How can the incumbent banks increase costs when the customer experience is so terrible?


Some of the UK’s biggest banks are making banking with them less financially appealing, and yet they continue to fail to live up to their digital promises. of customers in the UK will be faced with the news this morning that their banking provider is making it more costly to do business with them, by either raising fees or reducing interest rates.

Reading the headlines, I can’t help but wonder whether those impacted by the changes will begin to question whether or not it’s worth sticking with the incumbent ‘legacy’ lenders, given how many of them have suffered an IT outage in the past few years and how poor their customer experience is.

It’s one thing to make your service more expensive if you’ve got some of the highest satisfaction rates amongst your customer base, but it’s a different story if your customers are dissatisfied and there are also newer, better service providers out there that are less likely to suffer regular failures.

In my opinion the incumbent banks are lucky in that customers likely view switching a pain and consider older lenders more stable. But when will the balance for customers tip from choosing a ‘safe’ provider to choosing a ‘useful’ provider?

I don’t think the likes of HSBC, Santander, Barclays, Llloyds and RBS will be given too much more leeway. The alternatives are becoming increasingly appealing and are getting the required backing in the market.

Promises, promises, promises

Take any of the big banking names mentioned above and put the word ‘outage’ next to it into Google and you will see that each of them have suffered some sort of serious IT failure, which has in some instances meant that their customers have been unable to get access to their cash for days.

The most recent of these was HSBC, which as highlighted by my colleague Phil last week after its online services were down for days. As Phil notes, this isn’t what one would expect from an established, well-respected cloud provider (which although HSBC may not recognise itself as, it certainly is):

But when banking services fail, they have a habit of failing for extended periods, which is not what I’ve come to expect from other cloud services.

I learned very early that, when an online service goes down (or when your Internet connection fades), you simply go off and do something else for a while. Often, a few minutes is enough. In rare cases, you may have to leave it for an hour or two. (If it’s your Internet connection, then switch to your backup — which can be as simple as using your mobile or going to your local coffee shop). Unless it’s something that’s really mission critical every minute of the day (in which case you should have a fallback in place) such outages are an irritating inconvenience but not disastrous.

Where it gets serious is if the outage extends for more than half a day. No self-respecting web service provider can afford such lengthy outages, and if they do occur, it’s essential to make full disclosure of what’s going on. By the standards of leading cloud service providers, HSBC has performed astonishingly poorly.

HSBC is one of the banks that this morning said that is planning to cut its interest payments to customers.

But it’s wrong to single out HSBC. The same can be said of Lloyds, RBS, or any of the others. Some of these failures have resulted in millions and millions of pounds worth of fines by regulators and additional costs incurred by the banks themselves.

All of these providers continue to make promises about their digital investments and capabilities, and yet customers are not surprised when their services go down. More often than not on pay day and/or a public holiday.

The challengers

Coincidentally, Business Banking Insight (an initiative supported by the British Chambers of mobile banking appsCommerce and the Federation of Small Businesses) released some research and an interactive tool this morning looking at the customer satisfaction scores of small businesses based on the relationship with their bank.

When looking at the tool it doesn’t take long to realise how poorly the larger providers are performing with their business customers.

Most of the big providers mentioned above rank with scores of around 60-65%, based on how tailored their service is, how fair and clear it is, how much value the customer gets out of the service, how informative the bank is and how available the service is.

This compares to top scores of over 90% from some providers, depending on the size of the small business.

Both the BCC and the FSB highlighted the threat from challenger banks in their findings.

John Longworth, BCC Director General and spokesperson for the BBI, said:

It is reassuring that there has been progress in improving customer satisfaction among businesses, but there is clearly more to be done. Competition among lenders is driving this change. Businesses look to other businesses, and we would like to see the CMA promote initiatives like the Business Banking Insight, which lets SMEs across the UK learn from the experiences of their peers before choosing products and services. SMEs are the backbone of British industry and the BBI initiative is designed to offer additional support to this vital part of the UK economy.

Mike Cherry, FSB National Policy Director and spokesperson for the BBI, said:

The results show the banks are making some progress in improving their offer to younger and larger SME business customers. They also show how the wider industry can continue to have lessons to learn from newer banks in the market. This is a clear demonstration that improving competition in the business banking market can lead and should lead to improved services for all small businesses. We trust all the banks will use these BBI’s findings to give business customers the service they expect. We encourage small businesses to go to the BBI website to find the banking services that suit their business.

And whilst the big providers are suffering outages, getting low satisfaction scores and raising prices, some of the challenger, digital-first banks are getting funding, getting rave reviews and heading for IPOs.

For example, Metro Bank, which prides itself on its customer experience, has received well over £500 million in funding, has over half a million customers and is aiming for an IPO valued at over £1 billion this year.

Equally, the likes of Starling, Atom and Tandem are all making headway in the UK market by either receiving funding or receiving regulatory approval for a launch this year, and are being praised for their ability to provide top-level service at a reduced cost. Thanks to not having cumbersome mainframe systems, such as the legacy banks do, that they have to manage and/or migrate away from.

My take

The big banks have benefited from a regulatory system that in the past made it difficult for customers to switch banks and the perception that because they have been around for decades, your money is safe with them.

But things are different now compared to when the 2008 financial crisis hit. Banks are now required to ensure that customers can switch banks in 7 days if they so wish. And with the increasing number of failures, consumers are starting to view their incumbent provider as less ‘safe’.

If it costs less to bank with a challenger and it provides a better experience across all platforms, what’s stopping us?

Decision Choose Change or Same Old StreetI think there’s the hope that our current providers will get their act together and sort it out, which isn’t surprising given the number of promises that have been made regarding digital investments. But it seems that the legacy infrastructure that they are apparently tied to is slowing this progress down significantly. Those outages keep coming…

But the fact that these banks think it’s okay to make banking with them more expensive, is beyond belief. They claim that this is because the cost of running a bank is going up. But as my colleague said this morning: “my foot! It only costs more if you make a dog’s dinner of it”.

At the end of the day, as a consumer we now have an increasing number of options available of us and we can switch easily. This is going to be more so the case in 2016. Will consumers stick around with a bank that fails them regularly? I’m willing to bet that a lot of customers start to get fed up…