Is the financial services sector an open goal?

David Whiting looks at the sorry state of retail banking and speculates that it is time for competitors to shake up this complacent sector

The banking sector has recently been under greater scrutiny than ever before. Owing to its pivotal role in precipitating the global economic crisis, substantially greater regulation of its investment activities is a likely outcome. In the extensive discussion of the systemic arrogance and short-term thinking – among other failings – that created the financial implosion, there has been little discussion of how this mind-set informs the retail side of banking.

It takes little imagination for a marketer to see in the everyday operations of most of the financial sector (insurance and pension companies as well as banks), that genuine brand loyalty is hard to come by. Instead, customers stay with providers on the basis of familiarity and inertia, while suffering irritation, confusion and anger. In addition, they are actively encouraged into a merry-go-round of brand switching through the short-term tactics of providers.

sins of the financial services sector

Most financial providers appear reluctant to engage with the real needs of their customers, and marketing – as it is practised in most banks, insurance companies and other financial institutions – is often a parody of the concept. Such organisations frequently abuse customer loyalty by exploiting existing users while rewarding fly-by night users, thus using customer inertia to turn established brand strategy on its head.

There are honourable exceptions, of course. Since its founding in 1989 by the Midland Bank, First Direct, with its clear ‘direct’ proposition, has built and retained an unassailable reputation for service and hence customer loyalty. The Co-operative Bank has built an ethical platform that has served it well in the current crisis, and positioned itself effectively for the future, attracting a customer base more upscale than its main high-street competitors.

It is perhaps no surprise that these two banks topped the customer-service poll conducted recently by MoneySavingExpert (respectively, 85% and 75% for ‘great service’). Most banks received ‘great service’ scores of 33% or less of these levels, while 62% of Santander’s customers rated the service as poor.

A pattern of perceived cynical behaviour by financial providers is the common experience of consumers, who consequently have little trust in them. Having mis-sold payment protection insurance for years (to a possible level of £2.7bn) and with more than one million complaints received and the subject of a crackdown by the Financial Services Authority, the banks are now seeking a judicial review to block reclaiming.

Transparency seems to be a foreign concept. For example, interest rate reductions that are not communicated and require an extensive search to uncover. Customers are rarely informed that they would be better off switching to a more appropriate product or account from the one with the higher premium or atrophied interest rate. At the same time, customers are bombarded with unsolicited junk communications based on unsophisticated and obsolete blanket direct-marketing practices. The negative impact of the activity, as opposed to the tiny response rate, is unlikely to be measured.

Not surprisingly, the Financial Ombudsman is receiving a record level of complaints about banks. In the first six months of 2010 the top five banking groups accounted for 47,507 complaints.

The frustrating experience of the majority is turned into a nightmare for the more vulnerable sections of society, such as the elderly, despite the fact that the latter are increasingly the wealthiest segment in society and that their ordeals will inform the opinions of family and friends. The relationship with a named individual at a local bank, who could be telephoned directly, and who knew them, has all but disappeared. The evident lack of appropriate segmentation means that the needs of these groups are not only neglected but are also frequently penalised, if not exploited.

 making the most of the market

The lack of marketing expertise can often be seen at a corporate level too. Companies in the financial services sector are frequently sold, merged, de-merged and bought again. At every stage, brands that have often taken a century or more to build – in a sector with low levels of brand equity to begin with – are tossed on to the scrap heap.

Meanwhile, consultancies are engaged, and paid huge fees, to come up with new brand identities that will then need massive promotional support to even build awareness, never mind positive attitudes, trust and loyalty. AMP spent six years during the 1990s, and £12m, trying to establish its brand in place of the acquired Pearl, London Life and NPI, before reverting to the original brands.

The root problem is, almost certainly, the fact that the marketing personnel, who may be both skilled and sensitive to consumer criticism, have little or no control or influence over the most important elements of the marketing mix, namely the service, the products on offer, the pricing (e.g. interest rate or annual premium policy) and place (eg bank opening hours and location). Marketers in many financial services companies do little more than control media communications, or a subset, using huge budgets on constantly changing creative strategies to little effect, supporting weak equities that may disappear at the next merger.

 Competition to the rescue

The UK banking sector is to be subjected to a year-long review by the Independent Commission on Banking. It is no surprise that a long-overdue revolution in the sector is stirring, encouraged by ministers who have pledged to open the sector to more competition. In a classic marketing scenario, it would appear that at long last newcomers have seen the potential opportunity represented by the ineptitude of most of the current players.
Walton & Co was launched in January this year, with the aim of opening its first branches in 2011 in the South East of England. The bank is planning to target small businesses that have struggled to obtain credit, and well-off consumers, offering a return to a more personal relationship with the branch manager, longer opening hours and free parking.

Other start-up banks include an initiative by the American Silicon Valley Bank, which is planning to open its first branch in London in 2011, and the Home and Savings Bank, backed by private equity firm Blackstone. The latter is launching as an online and phone bank with the intention of acquiring branches from those sold by the banks rescued in the financial crash. A venture is being spearheaded by Lord Levene, under the auspices of NBNK Investments. Its aim is to restore ‘traditional personal banking’, but it will need to acquire branches.

The retail banking sector is also being eyed-up by Virgin and Tesco, which not only bring blue-chip expertise in creating consumer-led propositions but also have experience in other financial service areas. Virgin Money has already obtained a banking licence, but has put off the launch until spring 2011. It intends to build a 70-branch network over a five-year period, offering current and savings accounts and mortgages, under the name of Virgin Bank. It may also look at acquiring branches in the same way as other ventures. Tesco is planning to become a mainstream lender, but its launch could be delayed by up to 12 months as a result of the FSA becoming tougher on authorisations.

The only new bank that has actually launched is Metro Bank. It is the first new UK high-street banking chain in about 125 years, using the strapline ‘Love your bank at last’. It offers extended opening hours (8am until 8pm Monday to Friday) and treats for clients (and their dogs). It opened its first ‘store’ in Holborn, London, in July and will have three more by the end of 2010. It aims to open 200 branches across the UK within the next ten years, as well as offering internet and phone banking.

The physical barriers between customers and staff have been removed, as have ‘stupid’ bank rules. Debit and credit cards can be issued on the spot; and branches offer free-to-use coin-counting machines. Metro Bank’s proposition is about customer service and convenience rather than being at the top of the ‘best buy’ tables, and it is targeting small businesses as well as a wide consumer base.

While most of these new banking ventures have yet to receive their banking licences, 2011 promises to be a fascinating year in the sector. The benefits of a return to the basics of a good experience for customers seem blindingly obvious to marketers in most consumer-facing sectors. Had it not been for the barriers to entry, the endemic complacency in the sector would have been shaken up years ago, but the financial crisis and the sheer gulf between customers’ experience and their aspirations has produced a potentially game-changing situation.

The new players need to restore trust and create genuinely motivating brand propositions, and then consumers might overcome their inertia. If the new players begin to flourish, will the existing providers be able to raise their game and what will be the impact on other financial areas? It takes a newcomer to see the need for a genuine customer-led strategy. Is it any coincidence that the pattern is usually found when marketing has been misunderstood, disregarded or side-lined? David Whiting is a marketing consultant and trainer. [email protected]