It’s not just the challengers that are challenging the big banks

By Richard Exon, Founder, Joint

Goodness knows we need big banks.

They form a critical part of our national infrastructure and, done properly, large scale retail banking can be an economic force for good.

But a lot of them are struggling right now. Not catastrophically perhaps. There’s no hint of a Northern Rock style collapse.

It’s more a glacial erosion of relevance brought on by long term shifts in consumer behaviour, all accelerated by the impacts of Covid-19.

The direction of travel is evident in the data from CASS, the Current Account Switching Service.

In the 7 quarters since January 2019 a selection of the UK’s biggest high street banks including Barclays, Lloyds, Santander and TSB have lost 282,476 more customers between them than they have gained.

These may be small numbers within the total customer base of each bank, but a quick check to see which of their competitors is growing is most revealing.

Starling and Monzo show a combined net gain of 70,992 customers whilst Nationwide – adeptly and explicitly communicating its core difference of not being a bank but a building society –  is the biggest winner of all with a net gain of 126,936 customers.

Given the hundreds of millions of pounds spent on marketing over the period, it’s worth considering the issues that all of the banks are facing and that many seem to be struggling with.

Economics 

The banks are operating in an ultra-low interest environment which makes it relatively harder for the retail banks to make money. Their net interest margin – achieved  through a trade-off between the interest charged on loans and the interest paid on savings – was under severe pressure when the base rate of interest was scraping along at 0.5%. The recent shift to a previously unimaginable 0.1% base rate must have all but wiped it out.

Then add into the mix the commercial damage of various fines and the need over recent years to pay back a staggering £38bn to customers who had been mis-sold PPI.

High costs and reduced income make for a challenging environment as marketers make the case for investment in 2021 and beyond.

Digital acceleration

The ideal scenario for the retail banks was an orderly digital transition where, over many years, they could adapt their expensive physical branch networks and create a modern infrastructure focused on online and mobile banking.

But events have overtaken them.

According to McKinsey & Co, across all sectors between June 2017 and July 2020 the percentage share of customer interactions that are digital leapt from 18% to 55%.

That’s a steep rise indeed and more than half the increase (21%) occurred between December 2019 and July 2020.  Not many would bet against a further increase in the second half of 2020 when the data is available.

Where does that leave big banks with huge high street estates and creaking legacy IT systems, just as digital-first start-ups like Starling, Monzo and Revolut are making real inroads into their customer base?

The changing high street.

The unfair and inescapable truth is that people want their local branch to stay open but they very rarely use it.

People say they want the security associated with knowing they can walk into a bank and access their cash and, as they look at their local high streets for signs of economic health, a bank branch closing is generally unsettling.

Think about Santander for example.

It still has 800 branches in the UK yet the Financial Times reports that in the third quarter of 2020 80% of its sales were entirely digital.

Like other banks, this leaves Santander with some intractable problems and once again Covid has accelerated an already established trend.

The decisions big banks make about their branches in the coming years will have a huge impact on their brands and reputations.

The marketing conundrum and the dangers of boosterism.

Boris Johnston’s critics have long complained about his tendency to paint an overly optimistic picture that’s patently at odds with the reality of any given situation.

Added to which we now know a lot about the inequality of impact that Covid has wrought across the country.

The brands who are growing – like Natwest, Nationwide and all the challengers – seem mindful of this in the way they market themselves.

They have avoided the mix of vague promises, small gestures and perplexing use of celebrities that litters the activities of their less successful rivals.

So how can marketers make a confident case for a big bank brand that supports a return to growth without falling foul of the national mood?

The power of purpose and keeping it simple.

All retailers have to answer simultaneously the two questions consumers have of them.

Why should I trust you and what can you offer me?

This is especially true as we continue to move through Covid disruption and doubly so for big banks.

As regards trust, the answer will lie in making a compelling case for the positive role the bank can play in its customers’ lives. Sometimes known as its brand purpose.

This is no easy task though as a bank’s purpose needs to be engaging enough to differentiate the brand from its competitors and credible enough that it avoids over-claim and exaggeration.

Meanwhile the offer that the bank makes – its products, its services and its pricing – needs to be built and presented in a simple, coherent way that makes the consumer benefit immediately apparent.

Given how important the big banks are to the UK economy, as well as to the millions of us who bank with them, let’s hope they all find ways to answer those two questions quickly.