Michelle Davies | The Journal Gazette A customer enters the Flagstar Bank branch at West State and Sherman boulevards. Flagstar recently bought 33 Wells Fargo locations in Indiana, including 11 in Fort Wayne.
Michelle Davies | The Journal Gazette Flagstar CEO Alessandro DiNello promises the bank is resolving transition issues.
Sunday, December 09, 2018 1:00 am
Flagstar brand takes hit in change
CEO, observers look at what went wrong, what to do
SHERRY SLATER | The Journal Gazette
Business success depends on establishing – and maintaining – a trusted brand name. Nowhere is that more true than in banking, a local public relations expert says.
Bob Floyd, president of Floyd & Partners, said consumers need to know their money is safe.
“If I'm a Flagstar customer, I have reason to doubt that,” he added.
Flagstar Bank last week fumbled its acquisition of 52 Wells Fargo locations – 33 in Indiana, 14 in Michigan's Upper Peninsula, four in Wisconsin and one in Ohio. The 11 Fort Wayne branches included more than 75,000 accounts, representing a little more than 46,000 local customers.
Flagstar's website went down Monday morning, right at the time when thousands of former Wells Fargo customers were trying to log into online banking to make sure their account balances successfully transferred the previous weekend.
When they couldn't access accounts online, people called the Michigan-based bank's customer service line, which swamped its beefed-up call center. Frustrated, some gave up and went directly to branches for help. Lobbies and parking lots were packed at local branches for most of last week.
“This is a massive screw-up,” Floyd said. “The CEO needs to own it and fix it.”
Flagstar CEO Alessandro DiNello made an effort to do just that by traveling to Fort Wayne on Wednesday to emphasize that bank officials were working hard to address lingering issues.
“We're sparing no effort and no expense in dealing with this,” he said. “I want to make sure people know their money is safe.”
He estimated that 90 percent of 150,000 total new customers didn't have problems during the transition – once they were able to access their new Flagstar accounts.
“It's deeply ingrained in me that we have a significant responsibility to get things right,” DiNello said. “I feel really bad about what happened. If I could apologize face-to-face to every person who had this happen, I would. I take this very, very personally.”
That's the right message, but it wasn't distributed widely enough, according to Salena Scardina, founder of HeroCX, a local consulting firm that specializes in the customer experience.
Scardina has worked for McDonald's, Sweetwater Sound and Vera Bradley. Now she consults for various large employers nationwide.
As of Thursday evening, Flagstar hadn't sent customers emails to apologize and give further instructions for common problems, she said. Scardina knows because she had personal and business accounts with Wells Fargo that were among those transferred.
Not only was she unable to check account balances online, but she reached a recorded phone message that simply said Flagstar was experiencing technical difficulties before the call was disconnected.
When she finally reached someone to help her in the chief operating officer's office, they told her she was going to the wrong website. Scardina, who holds a master's degree, assured them through gritted teeth that she was carefully following their written instructions – which were incorrect.
Afterward, Scardina spent about 45 minutes in a branch. Her firm's name wasn't printed on the business account checks mailed to her, so she had to order new ones.
“Not one person apologized when I called or went into the branch. They said 'thank you for your patience' but not 'I'm sorry you're going through this.' They showed no empathy,” Scardina said.
“I'm not feeling the best about the company,” she added.
This wasn't how things were supposed to go.
Rick Childs, a partner in accounting firm Crowe Horwath LLP and Decatur native, said every bank merger causes some disruption, “but this was more of a 'perfect storm.' ”
Childs, who wasn't involved in the transaction or transition, noted that Flagstar bought branches as opposed to a whole bank.
When an entire bank is acquired, the selling bank usually continues its data processing systems until a chosen conversion date, which often is a month or two after the deal closes. That allows more time to ensure that no customers fall through the cracks.
But when a bank acquires branches only, customers are typically removed from the former bank's computer system when the branch property changes hands.
“So there likely wasn't a fallback to being able to use the Wells Fargo system,” Childs wrote in an email.
“The (website) outage then occurred, which not only affected the transferred customers but also the existing Flagstar customers,” he said. “Then the domino effect started. More calls than usual because of the acquisition and all the existing customers calling in as well.”
The result was confusion, which sent customers flocking to the branches.
“Ninety-nine times out of 100, Flagstar wouldn't have experienced that combination of issues all at once,” Childs said.
If all that wasn't bad enough, Monday was the day Social Security recipients received their final Social Security checks before Christmas.
Jason Hoffman, manager of Flagstar's downtown branch, said that date always tends to be the bank's busiest day of the year.
Despite Scardina's negative experience, she has decided to stay with Flagstar – at least for a few months – because its location is the most convenient to her home. Also, she wants to see how they respond to this public relations fiasco.
Scardina believes Flagstar officials have demonstrated excellence in the past. She was impressed by the months of clear communications they sent to Wells Fargo customers before the transition.
“I thought to myself, great job,” she said. “I even said to my husband, 'This is so transparent.'”
So all is not lost.
“There's a great opportunity to turn it around,” she said. “I've seen companies in crisis like this come out ahead when they're authentic.”
That begins with acknowledging the significant issues by email and on Twitter, she said. Flagstar officials need to use multiple forms of communication because, for example, Scardina was traveling last week and didn't see newspaper or TV interviews in which DiNello reassured customers.
And then there are small but meaningful gestures.
“How about a $10 gift card to Starbucks? There's a lot of things you can do,” Scardina said. “It's not rocket science.”
Floyd, the advertising professional, said “a full-blown ad campaign is called for” to apologize to customers.
Even those consumers not caught up in the transition woes have probably heard about them through friends, family and the media, he said. That makes it unlikely they would consider Flagstar if they shopped for a new financial institution in the next year or two, he added.
“They've got an uphill battle,” Floyd said of the bank.
DiNello, Flagstar's CEO, believes the relationships customers have formed with bank employees will play a significant factor in helping the bank hold onto accounts. Flagstar offered jobs to all the former Wells Fargo branch employees.
“People bank with people,” he said Wednesday, adding that the bank has previously won national recognition for customer service.
“We will recover from this,” he said. “We know some people won't give us a chance, and I understand that.”
DiNello, who joined Flagstar 40 years ago, said he wasn't concerned last week with the damage to the bank's brand. His immediate focus was to rally the staff to help every customer unable to access an account.
Even so, he acknowledged that officials will investigate to find out what went wrong.
“Nobody wants to know that more than I want to know that,” he said.
The acquisition price won't change, but the value of what Flagstar received in the transaction diminishes with every customer account lost.
Officials assume about 17 percent of customers involved in an acquisition will be lost. Time will tell whether this acquisition tops that.
DiNello will have to report the value of the transaction in the quarterly earnings reports required of all publicly traded companies.
“We'll be judged on that, and that's OK. I'm prepared to be judged on that,” he said. “We're not going to hide. We don't have that choice.”
As of June 30, more than $1 of every $4 in an Allen County bank – or $1.83 billion – was on deposit at Wells Fargo, according to FDIC data. That was the most of any bank in the local market.
DiNello isn't assuming the added influx of new customers on Flagstar's website was responsible, however. The bank already had robust online customer capacity, he said, because it makes home loans nationally and services nearly 500,000 mortgages.
“Maybe that would have happened anyway,” he said. “I just don't know.”
Scardina said the local Chase branch she visited last week was hopping with former Wells Fargo customers opening new accounts.
Fort Wayne-based STAR Bank and 3Rivers Federal Credit Union have offered cash incentives for Flagstar customers to transfer their accounts.
And 1st Source is offering a $300 gift card to anyone who transfers accounts to the South Bend-based bank.
Floyd, the PR expert, said it makes sense to offer the incentive to switch to everyone, not just Wells Fargo/Flagstar customers.
“You want to be warm and welcoming to everyone,” he said.
Then Floyd sounded a note of warning to the competitors who might gain from Flagstar's misfortune. The banks, he said, had better not mess up the new customers' account transfers.