Letter from Elsewhere

(c) Anne Else; 22 January 1999

If there's one mantra that can sum up the dominant ideology of the 1990s, it has to be "Leave it to the Market". Virtually all our needs, we are told, can be met better through the market than through any other arrangement.

But now something odd is happening. There are increasing signs that the market is rejecting some people outright. It sees them as simply not worth the trouble of dealing with.

It started in the banks. It's virtually impossible to run your life today without a bank account. All benefits have to be paid into one, for a start. But the banks say that they make 90 percent of their profits from just 10 percent of their customers. The 40 percent of New Zealanders in the bottom two income bands don't have big loans and can't afford to keep much in their accounts.

So the banks really don't want these "poor-quality" customers. And they have ways of making them walk, from closing branches in downmarket areas to imposing fee structures which mean that the less you have, the more you pay. For example, ANZ/Postbank recently announced that it would impose a special fee for withdrawals on all customers with less than $1000 in the bank. (Remember when there was a Postbank branch in every Post Office? Remember when there were Post Offices??)

The banks say that if the government wants them to provide a "social service" - that is, run accounts for those on low incomes - it will have to pay for it. Yet when all the money that goes into beneficiaries' accounts is added up, there's a lot of it, it arrives regularly, and it certainly doesn't all leave the second it arrives. Besides, most people are only temporarily on a benefit. Surely it would be worthwhile to treat them well and keep their custom?

It seems banks don't think that way any more - and it's not just the poor who are unwelcome. Christmas brought a spate of stories about sudden bank foreclosures and mortgagee sales. In many cases these have been forced on perfectly solvent customers with large property holdings. On 22 December, for example, the National Bank told three brothers and their wives, with 14 children between them, that they had to get off the Hastings orchard which had been in the family since 1907. The bank had sold it to a firm connected with a merchant banker who had advised the orchardists. Why the forced sale? Because although the family had never missed a payment, the orchard had "slipped outside the bank's lending criteria".

What we're seeing is the death of the mass market, where sheer customer numbers counted. Now the smartest marketeers are picking and choosing who they want to serve. An article in The Economist this month ("Direct Hit", 11/1/99) was quite frank about this. "The trick is to identify valuable customers and to concentrate on them, while holding back or even shedding less profitable ones."

So a mid-Western US bank is simply ditching its bottom 30% of customers, because it calculates that they cost it money. A big Texan computer maker is "firing" service-intensive customers (the troublesome ones) "by sending them rivals' models instead of its own". And a British insurance company is "seeking to forward calls from high-risk customers to a competitor". (To use this "trick", of course, companies must collect in-depth information about each customer - and that raises serious privacy concerns.)

It's hardly surprising that in a winner-take-all economy, there should be intense competition for the custom of the rich at one end, and at the other, a race to see who can first get rid of the poor - or even merely the not-rich. We've known for years that this happens in the private housing market, but it was a shock when the state joined the race and left state houses empty, rather than letting the poor have them at an affordable rent. Now it's spreading to other essential basics of modern life, such as banking and insurance.

It may be only a matter of time before the poor start finding it difficult to get anyone to sell them telephones, electricity or water - let alone health care. If the managed care movement gets traction, the new Independent Practice Associations will be falling over themselves to get rid of all those pesky high-use, low-income "customers". The marketeers are standing Henry Ford's approach on its head: you can have any colour you like, as long as you're rich.

If you're not, you can't even have black.

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