Bankers should not be retailers [Wells Fargo]

5,300 Wells Fargo employees have been caught faking customer account openings in order to hit their sales targets. That sounds pretty disgusting doesn't it, but it's nothing new.  In fact, we here in old America or, as some call it, Britain, have been living with this for half a decade. During the 2000s, leading up to the crisis, the U.K. banks became hard core retail banks. By retail, I mean retail. They hired in people from big retailing companies like Asda, now part of Wal*Mart, and told staff to get out there and "sell, sell, sell".  And sell they did. Some say this was part of the crisis conspiracy - the sale of mortgages to those who couldn't afford them, for example - but the real mistake was thinking of retail  banking as the same as retailing. There's one critical difference: risk.  In retailing, there is no risk when someone buys your product as, once paid, the deal is done.  In retail banking, the whole operation is about managing and minimizing risk as, once the deal is done, will the customer ever pay back. Hence, when bankers loaded their customers with credit to their eyeballs, no wonder the customer felt betrayed when the banks started to squeeze them for payback.

So what's all this got to do with Wells Fargo's staffers faking accounts?  The key is that it's part of that pile 'em high and sell 'em cheap retailers mentality for, in a retail operation, every member of the frontline workforce is given sales targets. In a clothes store, the manager may have a target of $5,000 sales per day and a special promotion on jackets. In a bank, it's 50 account openings per day and a special promotion on credit cards.  Fail to reach those targets for 90 days in a row and you're out. That fear of losing your job then creates bad behaviors based upon fear, such as faking customer account openings in the case of Wells Fargo. But I said we Brits had seen this for a while now, so what happened here?

Well, during the last decade, all the UK banks felt it was a good idea to sell Payment Protection Insurance, or PPI for short.

PPI is an easy product to understand, with a very specific purpose which is that if you borrow from the bank and have problems later such as losing your job, then the insurance will cover your loan repayments until you find a new job. Great.  The issue that arose is that the retail bank senior management teams felt this was such an easy sell that they targeted every member of the banks' front office teams to sell, sell, sell it.  And sell it they did. In fact, they sold it so hard that the customers got hit. Millions of customers got signed up for PPI without even knowing what it was. Some were signed up because staff ticked the PPI box without telling them what it was for; others got signed up when staff filled in the applications for them, and signed signatures on their behalf, after the customer had left the branch.  In other words, it was a right royal stitch-up.

When the complaints authority saw a swarm of angry customers asking for their money back, they eventually acted, with the regulator stating that these activities were illegal and the banks must pay back all the premiums with interest if the customer asked.  That was in 2011 and, so far, that decision has cost the UK banks $50 billion in paybacks and interest.  That's not

Including the internal bank costs of dealing with the millions of PPI payback applications.

So, for Wells Fargo, a $190 million fine seems puny by comparison. But what if they were not alone. What if many of the US banks were indulging in such illicit activities?  Could this be Ameroca's PPI moment?

I hope not but just remember retail banking is not the same as retailing.  One lives with high risks whilst the other does not, and mixing the two mentalities is always going to be dangerous.