With the Independent Commission on UK Banking recently issuing its long awaited report on the state of our current banking landscape, the opportunities contained within it to improve retail banking customer service have been seemingly ‘lost in the noise’ – with our government apparently wanting to deflect attention by kicking it into the long grass.
But there is no escaping headline issues that emerged from the final report of Sir John Vickers and colleagues, namely how do we cope with banks that are too big to fail and how do we stop the risk of speculative investment banking toxifying retail accounts?
Retail UK banking, in contrast to investment banking, should be a simple business in which the bank takes our savings, marks them up and lends them to others, or vice versa. But this simple process has become an unwieldy beast with almost everyone you talk to having a retail bank atrocity story.
A recently conducted study of 1,000 nationally representative retail bank customers, with almost 70% believing that banks don’t care very much about what the public think of them, over 75% rating the public image and reputation of the banks’ retail operations as mediocre to dreadful, and an eye-watering 86% thinking that the image and reputation of the banks will not improve or will actually decline over the next six months.
Two influences, linked but not identical, seem to be at work. The first factor is the momentum towards online banking and the spotlight that puts on the slow and ponderous ‘old way’ of doing things. Ask yourself which is preferable – accessing a bank account from the train, your own home or an office, or trudging round to the bank in the rain and joining a queue? Older customers feel less habituated to the online world but the young customers ‘voting with their feet’ adds considerable impetus to this inevitable online momentum.
Thirty years ago a very senior UK bank official remarked in an unguarded moment that High Street banking was hopelessly and irredeemably uneconomic – and nothing that’s happened in the intervening years has made that judgment less telling.
The cost of maintaining a local branch network has become a dead weight hung from the necks of banks. If bearing this burden produced contented customers there might be something to be said for it, but it simply fails to do so. Branch managers have largely been deprived of the power to make decisions on loans, thereby further reducing the reasons to bother visiting the branch. When did you last do so? First Direct has responded to this economic reality with the intelligent stratagem of not having any branches. Yet how have other banks responded?
The second factor is the way retail bank brands are built, maintained and developed. Various studies show that marketing slogans, for example, have very low recognition amongst the public and the only one that had any genuine customer awareness was HSBC’s ‘the World’s Local Bank.’ This slogan was launched in March 2002, showing that it takes a long time and costs a great deal of money to get any sort of traction and make an impact.
The customers now pay more attention to the testimony of other customers than they do to promotional campaigns, with enthusiastic customers and ‘brand ambassadors’ being the market builders of the future.
A new business model is consequently required for retail UK banking. The old business model was bank-centric where the bank saw itself as a central resource and the customer could approach the bank and humbly inquire whether any of its supplier-defined services met the customer’s needs. Motivated by incentives, bank staff tried to convince customers that products like Payment Protection Insurance met genuine needs. So much for ‘Customer Service’.
There is a clear demand for a customer-centric business model, but few banks appear to be working effectively to meet this demand. When used properly, ‘new media’ can create genuine conversations with their customers and, as that famous book ‘The Cluetrain Manifesto’ puts it, “the market becomes a conversation”.
Instead of their services being defined by what the bank wants to offer, they can be defined by what the customers need. The ‘bank to customer’ polarity is reversed and the customer becomes the market-maker of the future.
It all comes down to the culture of the banks themselves. In today’s globalised and commoditised world there is always ‘choice’ but retail banks have sidestepped this evolution because of customer inertia. The general perception is that it is simply too much hassle to change your bank account – and if you do then the next bank you move to will be no better.
This has resulted in a culture of complacency amongst UK banks. They’ve been too big and too powerful for too long to worry too much what the customer ACTUALLY thinks. But this will change.
There are new competitors like Metro Bank, dedicated to a customer-centric model, that are changing the game and there is little doubt that the tipping point will come soon.
The bank that will win this battle will be the one that changes its culture towards the agile, customer service centric ethos that is winning out in different sectors and industries across the world.
Of course this conversion is not going to be easy for the big banks to achieve. At board level the banks are often aware of what’s happening and what’s needed. But layers of die-hard middle management are convinced that the old bank-centric model has enough life left to see out their careers. One major UK bank told us that they already have a team working on customer conversations, and that our research was a day late and a dollar short. But one look at the detailed reports from their customers shows their efforts may be costly but are simply not working. Bank customers are keen – perhaps even desperate – to enunciate their real needs, provided the banks are ready to listen and respond.
Now that the Independent Commission on UK Banking has issued its final report there is a window of opportunity in bank customer service for those senior managers in retail banking who are savvy enough to see it. The question that needs to be answered is will it encourage the banks to hold meaningful conversations with that 86 percent of customers who think the reputation of the banks will fail to improve any time soon? Let’s hope so.