A SCANDAL WITH NO EQUAL: BANKING IN THE AFTERMATH OF PPI

Banks are still seeing the fallout from the PPI scandal, despite the years that have passed since it first emerged. The problem is that it is based on problems stemming back even further to historic mis-selling before banks were able to properly record or understand their full customer relationships. Until the past catches up with the future, we’re unlikely to see an eclipsing of future scandals by the lessons of the past, but with each passing year, we move further along the road to financial – and reputational – recovery.

The Financial Ombudsman Service has already highlighted packaged bank accounts as a potential area for concern. But what is important to keep in mind is that whilst there may be some storm clouds on the horizon, we can be confident that the lessons learnt from PPI and increasing regulatory oversight will ensure a future financial landscape focused on serving consumers better.

The big question, therefore, is whether one of these high-profile scandals will happen again – and what is being done to prevent it?

Bombarded with claims

It’s difficult to turn on the television at the moment without seeing a claims advert of some kind – even though these messages are based on events that took place more than 10 years ago. Even though many of the problems of the past may have been solved through a renewed focus on service and more stringent industry regulation, the after effects are hard to shake off.

With many banks choosing to simply pay-out rather than defend these claims, claims management companies (CMCs) found it very easy to profit from the mistakes of the banks. Ironically, it was then the CMCs themselves that attracted the ire of regulators for their overzealous approach to PPI.

Other scandals, including foreign exchange rate rigging, the Libor affair, payday lending and the mis-selling of complex interest rate hedging products to small businesses, have risked causing further damage the relationship between consumers and financial institutions. However, despite these challenges, the sector has actually made great progress in building bridges with both the regulator and the consumer in recent times.

A new public

One of the lasting legacies of PPI has been the introduction of a strong claims culture in the UK, with consumers now more aware of their rights than ever before. For financial services firms, this doesn’t have to be a negative, however increasingly empowered consumers mean that issues will come to light more quickly and can be dealt with sooner, if the right systems are in place.

As a result, many financial services firms in the UK have begun to use complaints to their own advantage and are investing more in their people, processes and systems. By taking this approach, any trends in complaints can be detected early and firms can subsequently adapt systems and have a chance of heading off any major issues before they grow into full-blown scandals.

These changes will give banks the ability to recognise problems that are brewing at the earliest possible stage, and take action accordingly, whilst at the same time assessing with accuracy the likely impact of any upcoming issue. What it won’t do, however, is fix historic issues based on mistakes made by firms in the past.

Root Cause Analysis

Firms are now starting to manage feedback more effectively by looking at the root cause of customer complaints, rather than simply firefighting each issue as it arises. This level of insight is vital, as financial providers need to ensure that fairness is ingrained in the structure of the business. By putting the customer at the heart of a firm’s activities in this way, firms can consistently meet – and in fact exceed – the regulator’s requirements.

Businesses will need to make sure that their approach is standardised, however. For example,if a firm has multiple call centres or points of contact they should all provide the same level of service and have the same ability to deal with customer complaints.

Consumers must have a consistent experience and, especially in the days of social media, mixed messages should be avoided at all costs. As a result, this understanding needs to run from the top of the boardroom to the bottom, since a disjointed approach makes it difficult to extract any worthwhile business intelligence from the data that is being collected.

Packaged problems

Will these changes be enough to stop another financial scandal from occurring based on historic issues? It seems unlikely with the Financial Ombudsman Service (FOS)highlighting packaged bank accounts as a possible problem for the industry.

However, the fact the regulator is being proactive and highlighting areas where potential abuses could occur is a positive. Firms should welcome this kind of intervention and start to consider how they can change the way they do business for the better. Whilst recent changes can’t alter historic abuses, they can set firms up for efficient handling of these issues, and pave the way for fair and accurate compensation that reflects the true scale of the problem.

Customer centric

Collecting, collating and analysing customer feedback is something that should have universal appeal for all businesses in this sector. The insight that this activity delivers will help firms to improve internal processes can save cash in the short and long-term and will drive greater revenue and increase customer satisfaction.

The regulator is engaged with the sector and proactive in working with firms who want to do right by their clients. If the business is armed with the right tools to analyse customer complaints, problems can now be dealt with long before reaching crisis point.