bobbi, for your very thoughtful and substantial response. Your commentary is filled with the kind of insights and details that add so much to this most important topic. The study from Freedom from Hunger and the example of CRECER are really noteworthy.
April 8, 2015 at 10:15 pm
yerramr
The author has hit the nail on the head. Credit risk largely depends at the origination, particularly in the micro finance sector. Due diligence could be individual customer centric or community customer-centric. Certain communities tend to respond to lending discipline uniformly. This contextual discussion make me believe that loan officer centric approach would not be the right approach. Each loan officer in most institutions can be expected to have at best a three-year tenure, for he/she also has aspiration to rise in career when it becomes due. Further longer tenures of credit officers have a tendency to establish vested interests. It is therefore necessary for institutions to establish a credit culture and risk culture as basic ingredients of institution building.