Unless you’re intentionally avoiding the media, or living under a rock, you heard murmurings over the last few weeks about the video game company GameStop. In a scandal fit for the big screen, members of a community on the website Reddit conspired to make money by driving up the value of GameStop stock and then selling it when it hit its highest value. Most of this trading took place on a website called Robinhood which offers commission-free trading for individuals.
As the price of GameStop stocks teetered just below $500, nearly 1000% more than what it is valued at today, clients turned to Robinhood to liquidate their earnings and many were met with complications. Unfortunately, the company’s email and text customer service were unable to keep up with demand and customers were unable to move their money. Robinhood was gravely unprepared to serve their customers when they needed it most.
Now that the dust has settled on this debacle of American investing, I can’t help but think of the economic principle we all learned in high school, “there’s no such thing as free lunch.” What these small investors learned from their dance with Wall Street is that no-fee investment companies inevitably pass costs down to the customer in other ways. No-fee means no-service and often higher stock prices. Anytime something is labeled as free, the cost is being absorbed somewhere down the line. Free shipping online is likely possible because the cost of shipping has already been baked into the price of your goods. Free trading on Robinhood is possible because they haven’t invested in the infrastructure and human capital required to provide good service.
The issue of no-fee models is not unique to trading platforms like Robinhood. Financial services companies also like to dabble in this model and the customer always pays for it in the end. As the CEO of a community bank, I’ve had to learn how to help my company balance the ever-changing landscape in American banking with the reasonable expectation of high-touch, high-quality customer service that people have of small local banks.
“Free” makes for good marketing and is an effective tactic for bringing new people into your company. However, as clients of Robinhood experienced, something will always get lost in the exchange. Do you want more customers who will eventually leave dissatisfied with your service? We don’t. The world is full of quick, low-quality options. There’s a fast-food restaurant on every corner. In this landscape, we choose to go for quality. We’ll always invest in technology and systems that provide the convenience our customers desire, but never at the expense of service.
Banking touches many aspects of life. My commitment is always going to be to provide a quality experience for Surety Bank customers. The goal is to make their life easier and better by the services we provide. Sometimes that involves a cost, but at the end of the day, it is minimal compared to the value they get in return.
How does your business exceed the cost of doing business with services and products you provide?
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