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LIKE YOUR BANK, HATE THE REST

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LIKE YOUR BANK, HATE THE REST

Collectively we think that big banks are rubbish. Although personally, we’re generally happy with the service we receive from our own bank. Mark Chamberlain, Sector Managing Director for Services, Retail and Transformation Brands at Kantar Millward Brown, explains the branding gap.

Survey after survey tells us that consumers hate the big banks. And they, or we, hate the biggest global banks most of all.

The blame for the financial crash in 2008 still lies with the biggest banks in the eyes of many consumers. Everytime concern is raised about the continued stability of the global financial system, bankers’ bonuses or salaries,then consumer antipathy gets refreshed.

A big consequence of this is that the brands of the big global and regional banks continue to suffer in the BrandZ 2016 Top 100 Most Valuable Brands 2016 ranking. Last year global banks lost 11% of their brand value and regional banks fell 12%.

A weak brand might seem like a small thing for these financial giants to bear, but poor ratings like these can hold back even the biggest company and stop them reaching their potential.

In addition, brand matters more to banks because their brands have historically been weaker than we see in sectors such as technology, meaning that they have no reservoir of brand love to fall back on.

Indeed, the latest BrandZ data analysis shows just how much impact a poor brand is having on business prospects in the home markets of key banking brands – environments where these banks ought to do best, given the local pride, jobs and economic boost they provide.

Even assuming that brands benefit from goodwill in their home markets, however, they still do less well than you would expect. On Brand Potential – a measure of probability of short-term growth –Deutsche and key competitors Barclays, HSBC, Santander and Citi all perform worse than the average brand in their home markets.

In part, this poor score also reflects the split that exists within these banks – the battle to be business titans vs the desire to serve the public and customers. Analysis shows that Deutsche Bank’s Business Power – a measure of brand strength – indexes 309, compared to 85 for its Consumer Power, for example.

Unfortunately for the banks, this brand challenge coincides with a time when legacy brands are facing more competition than ever before. Fintech players and new banks are being encouraged to take share and have the technology to provide a better, more seamless experience for consumers.

The playing field of alternatives to big traditional banks has never been broader, ranging from challenger banks such as Monzo and Atom and other fintech players that are encroaching on their services (such as TransferWise and Revolut for payment transfers).

The saving grace, however, is that while consumers consistently slate banks as a group, their personal view of their own bank tends to be a little more positive. Even where there is widespread discussion of trust and reputation issues, people rate their own banka bit more highly than the sector as a whole.

Perhaps that is still a hangover from the days of personal contact with experienced finance staff in branch.  As banks continue to close branches and de-skill frontline staff, maintaining that personal link is vital and banks must do all they can to ensure the customer experience is seamless and easy- whether they use an app, go online or visit the high-street branches that are left.

For example, consumers increasingly expect their bank to call if they see unusual activity on their account.A good example is South Africa’s Absa Bank, currently a division of Barclays Africa, which is using historical transactional data to understand and engage with its customers. Absa has piloted a predictive service that alerts customers when they’re at risk of overdrawing their account, based on their specific habits and payment obligations. It also offers personalised options such as speaking to an advisor. Almost a third of alerts sent in the pilot resulted in product applications, while 60% of customers took action to manage their finances better.

Big banks need to compete with the seamless experience offered by rivals. PayPal is an exceptional performer in this area, making the purchase process easy by eliminating the need for shoppers to input their card or bank details. Technology giant Tencent, meanwhile, has made it possible to send money through its popular WeChat messaging platform.

Ultimately, performing well on key brand measures such as convenience and acting as a “bank that really serves my needs” will help to insulate the consumer business of the big banking brands from the impact of a poor wider brand perception.

In the short term, big banks seem relatively safe because only a small number of consumers actually change banks. Switching hasn’t been at the level that many would expect, particularly in the UK, where lots of effort has been put into making it easier and faster.

In fact, most UK switching can generally be traced to tactical promotions, particularly those run by Santander. The truth is that the impact of trust and reputational issues only hits most consumers if there’s news that directly affects their personal bank.

All of which explains why the Fintech specialists and the new banking brands have been more of a slow burn. In the long-term however, they are ones to watch. That’s not just because they are better placed to move faster to deliver the service that new technology permits but also because they are attracting new-to-banking customers more effectively than other groups.

In fact, their limited range of products, often a savings account, a current account and online banking apps, means they are better placed to attract such consumers who are in the market for the first time and have relatively simple needs.

These, mostly millennial, consumers are also more open to new brands. They will research stuff online, and use comparison sites – which are driving more informed brand choices, changing the competitive set and giving visibility to disruptor brands that customers may not otherwise have seen.

The opportunity for some of these new players is almost to apply their service ethos to become a vetting service for additional offerings, recommending products as and when their customers might reach the appropriate stage in their financial journey.

All this might lead you to think that brands can ditch traditional activity such as

Deutsche Bank’s sports sponsorships such as PGA Golf Events and World Equestrian Festival as well as its more local efforts such as planting trees in Frankfurt.

The argument being that if they simply focus on the brand touchpoints they will keep their existing customer base.

Not so, because these efforts are also part of the process of reaching out and are particularly important at a local level to reinforce the sense that my bank supports the things that matter to me. Sponsorships for the things we love create a greater closeness to the brand.

The legacy of the 2008 financial crisis is still sticking to global and regional banks. To sustain their relevance and long-term value, they need to recalibrate and deliver a compelling brand experience. If they can do this, the trust they’re chasing so hard will return. If they don’t, the mud will continue to stick.

Banking

A quarter of banking customers noted an improvement in customer service over lockdown, research shows

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A quarter of banking customers noted an improvement in customer service over lockdown, research shows 1

SAS research reveals that banks offered an improved customer experience during lockdown

A quarter (27%) of banking customers noted an improvement in their customer experience over lockdown, according to research conducted by SAS, the leader in analytics.

This represents some good news for banks in an extremely challenging time, with 59% of customers also saying they’d pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.

The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of banking customers using a digital service or app has grown by 11%, adding to an existing 58% who were already digital customers. Over half (53%) of new users plan to continue using these digital services permanently moving forward.

Brian Holden, Director, Financial Services at SAS UK & Ireland, said:

“It’s notable that in times of need customers value being able to communicate with their bank and place an even higher value on good customer service. A rise in the number of digital customers means banks can now reach a wider audience online, leveraging AI and analytics to offer a more personalised experience.

“There is work to be done, though. Even greater personalisation is needed if banks are to win over the 12% of customers who felt banking services deteriorated over lockdown. And this personalisation will need to get right down to a segment of one to properly reflect the unique circumstances some individuals now find themselves in due to the pandemic.”

While the number of digital users grew over lockdown, there is still a quarter (24%) of the banking customer base that have chosen not to make the switch to digital services.

Meanwhile, failure to offer a consistently satisfactory customer experience could prove costly for banks, with a third (33%) of customers claiming that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service, so this just underlines how much retail banks can win or lose in these difficult times.

For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer? 

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Banking

Swedish Bank Stress Tests in Line with Recent Rating Actions

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Swedish Bank Stress Tests in Line with Recent Rating Actions 2

The Swedish Financial Supervisory Authority’s (FSA) latest stress test results show major Swedish banks’ robust ability to absorb credit losses. The results support Fitch Ratings’ view that short-term risks have abated in recent months, and are in line with Fitch’s assessment of major Swedish banks’ capitalisation at ‘aa-‘, which was a factor when Fitch removed the ratings of Handelsbanken, Nordea (not covered by the FSA’s stress test) and SEB from Rating Watch Negative in September.

The FSA estimated about SEK130 billion of credit losses over 2020-2022 for the three largest banks (Swedbank, Handelsbanken and SEB) under its stress test. This represents about 220bp of their loans, or about 70bp annually. However, the banks’ pre-impairment profitability in the stress test could absorb credit losses of up to about 110bp of loans annually. Fitch’s baseline expectation is for credit losses below 20bp of loans in 2020 and 8bp-12bp in 2021.

Capital remained strong under the stress test. The average common equity Tier 1 (CET1) ratio fell by only 2.8pp (1.9pp if banks did not pay dividends) from 17.6% at end-June 2020. The capital decline was not driven by credit losses, which could be absorbed by pre-impairment profitability, but by risk-weighted asset inflation.

The three banks’ 3Q20 results showed that capital has been resilient despite the coronavirus crisis. The banks had a CET1 capital surplus over regulatory minimums, including buffers, of almost SEK100 billion (excluding about SEK33 billion earmarked for dividends). SEB had a CET1 ratio of 19.4% at end-September, Handelsbanken’s was 17.8% and Swedbank’s 16.8%.

The SEK130 billion credit losses under the latest stress test are lower than under the FSA’s spring 2020 stress test (SEK145 billion), which also covered a shorter period of two years. However, they are still larger than the actual losses incurred by the three banks during the 2008-2010 crisis. This is despite tightened underwriting standards by the three banks in recent years, including, in the case of SEB and Swedbank, in the Baltics, the source of most of their loan impairment charges in the previous crisis.

In its baseline economic forecasts, the FSA assumes a harsher shock to Sweden’s GDP in 2020 and 2021 (-6.9% and 1%, respectively) than Fitch’s baseline (-4% and 3.4%), although it assumes a similar recovery by end-2022. It also assumes real estate price corrections, which appears particularly conservative in light of a 11% housing property price increase over January to November 2020.

The ratings of Handelsbanken (AA), Nordea (AA-) and SEB (AA-) are on Negative Outlook due to medium-term risks to our baseline scenario. The rating of Swedbank (A+) is on Stable Outlook, reflecting significant headroom at the current rating level following a one-notch downgrade in April due to shortcomings in anti-money laundering risk controls.

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Banking

Future success for banks will be driven by balancing physical and digital services

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Future success for banks will be driven by balancing physical and digital services 3

Digital acceleration due to COVID-19 has not eliminated the need for bank branches

Faster service (23%), smaller queues (26%) and longer opening hours (31%) are among customers’ biggest asks of their bank branch, new research from Diebold Nixdorf today reveals. But with 41% consumers saying they would be comfortable to engage with all banking services via an app, it is vital that banks respond to the full spectrum of customer needs – balancing and evolving their offerings on multiple fronts.

A third (35%) of customers say they will always want access to physical, in-branch banking services in some capacity and one in ten (10%) consumers will never bank predominantly online in the future. This demonstrates that there remains an important role for the services a branch provides. This role, however, continues to shift away from purely transactional banking:

  • A quarter (26%) value face-to-face advice when it comes to their banking needs

  • One in five (18%) seek advice on different products

  • 17% want to speak to the staff or other customers.

Matt Phillips, Diebold Nixdorf vice president, head of financial services UK & Ireland, said: “The majority of banks have spent the last decade focusing on their digital strategies and investing in improving – or establishing – their online customer experience. However, the data shows that there is still an essential role for physical branches. Banks now increasingly face the challenge of continuing to provide customers with access to a range of physical and as well as digital services, giving them the flexibility to choose the best service for them at any given moment in time.”

When looking beyond the impact of COVID-19, planned branch visits by customers are expected to rebound to 28%, following a dip to 11% during lockdown. And when asked about the new services they’d like to see inside their bank, sixteen percent of respondents said more self-service machines would improve their in-branch experience.

Matt Phillips continues: “In a world that is fast evolving and where the future is digital, there’s no doubt that high street banks must, and are, responding to the needs of highly digital customers. But not every customer requirement is digital. There is still a strong need for physical bank branches and the interaction and services they offer, and striking this balance between physical and digital is where the industry must come together to provide solutions. For example, building a strong, leave-behind strategy is something we’re seeing across the board when banks have to close branches, ensuring customers have access to self-service machines to complete all their transactional needs.”

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