Response to the CMA’s long awaited inquiry has been a mixed bag writes Christopher Evans
Some see it as a missed opportunity to break up the dominance of the big four who hold 77% of the nation’s personal current accounts and 85% of business accounts
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Is there a need for a major upheaval of the UK retail banking? Take current switching rates: Only 3% of personal and 4% of SMEs switched to another provider in the past year. Objectively speaking, it would appear a bit of a reach for the CMA watchdog to have recommended such a radical restructuring of the sector.
The low switching rates are worth exploring further though. Either they suggest that people are happy with the service they receive, or—perhaps more likely—they are apathetic and hesitant to do anything about it.
The CMA’s big idea for more fluidity in the market is to create an open banking mobile app, that will give people easily accessible information about the best accounts, rates and charges available. The thinking is that this app could emulate the success of price comparison sites in motivating people to switch.
According to Ofgem, 1.8 million people switched electricity provider between January and May this year. Figures from the Current Account Switching Service show that only 483,000 changed their main bank account over the same period.
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By GlobalDataYears of dismay at high energy charges, and being duped by tariff changes seems to have finally hit home with customers voting with their feet. For banking this hasn’t happened on a large scale yet, but disruptors and regulators are keen to change the current status quo.
If comparison apps, combined with a frictionless switching experience was delivered, banks could quickly find themselves under more scrutiny from their customers. In today’s current climate of low interest rates, many accounts seem to offer broadly the same perks. Perhaps that’s why a third of Britons have been with their bank for more than 20 years.
So let’s assume that the CMA’s recommendations will be put into practice. What should banks be doing right now to ensure that they are prepared for the launch of open banking in 2018?
Make advocates out of your customers
It is likely that when the public see the whole market at the tap of a screen, the similarities on offer will blend together. Aside from some attractive incentives to new joiners, people might conclude that there is little difference between what they have, and what they stand to gain from switching.
Banks now need to move away from promoting the objective specifics of their accounts, and instead work to engage their customers emotionally. Providing an excellent service, and going above and beyond to cater to individual customer needs—in branch and across all channels —will set them apart.
Following the financial crisis, banks are on their way to repairing their reputation with their customers. In our global research into the top 10%-15% of earners, we found 53% trust their bank to act in their best interests, and 48% agree they receive a high level of personal service.
Building a proposition that focuses on trust and personal service will endear customers further to a banking brand, and encourage word of mouth referrals. The CMA proposals could make banking behave more like utilities, and you only need to look at the anecdotal tales about the varying quality of broadband or pay TV services to understand how essential it is to champion the customer.
Double down on mobile
The core tenet of the CMA’s report is a mobile app. There is simply no escaping that mobile is now the de facto platform of choice for today’s consumer. With the smartphone market reaching saturation point, there is no excuse not to invest in developing a feature rich banking experience. This includes everything from checking statements, money transfer, bill payments, depositing cheques, opening accounts, and providing real-time customer service.
Banks also need to move quickly to comply with the upcoming CMA mandate to notify customers when they might be charged such as going into their overdraft. This should be hardwired into the mobile experience as soon as possible, to highlight how banks have their customer’s best interests at heart.
Turning to our research once again, we see that 81% now use apps to manage their finances, and almost two thirds (63%) agreed they made digital payments whenever possible. The fact that 46% of respondents would consider a branchless digital bank if they were to switch in future is the loudest, clearest signal yet that change is coming.
Bank-wide loyalty and an end to free banking
Effective banking loyalty programmes are few and far between. This is because retail banks could not compete with the clout of credit card providers supercharged by interchange fees. Now that those fees are capped, the playing field is starting to be levelled. Banks still have to consider how flexible models can help them fund their programmes though.
One simple idea is to end free-banking. Packaged accounts are becoming more popular, and if we pay for something then our expectation of a service becomes higher. We then compare options carefully, and banks in turn will need to offer something of genuine value in order to attract our custom. By paying for current accounts, banks will work harder to get to know and retain customers.
By using customer data insight, they could reward customers with targeted offers based on spending. For example, a bank could notice if parents had just been on holiday with their kids—thanks to hotel and hire car bills, and foreign exchange charges—and then offer a discounted spa weekend upon their return. Given two-thirds of customers expect to be rewarded for staying with their bank, building a loyalty and engagement programme ahead of the CMA recommendations coming into force makes sound business sense.
Once customers are more engaged, banks can then begin to cross-sell their other services such as savings and loans, and added value benefits such as health and travel insurance. This creates bank-wide loyalty, and helps cement the customer relationship for years to come.
One of the key proposals from the CMA centres around banks publishing trustworthy and objective information on quality of service on their websites and in branches. By being transparent about packaged accounts, and refocusing on mobile and customer engagement, banks will be well-prepared to meet the watchdog’s demands.
Whichever side you come down on regarding the report, it represents a fantastic opportunity for banks to evolve their propositions, and deliver a differentiated customer experience.
Christopher Evans is e-commerce director at Collinson Group
