BRITAIN saw the launch of its first new high street bank in many years recently, with the opening of Metro Bank’s first and only branch so far on High Holborn. The launch featured no end of gimmicks – including balloons, goodie bags and free dog biscuits – to persuade consumers that the bank offers something truly different. But, more importantly, its launch is part of a broader trend towards a more competitive market for high street banks than the country has seen for a long time.
The past few years have seen a slow growth in the number of options available to consumers, with Tesco’s and Sainsbury’s both opening up savings, mortgages and loans facilities to customers. Virgin Money has also signalled that it intends to expand into consumer banking and with American private equity group JC Flowers acquiring a significant stake in Kent Reliance, the building society, there are signs that the high street is in for a shake-up.
This is to be welcomed, says confused.com’s Phil Jones: “The market is so fundamentally uncompetitive that any new entrants have to be a good thing. High street banking was fundamentally uncompetitive 10 years ago and it’s worse now because the largest institutions have state support and the smaller ones have disappeared.”
But will these new banks actually offer anything new? Metro Bank is based on a model of banking trialled by one of its founders Vernon Hill with his Commerce Bank chain in the US. The idea is to compete on customer service rather than interest rates. Chairman and co-founder Anthony Thomson says: “For 94 per cent of people, service and convenience are much more important than rates.”
True to its word, Metro Bank offers consumers an interest rate of just 0.5 per cent for its instant access savings account, compared to 2.5 per cent for the same kind of account with Santander or Lloyds and 1.25 per cent with Tesco’s. Thomson maintains that what will attract customers is the bank’s opening hours – seven days a week from 8am to 8pm – and personalised service. Perhaps the most striking example of this ethos is that callers to the bank are instantly greeted by a real person answering the phone, instead of a labyrinthine phone tree.
Metro also boasts that it can issue debit cards and PIN numbers in-store while you wait and can open your account in 15 minutes – although confused.com’s Jones says that he has heard of a case where it actually took three hours to open an account.
But they are not the only high street bank to prioritise customer service: FirstDirect offers consumers high levels of attention and recently scored 84 out of 100 in a satisfaction survey conducted earlier this year by the Institute of Customer Service (ICS). The banking sector overall scored an average of 75, compared to the retail sector which scored 79.
But the major challenge for newcomers is that Brits are famously reluctant to switch their banks. Research by TNS Global found that only seven per cent of consumers surveyed were planning on changing their bank, despite widespread dissatisfaction with their levels of service. One reason consumers don’t like switching, particularly regarding their current accounts, is that it necessitates moving over all their direct debits.
But Thomson says that as more options become available, customers will begin to feel that it is worth switching. Regarding the possible appearance of competitors in the high street over the next few years, he says: “The more competition there is, the more it will make people think about switching their banks.”
Whether they choose Metro Bank, Tesco’s, Virgin or some new rival, it will certainly pay dividends for consumers to shop around – and not just in interest rates, but in time, convenience and satisfaction.