The Consumer Perspective on Banking Reform

Mark Yeomans, Director and Rosemary Bayman, Principal of Incite Marketing Planning

The banks are in a tough situation when it comes to consumer attitudes. On the one hand, it’s a low engagement category, but on the other, negative sentiment dominates. In other words: people don’t really care … but when they think about it, they feel hard done by.

This means that when we research new products, services and ways of doing business, consumers are often negative. They approach proposed changes either with suspicion: what’s in it for them? – or cynicism: nothing will change, they’re all the same.

When we dig beneath this, we find that consumers have two main aspirations for the banks:

• Don’t be greedy – don’t fail again and expect us to bail you out, and don’t take huge bonuses
• Be fair and be transparent – offer easy to understand products which deliver good value.

The tension here is that banks need to make money in order not to fail. Consumers recognise this, but only when pushed, and they are often not clear how the money is made. They think that just by handling their money the banks should be better off, when this isn’t always the case. This is why providers often end up cross-selling profitable (and therefore poor value for money) products to their customers, trying to squeeze excess margin out of hidden fees and charges, and managing out the value of products sold on a headline rate.

Mark Yeomans, Director, Incite Marketing Planning

This tension has been exacerbated by a succession of poor decisions made in the quest for profit. PR disaster has followed PR disaster as one by one, endowments, PPI and packaged account mis-selling have been highlighted. Not to mention the annual display of bonuses and CEO salaries and (worse) pay-offs.

So in an admittedly tough environment, the major UK players have been their own worst enemy. As a result, they are now undergoing a period of reform. But what sort of reform should we expect, and is this the right approach?

The split of the FSA into two new bodies shows the two distinct directions reform is taking:

• First, structural reform (led by the PRA, with the aim of promoting safety and soundness of financial providers: answering consumers’ wish number 1).
• Secondly, reform of conduct (led by the FCA, with the aim of promoting effective competition and giving customers a fair deal: arguably, consumers’ wish number 2).

Whilst it’s certainly necessary, we generally see that consumers care little about the detail of structural reform. They are not concerned with and nor do they understand leverage ratios and the Volcker Rule. As long as the banks don’t fail and pension and insurance policies pay out, they will be content.

The second aspect poses the real challenge. What customers want is fair products that are simple to understand, and ideally, don’t require constant shopping around to find the best deal. In the current environment, many will chase rates and switch products each year, but we often see a weariness among consumers, and a desire to do things differently. They repeatedly express a wish to be rewarded for loyalty rather than penalised for it.

Finally, the banks seem to be responding to this.

Rosemary Bayman, Principal of Incite Marketing Planning

Santander is trumpeting new values in its advertising: the words simple, personal, fair loom large over the phrase “What a bank should be”.

TSB is running a TV ad outlining an idealised world where the only lending comes from savers’ funds, lent to businesses in the local community, encouraging further growth and prosperity.

Lloyds states that what it calls “relationship banking” is at the heart of its mission.

But perhaps most noteworthy was the speech that the new chief of RBS, Ross McEwan, gave in February of this year. Here’s an extract:

… we will stop offering deals and products to new customers that we are not prepared to offer our existing customers. Sweeteners and cash payments might encourage people to switch banks but they send a terrible message to loyal customers and to staff about our priorities. This practice has no place at the new RBS I am building … We will also ban teaser rates, including zero percent balance transfers in our credit card business. Others can continue with this but we will not be in the business of trapping people in debts they cannot afford.

He adds that, “we will stop confusing our customers with complicated language they cannot understand”, and that the product range will be halved in the name of simplicity.

Radical changes indeed – if they come to pass.

It is hard to credit the FCA with any real bite here. Often one step behind, its main visible activities are the imposition of retrospective fines. But maybe we can credit it for encouraging this new attitude among the banks of putting the customer first. Or maybe the banks have been listening to their customers! Whatever the reason, we are seeing an intention to change their ways of doing business.

Will the first bank to get this right reap the rewards? The problem is that these changes will continue to be met with at worst scepticism and at best apathy. If consumers don’t vote with their feet and switch to the new banking apostles, banks will revert to the same old tricks and we’ll get nowhere. The debate around reform has no easy resolution.