The UK’s Co-operative Bank has kicked off the New Year
with a pricing campaign by scrapping interest charges on
overdrafts, until the beginning of April. Robin Taylor, head of
banking at The Co-op, tells Meghna Mukerjee 450,000 customers will
benefit and welcome the savings following the expense of the
holiday season.
Go deeper with GlobalData
The Co-operative
Bank (Co-op) has axed interest charges on overdrafts for its
current account customers who have agreed overdraft facilities, for
the first quarter of 2012.
The pricing campaign aims to differentiate the
UK mutual from its competition and, in turn, provide “financial
relief” until the beginning of April 2012 to approximately 450,000
customers who have agreed overdrafts with the Co-op.
The Co-op Group has 9m retail customers of
which 1.5m are current account users.
The overdraft promotion marks a strategic
change for The Co-op from focusing on new customer acquisition to
rewarding its existing customer base.
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By GlobalDataAccording to Co-op, the price promotion is an
attempt to “offer a helping hand to customers who may be struggling
financially, and give additional support to those whose finances
may be stretched after the festive period.”
The initiative allows a current account
customer who has, for instance, an agreed £2,000 overdraft with the
Co-op, to save almost £75 in fees throughout the three-month offer
period, while a customer with a debt of £500 could save more than
£18. So, what is the catch?
“There isn’t one,” says head of banking at
Co-op, Robin Taylor.
“It is clear from research we have done that
the UK society is struggling, and times are tougher than they have
been for a long time. There are no hidden extras here – it is very
clean. Your interest is not going to get charged on agreed
overdrafts until April,” says Taylor.
Research conducted by Co-op in December 2011
reveals that the average British adult accumulated just over £749
of debt last year, and the number of people gathering debt
increased by 27% in 2011, compared to 2010.
Highlighting the extent to which people feel
they will be able to repay their debts in 2012, the Co-op research
reveals just over one in ten consumers (12%) don’t believe they
will be paying any of their 2011 debts off this year and just under
a third of consumers (29%) expect to pay back less than half.
Just over 27% of Brits who accumulated debt in
2011 expect to pay back their debt in 2012, with an additional
quarter expecting to pay back half or more (26%).
The research findings also show which forms of
borrowing people have used over 2011, with the most common being
credit cards (58%), followed by personal loans (20%) and arranged
overdrafts (16%). 7% used store cards and 5% took out payday
loans.
Has Co-op changed its credit policy in the
light of this research?
“We are cautious in making sure that only
customers who have the ability to pay back their debts borrow with
us. So whether it was this research or anything else, our internal
and external view is constantly reviewed to endure that we have a
robust credit policy,” says Taylor.
In 2011, the Co-op launched the £200 cash-back account switching
incentive to lure new consumers.
Banks such as Santander and First Direct have
offered similar cash-back incentives to stay ahead in the battle
for current account customers, the most recent contender being
Halifax with its £100 cash-back offer.
But in 2012, Co-op’s strategy aims at
benefitting the existing account-holders.
“We felt it was time to be looking at our
existing customers and tying in the fact that a lot of customers
are feeling the pinch at the moment. But we have not changed any
credit criterion whatsoever,” says Taylor.
There are upfront costs to this new scheme
that the Co-op has to incur, but Taylor says the “long term
benefits” are worth it.
“There are longer term benefits in not just
having incentives for customers to join us but they should get
value when they actually join us too. Why wouldn’t we want to do
that?”
The overdrafts scheme is also in line with the
Co-op’s intention to pose as a real alternative to the Big 5 banks
in the UK.
“The key thing for us is we are a member’s
organsiation. It is important that we provide them with a good,
sound, operating base and also really good customer service – which
is our USP – and also provide value back to them,” says Taylor.
Competition-wise, the Big 5 apart, the Co-op
is not ruling out lenders such as Tesco Bank.
“It depends on what area you are looking at.
The current account market is dominated by big players, so if you
are looking to gain primary current accounts it will be, by
definition, those companies. Over the last 12 months, we have done
extremely well in terms of our net position and gaining shares from
those oragnsiations,” says Taylor.
Looking ahead, mobile banking is high on the
Co-op’s agenda.
“I think 2012 will be a pivotal year for
mobile banking across the industry let alone the Co-op Bank,” he
says.
Due to its merger with Britannia Building Society, the Co-op’s
branch network increased significantly to over 300, in the last 2-3
years.
“The Co-op has done really well in its growth
aspirations. We are a branch led multi-channel organsiation.
Mobile, internet all those areas are important but customers
traditionally still like to have a branch presence,” says
Taylor.
The branch-network is set to grow further in
2012 once the acquisition of over 600 Lloyds Banking Group branches
is finalised.
“To be honest, everybody is excited about the
opportunities – whether organic or industry led like this one. But
at the same time we have to protect our members’ interests.
“At this point we are still in dialogue with
Lloyds – that needs to play out over the next two to three months,”
answers Taylor, adding that this time period is “really important”
to ensure the deal is good for both Lloyds and the Co-op.
