misadventures in retail banking

Consequences of The Patriot Act Title 3: The Death of the Relationship Banker

Good ol' days...
(Wordcount: 1,744; Pages: 5) Shariza is an enthusiastic banking professional at HSBC. As a new employee, she's still learning all the rules and policies. Every new experience helps her learn how to deliver her customer service to the hundreds of business owners she'll be dealing with throughout her banking career.

Prior to meeting Shariza, I called HSBC's 800 number to find out what I needed to bring to the branch to open a new business account. Despite what you may assume, since I hadn't been told to bring a proof of address, I didn't. So when Shariza asked me for one, I couldn't produce what she wanted. I did have my articles of incorporation, a business magazine with my address printed on it, my passport, and a copy of a recently published handbook, the latter of which (I brought by coincidence and), in my opinion, verified who I was and my business' existence.

Shariza asked permission from her boss, branch manager John Wong, to accept these documents, which Mr. Wong promptly denied. Rather than go back and forth, Shariza brought John over from behind his desk to explain to me why my proof of address wasn't sufficient. He explains to me that, "anyone could have gone to a Kinko's to print some book" and that's why my proof of address wasn't sufficient for his branch.

Mr. Wong's tone was less than "friendly". I couldn't help feeling he resented being pried away from whatever he was doing at his desk in order to "deal with" a non-customer he thought he'd already dismissed. With his imperial quaff, he proceeded to discount my credentials, and neglected to make any and every attempt possible to verify my proof of address, such as calling my office to confirm my address, calling my landlord to confirm my lease, or coming up with any number of creative ways to confirm my address that were within the boundaries of HSBC policies.

Assuming that I am a completely unbanked and ignorant business owner, who has never opened up a business account in 7 years of operation; and assuming that I hadn't called HSBC's 800 number to confirm what materials I needed before hand; and assuming that I am a customer interested in opening an account at their branch and not any of the 400 other HSBC branches in my area (1), what shocked me most was how insulting he was - customer service was not even something I expected.

No prob, John, I'll just visit your colleagues at another branch. Prepping the supposed missing documents, I proceeded to visit a convenient HSBC branch in New Jersey to again try to open a business account. Incredibly, as a New York-based business, I need an additional document - a certificate of good standing - in order to open an account in another state. And the document costs $25. The policy, apparently, was the result of Patriot Act of 2001 and because of HSBC's incredibly thoughtful promise of integrity, (and potential penalties of up to $1,000,000 per violation [2]), I was again rejected.

It should come as no surprise that despite my rejection, the banker, George, still attempted to upsell me on HSBC's products and services. In my attempts to do business with banks, accountants, and other types of business services, I have learned that the "establishment" is biased against service businesses. The vaunted financial systems of the West are ill-equipped to actually help a service business launch and grow outside of the traditional asset-based systems of the industrial age. The Patriot Act of 2001 makes things unimaginably worse.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001

Sometime during the Clinton Administration, terrorism was getting enough attention to get a law written (3). In January 2001, sometime after the Bush Administration took office, the law tidied up and readied for a new president's signature. And within it, new, stiffer requirements were included for banks. These requirements are under Title 3 (of a total of 10 Titles). After 9/11, 45 days later, the law was signed by President Bush, becoming a full-fledged Act, seemingly without resistance, questions, or input from the public. And how could a wholesale violation of privacy be questioned when it was disguised as the patriotic thing to do?

No one was quite sure what to make of it, considering everyone was still arguing about or preparing for the upcoming Sarbanes-Oxley regulations, upheavals at the Securities and Exchange Commission, looming bank consolidations, and of course, the grief experienced by the tragic events of 9/11. But certainly, no one questioned the need for it; the need to fight terrorism where it hurts, the wallet. Without financing, politicians figured, how could terrorists continue to execute their acts of terror? (The force of the current insurgency in Iraq and throughout the world, or course, is about all the proof one needs of the Patriot Act's utter failure.)

Anyway, with security top of mind, questioning the loss of privacy didn't matter as much as finding ways to profit from this new law. (Changes in administrations and law, as you may know, are monumental opportunities for consultants and other "professionals" to create new revenue opportunities, so "screw my rights, it's time to get paid!") And boy did consultants get creative: the name of the game now is information management and the frenzy became so intense that huge lapses in planning and security actually created an entirely unexpected jump in a category of crime previously affecting less than 1% of the population: identity theft (4).

Today, over 3% of the population is impacted by the recklessness of how our personal, private information is handled by companies and governments (5). In fact, the number of victims has doubled since 2001, in full, front-page glory, as companies found themselves getting hacked, robbed, or bought outright by crooks who wanted access to their precious, private customer data. But this figure doesn't account for terrorists who were blocked from opening a bank account because there's no way to know if you're a terrorist until you blow something up. In other words, as if starting, registering, and financing your small business weren't hard enough, you're now a potential terrorist until your site visit.

And herein lies the problem for entrepreneurs: in a service economy, a site is no longer a prerequisite to be in and grow a business. But it is a prerequisite if you'd like to be a card-carrying member of a capitalistic system. No bank account means no credit or payroll. No credit means no way to finance growth or eventually finance an office. And no office or legit payroll means that you're practically a terrorist because if you couldn't get a bank account, you must be doing something you shouldn't be doing, including not paying off the IRS to leave you alone.


The Patriot Act does more than merely violate civil liberties, particularly your right to privacy. It makes it harder to even open an account even with additional ID and verifications; it makes it harder to deposit large sums of money; flags large deposits as potentially suspicious activity that has to be reported; makes site visits mandatory; flat out brands certain banks and countries as money-launderers; eliminates any semblance of privacy across all your accounts across all the institutions you have money in; and creates an unusual sense of distrust between customers and an industry that claims to depend on relationships.

And if you're engaged (or even want to be engaged) in any business transaction, prepare to grab your ankles indefinitely. Despite the party line that every banker at every bank is committed to customer service, the irony is that it's impossible to provide under these regulations. Moreover, bank competition being what is - inconsistent customer service experience across branch networks, lack of innovation in products, deposit quotas, branch-managers-with-poor-customer-service-skills-turned-sales-associate-with-poor-customer-service-skills and desperate promotion of glorified tellers to replace the severe dearth of retired, experienced relationship bankers - there frankly is no such thing as customer service in retail banking today.

The insights that lead to banks opening up branches at break-neck speed in the last 4 years were that customers really wanted that face-to-face contact. But in over-emphasizing "on-the-job" training, assigning managers like Mr. Wong to run their branches, and forgetting that sometimes the customer does not care about new (but not innovative) products (especially since banks have taught us how to rate shop anyway,) preferring instead streamlined access to their own money, it is now clear that banks have thrown billions away in this strategic retail expansion. (And after such an investment, it's terribly difficult to say, "Oops! Our bad for wasting so much of your money, Mr. Investor. Don't get upset and take away our $50 million dollar bonuses.")

Unbelievably, banks' preoccupation with playing investment bankers and financial advisors to baby boomers has risked alienating their other customer segments. (Witness Bank of New York's selling of their retail branches last year to the JPMorganChase machine because they no longer felt like dealing with mere mortals.) Moving forward, banks will continue to consolidate in such ways, with massive national banks increasing their "footprints" and tightening their grip on businesses who currently have accounts with bought-out competitors, eliminating choice, and worse, increasing barriers to new banks who'd like to get chartered with the goal of delivering a truly superior customer service experience; like Commerce Bank, for example, tried to do in New York, until they admitted that it was all an untenable promise, an ugly bait-and-switch, really, revealed with a recently instituted minimum deposit amount for customers to avoid service charges.

In the end, I was able to open an account at an HSBC branch in New York with an incredibly friendly, flexible, young banker, Madhu, who not only serviced me 5 minutes before closing time (and she had a plane to catch that evening), but promised she'll have my account wrapped up the very next morning. Every new experience helps her learn how to deliver her customer service to the hundreds of business owners she'll be working with throughout her banking career. But regrettably, Madhu admitted to me that she's only in retail until the management program she's in rotates her back to London where a future in corporate banking awaits her. And presumably, that same sterling service will be reserved exclusively for everyone but the small business "terrorist".


(1) HSBC corporate site: http://www.us.hsbc.com/1/2/3/personal/inside/about

(2) Patriot Act, Title 3 (from Wikipedia): http://en.wikipedia.org/wiki/USA_PATRIOT_Act%2C_Title_III

(3) United States Department of the Treasury Financial Crimes Enforcement Network, http://www.fincen.gov/reg_bsaregulations.html; The Office of the Comptroller of the Currency, http://www.occ.treas.gov/BSA/BSARegs.htm; The Federal Reserve Bank of New York, http://www.newyorkfed.org/banking/patriotact.html; The Patriot Act (from Wikipedia), http://en.wikipedia.org/wiki/USA_PATRIOT_Act; al berrios & co. analysis.

(4) Federal Trade Commission data on ID Theft, http://www.ftc.gov/bcp/edu/microsites/idtheft/reference-desk/national-data.html; al berrios & co. analysis.

(5) Ibid.

Al Berrios is Managing Director of al berrios & co., a pure strategy consulting firm, specializing in advising organizations + entrepreneurs on managing their enterprises in a service economy. Write or Subscribe to Consumer Strategies Report.


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