Recently, the Commonwealth Bank of Australia paid $80 million in refunds and interest to customers because the bank had relied on staff to manually input discount rates on their products. Their reliance on manual processes meant that in many cases, human error prevented customers from getting the benefit of the discounted rates. In addition, the exception reports used to identify potential mistakes were not accurate.
1. Do your bank rec! Banks aren’t always right
In the present case, the average payout per customer was $370 including interest. It might therefore be worth investing time into doing bank reconciliations and checking statements. While this only occurred with the Commonwealth Bank, similar incidents have occurred with NAB and ANZ – this may just be the tip of the iceberg! When you sign up for banking products, make sure you keep copies of:
- Any marketing material;
- Financial Services Guide;
- Product Disclosure Statement; and
- Any Statements of Advice given by a financial planner.
These documents will contain the rates applicable to your products and will help you resolve any disputes should any come up.
2. Even the pros get it wrong – tech solutions
On the face of it, the tech solution seems pretty straight forward. The Commonwealth Bank is Australia’s largest bank and it has an army of the best and brightest. Automating the application of discount rates should not be that much of a challenge. In an age where even a local small business can automate part of it’s processes, surely the bank would have considered incorporating more tech solutions to its businesses processes.
From a startup lens, this story offers an interesting insight into how big business work. Entrepreneurs will often face a formidable wall of naysayers when trying to start their business. One of the most common challenges is the critique that, if it’s such a great idea, why hasn’t someone else done it already?
Commonwealth Bank’s answer in this case, would likely be that it didn’t think automation was a great idea. If it’s earnings are strong enough and big enough, it can afford to rely on manual processes and it has no reason to change. The bank simply did not see the opportunity despite its vast resources. Thus next time someone asks you that question, hang in there and show them the opportunity! Even the big end of town gets it wrong sometimes!
3. Trust, not technology is key
So it seems the Big 4 Banks aren’t so scary anymore. However, before you go off competing against the banks, let’s say you hypothetically develop a tech solution good enough to rival the bank’s systems. Is your company going to be flooded by customers or simply bought out by the banks for peanuts? The one area where the banks excel and startups struggle is trust.
In this case, the Commonwealth Bank handled the trust held by its customers well by doing 3 things.
First, the Head of Retail Banking publicly apologised to impacted customers. This can be emulated pretty easily – just make sure you get legal advice so that you are fully aware of the consequences of any liability you admit to.
Second, the bank cooperated with and proactively reported the issue to regulators. This may be more difficult for startups with less frequent regulator interactions – it might be better to get specialised legal advice.
Finally and most importantly, the Commonwealth Bank made a very clear and very public decision to refund the customers.
This effectively distanced the bank-customer relationship from the technology used. By placing the customer as the focus of their remediation efforts, the bank was able to maintain the trust it had amongst its customers. The moral of the story here is that regardless of the level of technology involved, regardless of how effective or cutting edge the technology is, the customer should be your focus.
Let us know your thoughts on Comm Bank’s fine by tagging us #lawpath or @lawpath.