COVID-19: Should Customers Come First?

On Friday April 3, Bank of America became the first major lender to kick start the Payment Protection Program - a government scheme designed to help small businesses survive the crisis of COVID-19. By the end of the day, the bank had received requests from 85,000 small enterprises for loans totaling a whopping $22.2 billion. That’s a lot of money from one bank, in one day – not to mention a significant chunk of the $350 billion earmarked for the scheme.  

The news sparked panic among the country’s 30 million-plus SMEs. With finite cash to go around and only a limited number of banks doling it out, the coffers could be emptied out fast, leaving struggling businesses without funds, and on their knees. 

Making the news even harder to swallow for prospective applicants was the announcement from Bank of America CEO, Brian Moynihan, that they would be prioritizing existing borrowers, before opening the scheme up to its other small business clients. New customers would then have a shot at securing a loan, but they would be right at the back of the queue.

More than a week on, as events have unfolded, I’ve found myself struggling with conflicting feelings about the whole affair. 

As both a business owner and a human with a moral conscience, I share the outrage felt by many about Bank of America’s approach. In this time of crisis, there is a strong argument that the country’s second largest banking institution (after JPMorgan Chase) should be pulling out all the stops and helping as many people as possible, customer or not. After all, it’s not like BoA is handing out loans for free; on the first day alone, they stood to gain between $900 million and $1.5 billion in government fees for their trouble.

But there is another side of me too – a side that understands where Bank of America and other lenders like it, are coming from. At the center of their thinking are the two big Cs: cash and customers. As Brian Moynihan pointed out in an interview with CNBC, the loans might be backed by the US government, but issuing them means delving into a bank’s own capital and dishing it out as hard cash – their most prized asset. 

Will the US government pay them back like for like in cash when all this is over? Probably not. Will they be paid back at all? The likely answer is yes, but history has taught us that a lot can change in a short space of time when politics, economics and finance collide. 

Then there’s the other big C. Customer relationships are the very core of banking, so why wouldn’t Moynihan and his fellow banking CEOs prioritize existing customers? The mantra of “customer first” has been drilled into us for decades. Does that no longer apply? Should loyalty count for nothing in times of crisis? A lot of people would argue the opposite. Yes, offering loans to the masses would generate a tsunami of new customers, but could a bank count on those customers to stay through the good times too?

There’s a practical element to all this as well. With businesses bleeding cash by the hour, issuing rescue loans is all about speed. Banks have to move fast, and one of the fastest ways to start getting money to those who need it, is to begin with existing customers. With the due diligence already done and the A to Z of client details already on file, it could be as simple as hitting the “send” button. Issuing a loan to an entirely new customer is a whole other story.

In the face of financial hardship, it’s easy to point the finger at big banks, but what seems unfair to many of us, is seen as quite the opposite in Business 101. Protecting the bottom line and prioritizing the customer. What’s wrong with that? Nothing, if you happen to be an existing borrower at BoA. Everything if you’re not.

Printed originally in Gulf News (13 April 2020)

Dr. Tommy Weir is the founder & CEO of enaible: AI-powered Leadership and author of best-sellers including Leadership Dubai Style. Contact him at [email protected]