September 2013 onwards, customers will find it easier to switch accounts between lenders, with new legislation due to take effect. The Account Switching and Customer Loyalty webinar, presented by The Digital Banking Club and sponsored by Intelligent Environments revealed what changes can be expected for banks and consumers.
The impending Vickers report, due to come into effect in September 2013, is expected to be a game changer in the retail banking industry as it proposes to reduce the time it takes for customers to move accounts between lenders down to seven days from the current 31-days period.
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This will make current account switching more convenient, thus making it crucial for banks to up their game and ensure customer loyalty.
The rapid advancements of digital platforms taking place across the financial services arena and the increasing likeliness of banks to offer new ways to bank will only make account switching more luring for consumers.
Chaired by the editor of the consumer finance titles at Timetric, Douglas Blakey, the Account Switching and Customer Loyalty webinar on 21 February – the first in a series of webinars presented by The Digital Banking Club, in association with Intelligent Environments (IE) – delved into what potential changes the Vickers report may bring about in terms of customer behaviour, and what lenders should do to retain their customers.
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By GlobalDataBlakey said there hardly seems to be a day going by without yet another survey or report being released, flagging up what a hot topic account switching is. Blakey added that though consumer expectations are rising, customers are still loyal to their banks. September onwards however, in the UK, the regulatory requirements will coincide "dramatically with the way customers are behaving".
A YouGov survey carried out in November 2012, on behalf of IE, shows that 81% of customers use online banking channels and 20% use mobile banking at least once a month, compared to the less 5% who said they visit the local bank branch once a month or more. Blakey said that taking into account "the ease at which customers use the banks" makes it imperative for lenders to have an "effective digital experience" in place that is not only secure but also seamless in terms of product delivery across markets.
"If we look at the current state of affairs in the UK, it’s evident that the ‘big five’ banks are the dominant players. If we look at the most up to date current account market shares, its evident that Lloyds and its various banks own 31%, RBS and NatWest own 16%, HSBC and first direct own 14%, Barclays is also on 14%, and Santander is at 11%. That adds up to 86% for the ‘big five’," said Blakey.
Beyond the UK, account switching is on the rise in other markets too. In India, 19% customers are ready to switch accounts compared to 11% a year ago, 13% in South Africa. In Brazil the numbers have almost trebled from 7% to 20%. Even in the Nordic region account switching has been on the rise," Blakey informed.
The keynote speaker of the webinar, Kevin Mountford, the head of banking at Moneysupermarket.com and CEO at Plan B Funding, further discussed how the current scenario has the potential to bring about a "revolution in customer choice", primarily in terms of the regulatory system and also the beliefs of the consumers and business users in understanding that account switching is useful and risk free.
"For so many years we have all heard that variety increases competition and at many degrees this has happened. Firstly, the several launches of what we had known as the baby banks with examples of non bank activity. It’s easy to see, actually, that some of these have survived. Soon after, we saw a flood of online overseas banks, and to be fair, the likes of ING really revolutionised the UK savings market, which previously operated in over-the-counter bank based environments," said Mountford.
The emergence of the online overseas players, however, wasn’t without its risks, added Mountford. The most recent challenges banks are facing, however, come from the nontraditional operators, taking advantage of the gaps left by traditional banks and buildings societies. More importantly, changing consumer behavior is also challenging, even though the likes of Metro Bank show that bricks and mortar offerings can still be appealing, said Mountford.
The personal current account market has been in the spotlight for several years now. "Moneysupermarket’s experience shows healthy year-on-year growth and reveals that not only are the customers researching more deals but understanding their options more. Current accounts have experienced a particular surge in interest," said Mountford.
However, there are several reasons for low account switching numbers, explained Mountford, and "no doubt the fear of switching plays a part" in it.
Moneysupermarket carried out its own research around the question: ‘From September, you will be able to move your current account in seven days. Will this make you more likely to switch?’
Approximately 54% respondents said no, they were happy with their own banks and didn’t feel there were any real alternatives in the market. Approximately 32% said yes – the only reason that stopped them was the ‘hassle’ involved with switching, revealed Mountford.
Research undertaken by Moneysupermarket in 2012 – around how long customers have been with their current banks – exposed that 72% respondents had been with their banks for over 10 years. "We do have to accept that there is a lack of choice and on top of this the fear factor of switching. No doubt some of the major players actually define this as loyalty, and that in itself is dangerous," said Mountford.
Mountford said ‘hassle’, ‘complications’, ‘difficulties’, ‘problems’, ‘lengthy’, are some of the words customers still associate with account switching.
According to Moneysupermarket’s research, the rise in interest around current accounts could be associated with anti-bank sentiments as well and can also illustrate the types of products that are available that raise interest – such as cash back offers.
"From a personal perspective, I find Santander’s 123 account offer very interesting and come September, it will be more interesting to see what other offers banks come up with. One thing is for certain – we do need more challenging brands and more innovation in product design," added Mountford.
The second speaker, David Webber, managing director, IE, picked up from the results shared by Mountford regarding the year-on-year growth in interest regarding current accounts and said that the statistic in itself "underlines what a hot topic customer loyalty to banks is going to be in the lead up to the implementation of the account switching regulation" proposed by Vickers.
"Intelligent Environments, since 2012, has been running customer research projects with YouGov – we ran one in February 2013 most recently. We are looking at the level of customer loyalty within the financial services space, and also, more importantly, what makes customers loyal. We are going to continue that research through 2013 and continue to publicise those results via The Digital Banking Club as we go through this year," said Webber, adding that IE had come across some "suspiring and interesting" revelations already.
According to Webber, while looking at the YouGov research results from February 2013 as well as November 2012, what was interesting is that loyalty to banks had not been shaken by the recent negative press, nor had there been much change with the influx of new entrants to the banking sector.
"In fact our research showed that customers trust their banks far more than other types of institutions within financial services. That level of trust had the banks ranking way above retailers – online and traditional, supermarkets, and the mobile operators," said Webber.
Even more surprising was banks ranking much higher than oraganisations such as PayPal in terms of trust levels, Webber added.
Exploring that loyalty further, YouGov research revealed that customers with a bank account generally viewed their banks in a positive light. Approximately 38% of respondents said their banks were reliable, 27% said they were safe, 27% said friendly, 23% thought they were trustworthy. However 11% respondents cited their banks as untrustworthy, and 6% as unfriendly.
"What’s telling, though, is that only 6% thought their banks were innovative and it will be interesting to get the banks’ reaction on where they think they are in terms of innovation," said Webber.
Also, 24% respondents said their banks were safe and perhaps a bit boring.
In the light of forthcoming changes, it’s clear that there is no room for complacency, said Webber, adding that the research also revealed that about a quarter of respondents felt their bank loyalty was underpinned by the fact that it is too much trouble to switch bank accounts.
"Cost reduction can negatively impact customer satisfaction levels and loyalty. Unhappy customers do not make happy customers and customer loyalty increases cross sell opportunities, which increase revenue. To achieve revenue growth, it’s important to understand what exactly customers want from their financial services providers," stated Webber.
The YouGov research also found 40% respondent citing customer service levels as an important factor for bank loyalty. More interestingly, 49% respondent cited effective online banking services and 11% cited effective mobile services as factors that drive loyalty.
"Those results were also fairly consistent across age groups. So 60% of Britons cited digital banking services as key to bank loyalty. However when we asked for more details about that experience, 29% respondents said they had experienced frustrations with the banks’ digital channel offerings in the last 12 months," informed Webber, with the frustrations mainly surrounding the lack of consistency between the different digital channels being offered.
Beyond research, it is useful to spot customer behavioral patterns by looking around, said Webber. People across all age groups and from all backgrounds can be seen using their telephones, tablet devices, and laptops, and maybe every single one of them is doing something related to financial services and how to manage money, explained Webber. Thus, the importance of being focused on how customers are accessing their money is paramount, he said.
"Customers do really expect to move easily and consistently from channel to channel and device to device. The good news is that financial services firms can take full advantage of this. Our view is that the September 2013 date is just the next milestone in the ongoing evolution of delivering financial services both in this country and across the world," added Webber.
An insightful question-and-answer session followed that saw the panelists tackling various listen queries.
Both speaker were asked to ‘guesstimate’ where the 8% figure of account switching in the UK in 2012 will reach in 2013, and Webber guessed it would be somewhere between 15% and 20%. Mountford said that though he had initially noted down 15%, technically if the likes of Project Verde go through, that percentage will change.
Speakers were also questioned about whether banks should be focusing on competing on service or price, to which Mountford said there is a real need now to create length and depth to product offerings. "The problem has been that as a society we have concentrated on price so much that we see many factors coming into play to support that offer. Particularly in the bank account arena, it’s important to choose products based on individual requirements, and they can vary quite considerably.
"I think it would be great to compete on a number of different fronts and service is one of them. Should we not expect a good level of service even though it is a base requirement? What we are talking about here is exceptional service," said Mountford. Webber agreed saying consumers will pay for something "if they absolutely believe they are getting something innovative and all their particular needs are being served".
Webber added there is very little innovation in the current accounts market presently, and the opportunity lies in putting things out there that are innovative.
Finally, Webber said, when switching becomes easy, brand and the perception of brand will become important, and so will the breadth of services available.
There were two spot polls conducted through the webinar.
