UK banking - who's screwed and who's screwing the customer?

January 18, 2015

Dyslexia mode

Summary:: UK banking is in a fug. Research suggests deep satisfaction but some unlikely competitors are doing well. How?

I'm not a fan of infographics, neither am I a fan of blatant using survey based information to promote an agenda without pouring a good quantity of salt on the whole thing.

A recent offering from GMC splurged on International Finance Magazine (PDF download) qualifies on both counts. But when I researched around the topic I discovered there are some truths in what is said. Plus the odd surprise. Here's the headline:

The latest research by British Bankers Association (BBA) highlights that 65% of bank customers are not fully satisfied with the services offered to them. Why this dissatisfaction?

Here's my immediate problem. Simply tarring an entire industry makes no sense. We see continual reference to certain banks in the public discourse just like we do in other countries but to effectively say ALL banks are XXX is just plain wrong.

Even so, the article goes on to ask some interesting questions albeit they start with technology and then work backwards. The article makes the general point that banks have been slow to react to changing technology and note the fact banks are hamstrung by legacy technology. We hear that in most financial services sector conversations.

The far bigger problem as I see it is that banks have lost their ability to treat customers as individuals, largely as a result of technology applied savings measures. This has been going on for years. I recall in 2004 attempting to find someone who could speak authoritatively on lending policy only to find there was no-one at the branch able to do more than follow screen prompts. How much different to when I first took out a loan in 1973, when the relationship was very personal. Even today, relationship managers have limited discretion in what they can do at branch level. The knock on effect has been to gut the banks of an entire generation of incredibly valuable knowledge, deferring instead to algorithms that are often faulty.

Further afield, the banks never thought through the negative impact of running offshore call centers with people whose command of English is - how shall we say - almost non-existent. They never thought through how the much hated Verified by Visa system would impact their customer relationships nor the extent to which merchants would end up getting hurt. Today's technology can solve some of the pressing problems and especially around VbV. Trustev springs to mind.

While the IFM article makes interesting points, it seems to put the cart before the horse and ignores some of the more recent successes. For example:

Banks have been slow to build relationships with customers and to build out a true omni-channel offering (we’ll define omni-channel here as the ability to operate and communicate on any device/media at any time).

Duh?

The Nationwide example

For answers, I did some research on Which? It provides rankings for businesses it corrals as banks, some of which may seem unusual. It was at this point that a further problem arose. Which? Looks at banks from different perspectives. It slices them into those which offer the best deals when you don't need to borrow money and those where you do need to borrow. Check out this list:

Other than Lloyds and possibly TSB, you'd struggle to recognize any of the others as national brands. But look at the customer scores? These would seem to run counter to what IFM is saying. Once again however we run into the perennial problem if not having full information around what is being measured. Nevertheless, this list is a surprise although it does lend some credence to GMCs claim around omni-channel access.

How is that working for Nationwide, an organization that our US friends would normally bucket as a 'savings and loan' business but which has made clear it intends competing directly on Main Street. Reviewing their latest financials provides good clues. From the 2013-14 numbers that matter to shareholders:

Total underlying income up 12.7% at £1.6 billion
Underlying cost income ratio down to 50.2% (H1 2013/14: 52.8%)
83% increase in underlying profit to £606 million
113% increase in statutory profit to £598 million

Impressive by any standards. But it is in the chairman's comments (PDF) that we start to find some interesting nuggets. I've taken the liberty of pulling out a large extract since this covers many of the points:

Throughout the financial crisis we took the decision that Nationwide could not afford to stand still; not only did we
need to grow our business, we recognised that we needed to overhaul and replace many of our core technology systems in order to provide members with access to improved products and services. This has involved significant expense and commitment, but our members are now seeing the benefits. The most obvious example was the delivery of our new core banking system, which has allowed us to expand our range of banking services and accounts, putting us in an even stronger position to offer members an alternative to the established banks.

However, the pace of change is speeding up, with the take up of digital services spreading and companies from all sectors reshaping their business models to meet growing demands from customers. The financial services sector is no exception, with customers now using a whole range of mobile and digital devices to buy new products and service their accounts. We have already invested heavily in providing digital services to our members, with ongoing developments to our online bank, our mobile banking app and a totally revised website, and we will continue to do so in the coming years. In order to remain successful we will embrace the digital world, aiming to delight new and existing members through the quality of our products and services.

Clearly technology matters but above that, Nationwide has engaged its employees far better with a jump in engagement metrics from 68% to 77% in the 2013-14 period. so in one sense, while I may pillory GMC for its broad brush statements, we have clear evidence across customer and financial metrics that digital transformation is not only good for customers, it is good for business.

How about the US?

Is all of this a UK phenomenon. In part. Over in the US, things are not much better with an unsurprising emphasis on security issues. This for example on finding the balance between trust and security:

Recent independent research commissioned by Ping Identity discovered that more than a third of customers would abandon their bank altogether for an experience that combined both security and convenience. Furthermore, only 28.7 percent of respondents described themselves as 'very loyal' to their bank. Banks are clearly walking a fine line with their customers...

...More than ever, CIOs and IT managers at retail banks need to re-examine their existing security strategies to keep their customers’ data safe. Banking customers are well aware of this, with only 22.5 percent of respondents saying they viewed access to their account as 'very secure'. These findings are particularly alarming considering that 81.5 percent of respondents use online banking, with eight in ten stating that secure access to online banking was imperative.

And let's not forget that mundane issues like chip and pin have yet to hash out in the US. Having said that, when I attended Tableau's user conference, Wells Fargo talked extensively about how they are getting hold of many types of data and aggregating them to better understand the customer journey. The shape of things to come? Perhaps.

My take

There are clear threats to the established order. The fact a relatively small 'bank' like Nationwide can come out on top in consumer surveys is astonishing made more so by the fact that otherwise leading brands that regularly advertise are nowhere to be found on the Which? list. As I am fond of saying: all empires fall - eventually.
Technology is critical but it isn't a panacea. Thinking strategically is much more about customers and people first. The days of cost cutting because you can are gone.
Let's not forger the competitive pressures from services such as PayPal, and, potentially the blockchain inside Bitcoin. Let's also not forget that as regulation seeks to find ways to prevent a repeat of the banking bailout, that technology disconnects are exposing some major problems with mundane topics such as sort codes.