Customers should vote with their feet to punish bad service

Allister Heath
EVERY so often, a company makes a mistake. These things happen; we are all human, after all. But the extraordinary and seemingly never-ending IT blunder that rendered RBS and its NatWest unit unable to service customers properly in recent days takes the biscuit. It has severely inconvenienced a large number of people, and has reminded everybody just how disastrous a systems failure can be in a retail bank where records are kept digitally and increasingly accessed online.

I have defended Stephen Hester, RBS’s boss, in the past when he was being unfairly vilified by a baying mob. Not this time. His company has really messed up. Even its policy to open branches yesterday didn’t really work: there was little point customers turning up if the computer systems remained down. Hester was right to apologise – but someone senior at RBS should be fired for the chaos.

Hester needs to show that his bank has learnt the lessons from this nonsense. A modern bank must be a brilliant, highly sophisticated IT firm; if the systems don’t work, the finance doesn’t stand a chance. The blunder will worry minority investors: if the state-controlled bank cannot even get this right, could its real state be worse than we thought, and hence its value lower? Could the pay and cost constraints facing Hester – and imposed by politicians and those obsessed with waging war on bonuses – have led to an even greater collapse in morale than previously thought, and could this be affecting performance? Have too many of the better staff left to better paying, less controversial private sector alternatives? That would be bad news for taxpayers, who own most of the shares.

This fiasco is also a blow for all financial firms: the main reason they are generally distrusted is because of poor consumer service. That robs them of goodwill – and makes the public think that they are being taken for a ride while wealthy men make money from money (the purpose of banking is regrettably little understood in the country at large). If I were Barclays or HSBC or even Goldman Sachs, I would be upset at RBS: the entire industry’s reputation will have taken a hit. And in as much as it fuels more banker-bashing by politicians, it threatens to damage a key industry for the UK that employs hundreds of thousands and contributes a great deal to GDP and tax.

Most importantly of all, affected customers should remember that they have the ultimate power: if they are angry at RBS’s failure, they should move account as soon as they can fully access their cash once more. There are plenty of alternatives. People power works in banking as it does in any other industry – but only if the people actually choose to exercise it, and vote with their feet.

MOST rich nations will need a primary budget surplus of two per cent a year for the next 20 years to bring debt as a share of GDP back down to where it was before the crisis. That was the Bank of International Settlements’ verdict last night. Central bankers cannot use their dangerously exploding balance sheets to solve every problem, it warned: they cannot induce deleveraging, correct sectoral imbalances, or address solvency problems. Near-zero rates “and abundant and nearly unconditional liquidity support weaken incentives for the private sector to repair balance sheets and for fiscal authorities to limit their borrowing requirements.” Ultra-loose monetary policy is fuelling bubbles in emerging economies, and the unintended distortions of QE are everywhere. All true – but is anybody listening?
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