HITTING THE ROAD: HOW TO CURE THE CRISIS IN UK COMMERCIAL BANKING BY HENRY BRAITHWAITE, OPERATIONS DIRECTOR, MARKETMAKERS
In February the Bank of England reported a 2.1% annual fall in bank lending to businesses of all sizes. This is not a headline-grabbing collapse in commercial lending, but rather a slow and steady decline that is now in danger of leaving UK businesses without the resources to invest and so maintain our nascent economic recovery. This is an issue not only for commercial banks, but for the UK as a whole. It cannot be ignored any longer.
Collapse of trust
Indeed the Chancellor is so worried about this lack of business investment that back in January he called senior executives at the UK’s largest companies to the Treasury and urged them to stop sitting on their hands and start investing. The crisis hit the headlines again in June when Business Secretary, Vince Cable, attacked the Bank of England for blocking reforms which would make it easier for banks to lend to business
Momentum is building behind the issue, but there will be no easy solution. The root cause of the crisis is not that banks are unable or unwilling to lend to businesses. For many months now banks have had the capital to lend and the incentive to lend it, and they have been willing to offer significant loans to businesses at reasonable rates.
The reluctance to engage is largely on the part of the businesses themselves, especially smaller businesses. Five years is simply not long enough to forget the experiences of the Great Financial Crisis when good, solid businesses had lines of credit withdrawn almost overnight, forcing many of them out of business. These memories, combined with the emergence of alternative funding models, have left many company directors reluctant to trust banks as a reliable source of long-term investment.
As Spencer Dale, the Bank of England’s chief economist, told a CBI gathering last December: “Many companies were let down by their banks during the financial crisis, and I fear that many will be reluctant to return to a business model which relies on their banks providing liquidity and support in times of need.”
Towards a solution
In recent months various experts have proposed a host of solutions to this impasse. In a speech at the City Week event in London on 22 April 2013, Douglas Flint, HSBC Group Chairman, argued that financial institutions need to define and enforce the right values in terms of behaviour to improve the sustainability of the financial system and demonstrate its social value.
Others have proposed more technical solutions such as caps to bankers’ pay or the G20’s comprehensive financial reforms. These are valid suggestions, but on the ground, right here and now, commercial banks need a more immediate solution. We have worked with one commercial bank that has decided to simply take matters into its own hands and get out and meet its customers.
They believe that this will begin to restore the trust that is so essential to a commercial banking relationship, and so start to return revenue growth that part of its business. It is an important story as it may point a way forward for other commercial banks in the UK.
One bank’s answer
Our client is a regional division of the commercial banking arm of one of the leading high street banks. The central marketing function was keen for regional managers to get out and meet potential customers, and so asked us to work with this region in a test pilot scheme which, if successful, would be rolled out to other regions.
The regional team was at first highly sceptical about the involvement of a telemarketing agency. They had tried it before with a different agency and had been sent out on meetings which were not fully qualified and so not only wasted their time but also reflected poorly on the bank.
Yet, since then they had been attempting to set their own new business meetings with very limited success. It was an activity few of them were trained in or had much experience of, and one that even fewer enjoyed doing. Understandably they focused on existing clients, and so were doing little to get out and engage with local businesses and start rebuilding the relationship of trust.
So, when we talked to them about how we approach our calls, and the way we give clients access to recordings of our conversations with people they are due to meet so they can be certain there is a genuine opportunity there, and be fully briefed before the meeting, they began to see how outsourcing B2B telemarketing could really work.
200% return on investment
It certainly did work. The leads that MarketMakers generated overall gave a 200% return on the investment made by the bank. This came through a combination of quick wins and longer term prospects, but crucially the bank was out talking to businesses, convincing them that it could be trusted again.
The pilot was rolled out across that bank, and it is now reaping the benefits nationally. It is a model which in the coming months and years we may see more and more commercial banks adopting. The cost of inaction, and the potential rewards for action, are simply too great to ignore any longer.