OPINION: UK banks must refocus on the personal touch

British banks could be forgiven for feeling rather pleased with themselves. With some notable exceptions, such as Abbey, the 2003 annual results have seen shareholders applauding and consumer watchdogs muttering about excessive profiteering.

With pre-tax profits at Barclays up 20%, and those at both Halifax and HBOS rising 29%, profits for the entire sector are set to reach £26bn.

The banks might claim that the millions they spend on high-profile advertising are obviously paying off, but that is not really the case. While these expensive campaigns might heighten brand awareness, inertia and confusion have been the main factors keeping customers locked in.

In many ways, banks have had it too easy. While other sectors have been hit by the turbulence from the lethal combination of demanding consumers and strident competition, this reluctance to move has helped companies such as Barclays rise above brand-damaging mistakes in the shape of branch closures and baffling credit card charges.

But just when things look too good is precisely the time to start worrying.

A report from Datamonitor on customer loyalty in European banking finds that there is a decreasing trend in loyalty, as consumers compare, shop around and switch - helped in the UK by government pressure to make it easier to move banks.

As Datamonitor says, no bank is safe from sudden decreases in customer loyalty. And the biggest factor contributing to loyalty is service, followed by value for money and channel strategy. Everything else is much less important, particularly in the UK, where consolidation has meant the loss of many smaller banking brands.

What's the solution? Research from Booz Allen Hamilton has found that despite the cost-cutting of the past few years, up to 90% of customer relationships are won or lost in branches. The findings, reported in the latest edition of strategy+business, come in the wake of the recent spate of bank mergers in the US. What's particularly interesting is that these entities, such as JP Morgan Chase, are all putting a strong branch network at the centre of their strategies. Not surprising, says the consultancy.

It has found evidence that customers favour branches over other channels for purchasing financial services products. For instance, while 12% of those looking for a mortgage researched it online first, almost half actually did the deal in a branch.

Banks invariably spend millions on customer relationship management systems to monitor customer retention and defection. But a vigilant branch employee can just as effectively use the personal touch to solve a problem and keep customers from leaving.

These aren't branches as we know them, however. To prevent it being a costly drag on profits, the branch model has to be reinvented. It has to become a financial services resource centre, with a focus on the local customer base, and act as the centrepiece of the customer's interaction with the bank. Ironically, the branch manager once again reclaims long-lost power and is accountable for the branch's profit and loss - although central control is kept over products, infrastructure and administration.

It is reckoned that revenue per branch can increase by 35% to 65% with this more personal approach. Face-to-face marketing? Now there's a revolutionary idea.

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