This was a savings program implemented by a bank in an effort to increase the amount of transactions customers were making with their debit cards. The incentive was that for every transaction completed with the card one dollar would be transferred from the customer's checking account to their savings account. Although a one dollar transfer does not sound significant, some customers do not keep a substantial amount of funds in their checking. The bank's mental model was that they could assist their customers in saving money (through the automated transfer) and use this to promote an increase in their amount of debit transactions. The unintended consequence here was that as the amount of transactions was increasing so too was the amount of funds being transferred and this in turn led to overdraft fees.
The mental model of the bank was flawed in the respect that it seemed to be using a narrow model boundary and was not cognizant about how this policy may interact with others in place. It was concerned with the short-term increase in transactions (their goal) and failed to consider the possible adverse effects of the diminishing checking balance (the time delay). Also, the interaction between this incentive program and their overdraft policy was not considered or was perhaps not given ample attention. As the system played out over time the bank ended up actually deterring customers from making debit transactions for fear of a resulting penalty.
Martin, this would have to be one of the best examples of unintended consequences that came back to bite a company and the consumer. The mental model in this case was definitely a reinforcing feedback and was intended to promote savings by their customers. The causal connections were unambiguous and the polarity of the connections made sense to me and ultimately lead to consumers saving less money. I don't think there are any other unintended consequences that can be considered, but I wonder if this could be considered a death spiral? The transfer of $1 at a time to savings most likely paled in comparison to the $20 to $30 overdraft fee charged for each transaction!
ReplyDeleteThats amazing it but not very surprising, I've read in several publications that banks make more money from fees charged than actual lending. I wounder if there is a possibility of another loop where over time customers keep better track of their account balances and account for the dollar automatically transferred. It would have a significant delay in it, either way it is a expensive lesson to learn. I'm assuming the bank discountinued the program before consumers racked up fees that they didn't have the capital to cover.
ReplyDeleteVery nice example, Martin, and a classic example of an ill-advised policy that was formulated out of a very narrow view of the problem (i.e. the problem = how to increase revenues and assets of the bank). The policy in fact ultimately resulted in LOWER assets and revenues!
ReplyDeleteThe CLD looks good... solid use of variable names and causal links. The narrative clearly explains what happened and highlights how the sources of the problem are represented in the CLD.