I am leaving my bank. Who should I switch to?
This was the question posted in the London Metro on Friday 6 July. We tend to talk about the power of recommendation and positive word of mouth among customers driving a successful business.
As this question was in a widely read newspaper, every current account provider worth its salt should want to be recommended, and to be seen as an industry leader.
On the following Monday, the paper printed the responses from readers and those recommended were the Co-operative Bank, Nationwide, Metro Bank and First Direct. So, what is it about these four providers that led readers to recommend them?
Comments that mentioned the Co-operative Bank and Nationwide highlighted that they are mutual organisations. As neither have shareholders, any profits they make can be reinvested in the company itself, hopefully so it can offer better interest rates and better value products to its customers.
However, no products were mentioned in the responses, and neither good rates nor products were alluded to.
So, it seems these recommendations were primarily based on the mutual business model providing benefit to customers, rather than any other stakeholder.
Well, most banks are not mutual organisations, nor will they ever be. They have shareholders and investors and must try and deliver a strong return on investment for them.
So, considering they both have investors looking for a return on equity, what is it that Metro Bank and First Direct apparently do differently from the wider banking industry to get recommended?
Well the brand positioning for both organisations is centred on its customer focus and delivery of high quality customer service (with some dog biscuit provision thrown in for good measure in Metro Bank’s case).
This is what drives differentiation from the rest of the retail banking sector. Nor is it just a case of customers - and the journalists selecting which comments go in the paper - supporting the smaller players in the market. First Direct is owned by the global bank HSBC, but its position as a service-led brand means that customers are still inclined to recommend it.
We find corroboration for the benefit of a high degree of customer focus through survey work we conduct with key influencer audiences.
Our annual survey of personal finance journalists shows that they feel the most important criteria for financial services companies to have are good quality products and services, and that they treat their customers well.
Due to the nature of reporting, journalists tend not to write about instances of good customer service, but focus instead on best-buy rates or innovative products. However, the negative impact of mediocre interest rates or poor value products is much less damaging than the impact of poor customer service and product mis-selling by banks.
Journalists feel that the service supplied after the point of sale on financial products is an intrinsic part of what customers pay for, and that good service increases the value of both the product and improves the bank’s relationship with its customers.
The newspaper’s postbag filling up with complaints from angry customers is what leads to antagonism between the financial press and the retail banks more than anything else.
Despite this, there is recognition that the financial services industry occasionally gets things right.
During a recession companies tend to have to try harder to make money, keep their customers happy and gain a competitive edge over their peers. Recession tends to lead to a greater degree of innovation, as the struggle to keep incoming cashflow becomes more intense.
When we asked, 51% of journalists felt that financial services companies are now offering more innovative products than they were five years ago (pre-crisis, March 2007).
There are brand new types of services being offered in the industry including new mobile payments services (eg, Barclays Pingit and PayTag, NatWest mobile app), and new peer-to-peer lending services being set up in the last few years (eg, Zopa, RateSetter).
The products themselves are also being tweaked and updated for the more demanding customer as well, and larger banks get positive mentions for some of their new products and promotions (eg, Santander 1-2-3 combined credit card and current account deal, Lloyds TSB’s Money Manager service, Halifax’s Savers Prize Draw, etc.)
While the press acknowledge that there are positive things happening in the industry, newspaper front pages are still dominated by negative coverage, but that is no surprise when you consider that 81% of journalists surveyed agreed that it is more important for financial services companies to be fair than to be innovative.
The perception of acting in a fair way, both at a retail, and a corporate level, is now of greater importance to the personal finance press. Now, as industry commentators they understand how publicly-listed businesses are run and they understand that banks are going to try and maximise profits to provide returns for their shareholders.
However, when staff bonus payments are in excess of dividend payments to shareholders, journalists do not feel that investors are getting a fair return on their investment. Likewise, if retail financial products and services are not fairly sold and serviced, then customers will leave, and journalists will encourage them to switch.
Recent customer service issues in the industry have led to more customers switching. Nationwide reported that in June 2012 it had a week-on-week increase of 26% in applications for its current account.
Customers will switch to companies that they feel are going to look after them with good products and good service; they want to know they are not being taken advantage of for the sake of company profit, and they are now voting with their feet.
If our banks can combine the new surge of innovation with good value, strong service and products that benefit the customer, then perhaps we will see NatWest, Barclays and Santander being recommended when someone asks who they should switch to.