Bank of America is fined $250 million for being nasty

Per CFPB

Today, the Consumer Financial Protection Bureau (CFPB) ordered Bank of America to pay more than $100 million to customers for systematically double-dipping on fees imposed on customers with insufficient funds in their account, withholding reward bonuses explicitly promised to credit card customers, and misappropriating sensitive personal information to open accounts without customer knowledge or authorization. The Office of the Comptroller of the Currency (OCC) also found that the bank’s double-dipping on fees was illegal. Bank of America will pay a total of $90 million in penalties to the CFPB and $60 million in penalties to the OCC.

I am going to be straight with you: credit card issuers are almost certain to miss rewards points at some point. Don’t be surprised that issuers don’t give you enough points in some cases. Truth is that they may not even know it at first. Credit card data is so big and complex that mistakes are bound to happen. I have been in the industry for almost five years, touching my aspects of my company’s operations. I can tell you that we have to run many manual processes to make sure that we honor our promises and to stay out of regulatory trouble. Some processes can take months to complete.

Financial institutions are audited every year. It is the fear of being fined by agencies like OCC or CFPB that drives banks to behave well and do what they are supposed to. Within each bank, Compliance often audits the rewards aspect of its credit card business and enforces correction if necessary. That’s what I have to deal with at my job. Everything we do has to be blessed by Compliance first and if they come with a request to look into or fix something, you’ll do it with urgency.

All of this is to say that for Bank of America to get caught like this, the bank must have done something so wrong and so serious that CFPB had no choice but to hand out a fine like that. This announcement from the agency indicates that either leadership at BofA looked the other way or the firm’s internal process is not stringent enough. Which scenario do you think is more realistic? I’d go with the former. If so, who will have to take the fall and step down? Or will anybody at all?

Domino’s Pizza finally swiped right on Uber

Per Domino’s Pizza press release:

Domino’s Pizza Inc, the largest pizza company in the world, has entered into a new global agreement with Uber. The agreement allows U.S.customers to order Domino’s products through the Uber Eats and Postmates apps with delivery by the trained delivery experts of Domino’s and its franchisees – an experience that customers have come to rely on for more than 60 years. The initial U.S. rollout of the agreement will begin this fall in four pilot markets, with ordering on the Uber Eats and Postmates apps anticipated to be enabled across the country by the end of 2023.

This unprecedented agreement will also create the opportunity to unify Domino’s international markets under a single master agreement that leverages the global scale of both brands. Domino’s and Uber Eats currently have 27 international markets in common. This agreement has the potential for incremental orders from Uber Eats to 70% of Domino’s stores around the world, including the U.S.

Customers in the U.S. using the Uber Eats platform will be able to order delivery from their local Domino’s store menu. Uber Eats will be the exclusive third-party platform for Domino’s in the U.S. until at least 2024.

Orders placed on the Uber Eats platform will be delivered by uniformed Domino’s drivers.

Uber One and Postmates Unlimited members will receive delivery with no charge on their Domino’s orders within the Uber Eats and Postmates platforms.

Per WSJ:

Domino’s rivals Papa John’s International and Pizza Hut struck deals with food-delivery providers beginning around 2019 to broaden their reach with consumers. Those companies have said that working with apps have helped them secure enough drivers on hand during peak hours. 

Domino’s executives said that the pandemic turned many more people on to ordering food through apps and that the chain can’t afford to pass up those sales, even if Domino’s relinquishes some control and profit from them. Pizza-delivery orders directly from chains aren’t growing, while those from apps are, Weiner said. 

Domino’s began talks last year with various apps to assess the risks and rewards of listing its pies on their digital marketplaces, Weiner said. The food-delivery companies had developed loyalty programs that were keeping consumers from ordering directly from Domino’s, hurting the chain’s reach, Weiner said. 

Domino’s said it chose Uber given the app’s willingness to share information about customers who ordered on its platforms, its global scale and the demographics of its users. Uber customers are generally younger and more affluent than those who order directly from Domino’s, according to Weiner. 

This is an interesting partnership.

For Uber, it’s a win and a validation of its platforms. Having Domino’s Pizza, especially exclusively in the US till 2024, will increase Uber Eats’ appeal to users as I am sure there are some die-hard Domino’s fans out there. Because Domino’s Pizza is a big brand and delivery will be carried out by the chain’s drivers in uniform, I suspect that Uber will take a lower cut from gross bookings, yet won’t have to share this cut with any driver. As a result, take-rate will be impacted while gross margin will be boosted. This dynamic is in line with Uber’s push towards profitability. Furthermore, this deal with Domino’s Pizza can make Uber One more attractive. Per Domino’s Pizza’s website, each store dictates its own delivery fee which must be at least a couple of dollars unless an order hits a minimum threshold. Uber One subscribers do not have to pay any delivery fee on Domino’s orders on Uber Eats. That’s valuable to pizza lovers and will help Uber retain subscribers and acquire more. We all know that Uber One users spend more and are more active than non-subscribers. Think of it as the Prime customer base of Uber. Having a firm grip on these valuable customers will be key to Uber’s future.

For Domino’s Pizza, they are trying to navigate a tricky situation. This deal with Uber shows that the pizza chain has a couple of business problems: growth and the ability to reach out to a new younger and more affluent segment. To address these problems, Domino’s Pizza is willing to sacrifice some margin by sharing a cut of order bookings with Uber. If delivery of Domino’s orders on Uber Eats is carried out by Uber drivers, the famed chain will risk losing a direct relationship with customers.Hence, Domino’s insists that its orders on Uber’s platforms must be delivered by its uniformed drivers. This insistence is smart yet indicates to me that Domino’s doesn’t have a driver shortage. It does have an order shortage to fully utilize its drivers.

Are you bearish because even the biggest pizza chain is struggling for growth or bullish that it is taking steps to address the issue?