Between them, the top UK high street banks received a staggering 11,000 customer complaints per day in the first half of 2010, according to figures which the banks were forced to publish (they probably weren’t volunteering). As many as 9 in 10 of these complaints were rejected, often without apology, despite the UK Financial Ombudsmen Service upholding around half of the complaints that were passed on to them, according to consumer finance site www.thisismoney.co.uk. Last week, a poll of customer satisfaction with 75 of the UK’s top brands by consumer magazine Which? put online bank First Direct top in terms of customer service, but its larger high street rivals well down the list. Retailers John Lewis and Waitrose ranked second and third in the poll. While these figures cover just one country, the poor customer service offered by leading retail banks is a more global issue, and one that is increasingly likely to impact banks’ future prospects – negatively. In our recent special report, Who’s Looking After Your Money? The Democratization of Personal Finance, the emerging landscape of personal finance suggests that banks are potentially facing an ever greater challenge than the financial crisis – consumer choice.
No doubt there will be some heads shaking at this view (particularly among bankers) since, for example, the UK public appears to be more loyal to their current accounts than to their partners according to research from Santander. Why would consumers start switching personal finance/banking providers in future? And where would they go?
The seeds of a future where consumers start to actually exercise their choice over personal finance have been sown in the last decade. Consumer demands are shifting, new technologies are opening the way for new channels and innovations. The “great unbanked” offer significant new opportunities for companies that can provide the right products and services. A whole range of shapers and influencers, from regulators to social networks are changing the dynamics of influence and choice. Within this landscape new players are emerging, focused on consumer needs – and it is getting easier than ever to move from one provider to another.
Many non-bankers are helping to redefine the personal finance landscape. Take the retailers, including Tesco and Wal-Mart, who are moving into financial services with brands that have far higher levels of trust than those of high-street banks. As a consumer who wants to make smart use of their money in a tough economic environment, wouldn’t you think about companies where “Every little helps” or that suggest “Save money. Live better.” In the Which? UK brand survey mentioned above, it is no surprise that the companies ranked second and third for customer service were retailers John Lewis and Waitrose. The recently launched Metro Bank, the first new bank in the UK for over a century, is taking a page out of the retailers’ books to offer a new customer-friendly banking experience.
Telecoms companies are also seeing huge potential in mobile banking and have advantages over banks in knowing how to manage consumer relationships over time and controlling access to services. Beyond companies, there are a growing number of community-based models emerging worldwide. Peer-to-peer lending and microfinance are now far beyond the realm of rapidly developing economies and taking off in the developed world. Think about information providers, such as Which?, thisismoney.co.uk or price comparison sites, that help consumers make the most of their money and their influence on traffic to banks and other finance institutions. How about the social networks where some of the many customer complaints will be shared, influencing the choices of others?
As the consumer becomes more frustrated with mainstream retail banks services, and switching costs go down as new technologies and new providers make it easier, “traditional” banking rules will no longer apply. Financial institutions in many cases have lost sight of the consumer and their needs, focusing instead on regulatory changes and internal industry dynamics.
Our sense is that this democratization of personal finance is gathering pace and that looking ahead we will see some radical changes in the banking space – probably driven from outside the industry rather than inside. Some banks, such as First Direct and the smaller niche banks, who clearly understand the dynamics of consumer choice, will likely do well. Others won’t. The question is who will be the winners and losers? Check out our free special report and let us know your views.