WITH Virgin Money’s purchase of Northern Rock, hopes have been raised of a customer service revolution in the UK’s retail banking sector. Someone certainly needs to step up to the plate. Who dares to be different for the customer? That is the challenge waiting to be met. And it can be.
The malaise is deep. Banks had it too good for too long, since well before 2007. Despite changes in ownership and a few new entrants, investors still avoid the sector and customers prefer to visit the dentist.
“They’re all the same” is a great fillip to inertia, it perpetuates the malaise. There is no incentive to invest in service when many customers are unprofitable and don’t move anyway. Lousy service; opaque charging; mis-selling; packaged accounts; businesses who have no choice but to borrow from their suppliers; investors losing money; these are some of the prices we pay.
The answer starts at the customer, not at the balance sheet. The know-me-as-an-individual service, the open-all-hours ease of use, and the fair deal that customers rightly expect are perfectly possible, and profitable, with modern systems, the right attitude and the will.
Yet existing banks find it hard to make the change. Inflexible, costly IT and control systems paid for by back-book pricing rely on customers’ inertia and are as bad for the banks themselves. New banking regulations and capital requirements don’t help; they make the investment case harder to figure and offer little benefit to customers: making switching easier is no benefit if there is nothing better to switch to.
So why then are there so few new banks and on such a small scale? Several reasons: back-book pricing is as huge a barrier to entry as it is an advantage to incumbents; access to payments and clearing systems is costly and has to be via an incumbent bank sponsor; treasury operations and regulatory complexities demand scale and upfront costs that sap investors’ returns. A typical three-year investment horizon makes a new current account bank hard to justify – kudos to Metro Bank’s investors – James Barclay would have found it harder today than in 1736.
But there is hope. The sine qua non is to have banks that earn the trust of the public and investors. That requires a change in philosophy, to one that truly puts customers and their money first. It’s about trust that the bank will not use a customer’s money unwisely; trust that the loyal customer will get the best deal, not the worst. A new philosophy is not just a project, but a new way of thinking, from the boardroom to the call centre. Facilitated by low-cost, browser-based operating and information systems in branch, at home and on the move, all this is perfectly viable.
We need new attitudes supported by new systems. Together they can cause and enable a change in behaviour, change that must happen before we can see the emergence of a banking sector that earns and sustains respect.
So who dares to be different for the customer? That is where the new bank challenge must come from. More of the same isn’t enough.
Alan Hughes is the executive chair of Walton & Co Bankers.