Improving the effectiveness of banks’ service guarantees

Improving the effectiveness of banks’ service guarantees

INTRODUCTION

Waiting for service has long been a widespread problem for bank customers. Waiting to see a teller, to talk to a customer service representative, to consult a financial adviser, or to withdraw funds from an ATM have all become part of modern life. Customers are waiting before the service is rendered, during its delivery and at times even after the core service has been delivered. To mitigate these problems for consumers, researchers have suggested three principal approaches: reducing actual waiting time through operational techniques; reducing perceptions of the length of the wait; and managing the negative impact of the delay. However, finding the resources to implement any of these approaches is not easy, especially in an environment of increased pressure on bank managers to cut costs. Yet several banks have recognised the potential impact of long and frequent delays on loyalty and retention and in many cases, efforts to implement some form of service improvement programme have then been initiated.

The impact of such service improvement efforts, however, is not necessarily immediate. Across a wide array of service industries, managers are facing the frustrating reality of succeeding in reducing actual delays, only to learn that many customers have not yet noticed any significant change. It is clear that additional communication efforts are needed. Specifically, banks ought to make customers aware of the current improvements and increase their trust in the bank’s long-term commitment to solving these problems.

One method of accomplishing these communication goals is to offer a service guarantee. Many service industries have used guarantees to express both their commitment to customer satisfaction and their willingness to compensate the customer in case of deficiencies. In a banking environment, for example, the guarantee could stipulate that customers will be compensated if a delay in service exceeds a specified amount of time. Conceptually, the guarantee is expected to signal to the customer that the bank is taking this issue seriously and ‘is putting its money where its mouth is’. Such a guarantee is likely to indicate to customers that the bank is committed to reducing actual waiting incidents as well as compensating customers in the event of an occasional long delay. While theory suggests that the benefits to both the bank and its customers will be compelling, the implementation of a service guarantee programme is likely to be costly. Thus, banks need to assess whether the perceived benefit of the guarantee programme to its customers is likely to be significant.

To begin answering these important questions, an empirical study was conducted among customers of a major US bank. The bank had implemented a wait-time guarantee. Under this programme, customers who experienced long delays were entitled to monetary compensation. The overall goals of the study were to analyse the effectiveness of the guarantee programme and to identify ways to improve it. More specifically, the following objectives were pursued:

—        Assess the perceived value of the guarantee programme to customers

—        Evaluate the impact of the guarantee on customers’ dissatisfaction with the bank’s service

—        Examine the extent to which customers invoked the guarantee and identify barriers to usage

—        Determine how the effectiveness of the service guarantee programme could be improved.

Before presenting this research, a brief review of the literature on service guarantees is provided. The results of a multi-stage study of this bank’s customers and employees are then reported. Finally, the managerial implications of the findings are discussed.

Representative APR 391%

Let's say you want to borrow $100 for two week. Lender can charge you $15 for borrowing $100 for two weeks. You will need to return $115 to the lender at the end of 2 weeks. The cost of the $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you decide to roll over the loan for another two weeks, lender can charge you another $15. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.

Implications of Non-payment: Some lenders in our network may automatically roll over your existing loan for another two weeks if you don't pay back the loan on time. Fees for renewing the loan range from lender to lender. Most of the time these fees equal the fees you paid to get the initial payday loan. We ask lenders in our network to follow legal and ethical collection practices set by industry associations and government agencies. Non-payment of a payday loan might negatively effect your credit history.

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