An Unethical Practice at a Bank Selling Xcard Essay (Critical Writing)

Unethical Practices at the Company

XCARD is licensed by the Central Bank of the United Arab Emirates (UAE) to conduct its financial activities in the UAE. It operates a prestigious credit card brand franchise in the Middle East and North Africa region. The company is the industry’s leading provider of prestigious payment and credit cards and offers its products to individuals. The company also offers enterprise solutions for blue chip and global organizations and currently serves a large number of 500 companies worldwide.

The company follows the underwriting standards and guidelines set by the Central Bank of the UAE to determine whether or not to extend a credit line for an individual/corporation. As such, applicants are required to submit adequate KYC documentation and Financial information for assessment.

Since the company offers prestigious products for end users and in order to maintain the exclusivity of the brand, it also applies a set of requirements to ensure the acquired customers fit the brand’s image. Those requirements range from a minimum monthly salary to social status, which makes it really hard to increase the target market size.

XCARD Revenue stream comes from 2 sources: Minor, through recurring annual membership fees, and Major, generated from the billings charged on the active cards with the existing customers. Every time a customer completes a purchase on his Credit Card, XCARD gets a percentage fee known in the industry as the Discount Merchant Rate. As the percentage earned by XCARD is immediate, they gain revenue generated from hundreds of thousands of transactions every day.

In order to maintain steady growth, XCARD should work on three fronts:

1. Decrease the customer’s attrition through an unparalleled end-to-end customer experience
2. Ensure the spend generated from the portfolio through marketing campaigns and merchant promotions.
3. Acquire more customers through direct sales driven by the product consultant team.

While all those 3 activities constitute a big part of the company’s KPI, acquiring additional customers is the most important front for the company’s shareholders. To a certain extent, that is based on historical data and global standards. Of course, the two other KPIs are also important, but they are susceptible to many uncontrollable external factors such as market economy, purchasing power, and merchant acceptance.

As a result, XCard became a sales-driven organization driven by the senior leadership team, who in turn were stirred by shareholder’s directive to increase the portfolio size by acquiring new customers. They put high pressure on middle management and the direct sales team (i.e., product consultants) to achieve results. The company structured the entire organization (i.e., people, culture, processes) in order to evolve around supporting the sales operation.

The Consumer Department employs, on average, 30 product consultants, whose role is to contact potential customers and persuade them to submit an application to get a credit card. The number of salespeople fluctuates from month to month owing to resignation, new hire, or termination due to low performance.

From the day a product consultant is appointed, they can instantly recognize the company’s sales-driven culture. Their onboarding journey starts with them signing on a three-month sales target mandate. They complete an induction training, that ends with either termination if they fail to achieve set targets or signing on another sales target letter for the next 6 months.

The product consultant’s performance is monitored closely through a multi-layer management hierarchy, Daily MIS, and weekly target.

In order to increase the approval rate, the product consultant must find suitable leads: they must meet the company’s strict minimum eligibility criteria, mainly based on five criteria of trust. This is usually verified using a list of documents that a potential client must provide to prove their creditworthiness. Historically, customer service approval rates have averaged 60%. Out of every ten applications submitted, four are rejected for various reasons. All this testifies to the high quality of applications received from the market.

Poor performers submit fewer applications or a high number of applications but of low quality, which usually affects their reputation and harms the department’s average approval rate. Worth noting is the fact that a potential client is considered “sold” when the product consultant submits an application to the risk department along with all supporting documents for underwriting. Only then the application is approved and the credit card is sent to the client. This process has proven effective in the past in terms of motivating new employees and existing employees and creating an atmosphere from day one, thus creating a solid foundation for an effective sales organization.

In addition, the company’s attractive incentive scheme not only rewards reaching 100% of the goal but also offers a commission plan accelerator with a higher commission rate for high achievers, which greatly increases their payouts. In a sales-oriented organization, highly successful salespeople earn everyone’s respect and admiration, increase their social status in the company, and work their way to promotions. As a result, they become very competitive, which encourages them to do everything to live up to their reputation.

Typically, the sales manager complements the goal set by management and communicates it to their sales representatives to ensure that the original goals are achieved. Goal setting in sales ensures high performance and stimulates their competitiveness. Setting unrealistic goals exposes a company’s business to enormous risk.

In a low sales month, the company holds sales contests to motivate the sales team to work harder and increase sales. These competitions offer additional cash incentives, senior management meetings, paid vacations, and, most importantly, recognition.

This ecosystem mostly leads to 3 unethical practices:

• Overselling: Product consultants misrepresent a service or a feature on the card for the sake of closing the sale quickly (i.e. amplify the scope of a specific service or add a new feature that does not exist).
• Not disclosure of information: Expressively not disclosing critical information to avoid customers’ rejection.
• Forgery: Altering documents to increase the chances of approving an application (i.e., modifying salary certificates, bank statements, etc.).

The consequences of this practice appear at a later stage when the buyer realizes that the features that were sold with the product do not meet expectations or do not exist. The card may not meet their requirements or even be associated with a massive fraud scheme due to the falsification of documents submitted along with the statement. Undoubtedly, this practice damages the brand image, reputation, and credibility of the company. Therefore, in the long run, this will affect customer acquisition and lead to higher customer churn and potential litigation.

Practice analysis

The unethical practices used by this company emphasize that the pursuit of maximum results can only detract from the achievement of realistic goals. The objectives of the company are clearly overstated and encourage inequality within the team. Excessive competence leads to aggressive interactions between the employee and the completed tasks to overtake each other in performance. In fact, this unhealthy atmosphere, contrary to the spirit of cooperation, is born precisely because of the inadequate motivational policy of the company. The company uses the principle of carrots and sticks, which is unacceptable in a business that seeks to build a healthy and adequate work policy. This principle of doing business within the company is designed to motivate employees to give their best as much as possible, giving their strength to work. In this approach, there is a desire for segregation and discrimination within the work team based on the principle of dedication. Good behavior, that is, that which is aimed at achieving and exceeding goals, is encouraged, and the person gets the opportunity to either move up the career ladder or at least secure his current job position. It is much worse for workers who do not work according to these settings because they expect bad consequences, ostracism within the team, and the possible threat of job loss. Obviously, despite the clearer goal setting and the meaningful reason for doing it, this practice is not really beneficial for the work team, as it creates an overly competitive, even toxic atmosphere among employees.

Introducing key performance indicators into the company’s work base could correct its unrealistic ambitions. It is obvious that the set bar for sales forces the company to resort to practically fraudulent methods of distributing its goods, to underestimate product quality control. The company perceives KPI as a principle of effectiveness but not efficiency. Formally, the company is able to act within the limits set for the implementation of indicators, but it is difficult to say whether the company’s activities are effective and not destructive to its reputation and future. Given that the word performance combines two principles of effectiveness and efficiency, this should be taken into account when implementing the KPI. It is important that this scoring system uses principles such as competence and quality management. The company at the moment completely lacks quality control departments, which allows for increasing productivity, but not the level of production itself. We are dealing with a sales-driven organization that seeks to close as many deals as possible first and worry about the quality of the product being sold last. This short-sighted policy can lead to a decline in the company’s reputation and its gradual impoverishment and bankruptcy.

Thus, the organizational policy that this company imposes among employees is expressed most of all in the competitive principle by which the building of collegial relations is determined. In this culture, only employees who provide high performance are rewarded, which needs to be reviewed. Not only employees with low performance but also employees with average quality are neglected within the walls of the company. The principle of exclusively obtaining maximum profit is expressed both in the internal and external policies of the company. The management neglects the customer experience, despite the fact that they claim to strive to maintain and smooth the relationship between the client and the company. All channels through which the interaction takes place turn out to be in reality subject to only one goal – making money. Using a well-designed Journey Customer Map, one could get an idea of ​​the stages passed by the buyer and learn how to leave the best impression on the client. However, the company is not interested in this, which is expressed in encouraging employees, only those who bring big profits. This expresses the lack of attention to other equally important participants in the customer experience supply chain. At the end of the section, it is necessary to describe how the participants of this organization are involved in the ongoing work policy. For the most part, this is due to the influence of collective responsibility carried out by the group effect. The constraint of circumstances, if necessary, to give high performance, taking into account the uncertainty of the distribution of responsibility, increases the feeling of anxiety and, accordingly, the feeling of group pressure on the individual. The culture of the company demonstrates itself quite aggressively, and this also has an impact on the aggravation of tensions between employees and an additional increase in activity. This forced increase in performance, which is primarily associated with the reputation of the employees themselves, is an unhealthy environmental factor. A toxic atmosphere within the team in which much is built on bonuses and encouragement to motivate employees destroys the collaborative spirit. Participation in practice raises status and gives some praise but destroys more natural and equal relationships in the team. Hierarchical attitudes are normative for work ethics and behavior within the team, which automatically screens out and excludes from the working society those who refuse to take direct part in these practices.

Solution provision

Thinking through legal, cultural, economic, or reputational risks, we would suggest the following to be looked at:

• Define, agree, and implement an advanced client onboarding process to avoid any kinds of fraud and misleading, in addition to giving very clear client requirement criteria in order to avoid irrelevant application submissions.
• Implement proper new sales staff onboarding and training process to avoid over-burning new joiners. Hence, the staff attrition rate to be improved.
• Implement gradual and reasonably increasing target scorecards for the sales force. This allows time for new joiners to look around and adjust to the new company pace.
• Ensure new joiners have enough support from peers and management. Maintain open door concept.
• Keep a positive balance of high-level company gestures, representation of values, and visible growing opportunities and, most importantly, paying attention to high performance through mentoring, training, supporting, and giving enough knowledge and expertise.
• Improve internal policies and procedures explaining company values, requirements, and escalation matrix to avoid any sort of conflicts and misconduct on any level. Setup requiring online eLearning courses to ensure everyone is aware and aligned.
• Make the attributes attached to cards more transparent and evident. Hence, customers can’t ever be misled. Write down the main attributes in marketing materials, websites, etc.
• Change the structure of the Sales KPI:
  • Add qualitative targets in addition to quantitative, such as customer satisfaction (appraised through surveys, mystery shopping activities, etc.).
  • As for quantitative targets, sales personnel should receive bonuses not only from the number of cards sold in a reporting period but from revenue generated from (a) card acquiring business (commissions from merchant transactions) and (b) interest income generated from credit line given. We also suggest prioritizing bonuses from revenues vs. new cards sold.

• Retain existing sales resources: A study has been done based on three-year data that revealed that the number of sales personnel didn’t seem to impact the number of approved applications. Oppositely, it showed that tenured sales staff who are more experienced submitted much better quality applications than the ones submitted by new hires.
• Motivate staff members through team building rather than push hard sales (and incentivize) in certain months to overachieve mid-term targets.

The changes at different levels in the organization

• Top-Down Communication: Senior management to establish a new tone for the sales culture, prioritizing quality acquisition over quantity. Top management shall introduce responsible lending standards throughout the organization with relevant training and communication tools.
• Sr. Management: open door policy maintained; regular town halls and transparency within designated people maintained (as much as it could be); company values and directions well explained and communicated in the right manner.
• Mid-management: open door policy maintained; ensure feedback communicated properly across the floors; company goals and directions are clear and communicated to the next level (direct reports); staff attrition and satisfaction kept under control and monitored/maintained.
• Salesforce: new sales KPIs defined and implemented; proper onboarding and training experience insured (as discussed above); new client onboarding process and criteria advised and explained; company values, processes, and procedures shared across all employees; escalation matrix implemented and explained.
• Establish an effective internal compliance system and straighten the internal audit division to oversee operational risks (fraud) at different levels.

Advantages the organization would need to relinquish in solving the problem

• New Business revenue decreases in the short run because of non-compliance and fraud sales discontinuation.
• Minority dissatisfaction with new KPIs and overall changes.
• Reasonable investments in staff attrition and development (to result in profits in the long-term).

Potential advantages gained by the organization from solving the problem

• Better Customer Experience to drive increased revenue.
• High effective Sales Team and Healthier competition; better HR environment; Staff attrition rate improved.
• Increase Customer confidence in the company’s business: In the long-term perspective, the company’s image and business will benefit from responsible financial practices and overall customer satisfaction.
• Overall financial performance increases in the mid/long run.

How the practice might need to be reframed

As a company, we need to make sure our values are transparent and clear to our employees and clients and contribute to the wider community. To achieve better synergy, the company must pay attention to those people they onboard and ensure employees share the same values.

To add as a practical steps/actions:

• Establish responsible and ethical banking practices.
• Add staff attrition targets/KPIs (+qualitative targets) to mid and senior management incentives.
• Support open communication, feedback/escalation matrix, and regular town-halls.
• Ensure regular appraisals are done on each and every level, and proper feedback is given and documented.