While many customers are choosing to bank through digital channels, the current account has remained a mainstay of the UK banking scene despite changing consumer behaviour. Leading figures from some of UK’s banks gathered in London for a roundtable discussion examining the challenges and opportunities offered by the current account market. Ellie Chambers reports

Just a few months after the seven day current account switching service came into force in the UK, Timetric hosted a roundtable discussion with banks and white label service provider Assurant Solutions to assess the impact of the service and other factors affecting the current account market.

The following is an edited version of the discussion that took place.

Daniel Ehreich, Head of Product for UK Current Accounts at Bank of Ireland: I’m not sure we can read too much into the performance of the switching service so far, there’s still a lot to be said for publicity and the idea that customers will start to get used to the idea of switching, certainly looking at switching in other industries it’s taken some time for it to come into the collective consciousness of the public that it’s easy to switch.

Having said that, the key is having some way to differentiate yourself, and that’s not necessarily easy in the retail banking environment, but if you had to pick a product that you wanted to differentiate, you’d probably pick a current account because you can add facilities.

"It’s quite a saturated market, certainly a competitive market, but everything is to play for.

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Douglas Blakey, editor of Retail Banker International, question to Kate Frankish, Senior Product Development and Delivery Manager, Current Accounts at Tesco Bank: Tesco Bank is also another new entry next year into the UK market, and people all over the world have been asking me what I know about Tesco Bank’s plans for its current account launch. Does the UK remain an attractive market to roll out a current account?

Kate Frankish, Senior Product Development and Delivery Manager, Current Accounts at Tesco Bank: We still see it as a really important product and for us to become a real bank in the customer’s eyes you need the current account product.

You need to have a relationship with the customer.

Attendees

Douglas Blakey: Consumer knowledge is increasing, they’re on the internet, they go into the branch, they’re on the phone to call centres. The average consumer is much more clued up.

Colin Tancock, Head of Current Accounts at HSBC: But how easily can you present the savings you get from the 1-2-3 account on money advice service versus Tesco or versus HSBC’s? Often people think they understand their account more than they do.

At HSBC we’re very much looking first of all at customer service, we know where we are as a service and a brand but actually in terms of customer perception we are looking to give clear value to our loans, cards, and mortgages in particular, so the customer’s value is not just for the current account, but for the relationship and that’s where really we see our chance to get a hold of the customer’s loyalty.

Douglas Blakey, question directed at Daniel Ehreich: If I were to go into Farringdon Post Office and needed to do anything branch based related to banking, given the number of lunch breaks I have wasted in the Post Office just trying to do something simple it’s the last place at the moment that I would go to do banking.

Am I alone in thinking that we should be able to get around that, or am I being unkind?

Daniel Ehreich: Getting the model of branch service right today is particularly difficult, not just in the Post Office but in all retail banks, which still have an incredible amount to learn about consumers, but at the same time banks are trying to serve many different channels.

10 years ago you might have had to develop a product that was going to be sold or serviced in a branch and maybe on the telephone but now you’ve got to worry about branches, telephone, internet, ATM, mobile banking, tablet platforms, and at the same time maintaining the level of investment in the other channels.

So it certainly is difficult for consumers. I think it’s another one that comes back to information. I think if people try to go to any retail bank during lunchtime there’ll probably be varying experiences but there will probably be a queue whichever bank they go to.

Douglas Blakey: I said in my first points that customers are more sophisticated and sometimes they’re also more impatient and their expectation levels have risen.

If customers are going to have to queue for more than three or four minutes they might just walk out. However on a positive point every survey I see, customers are still generally happy with their primary bank.

Can we turn to RBS? Have we yet seen evidence of RBS managing to improve its customer satisfaction levels following the heavily promoted customer service charter?

Jon Reavely, Senior Strategy and Planning Manager at RBS UK: I think we’ve made some good movements in terms of service.

You’ve got 24/7 UK call centres, very important to our customers, we’ve made huge efforts to manage our queue times in the branch and remove processes that get in the way of serving customers.

However, I think that we have still got some way to go – this includes making significant investment in IT.

I think that engagement is key; when we talk to our customers more and enable our colleagues in branch to go the extra mile to sort out customers problems we get great feedback.

My view is that customers want us to engage with them, they want us to make things simple and importantly they want us to make their lives easier.

As customers embrace self service channels such as mobile, the role of branches will change; and as you move resource requirements away from transactions, you can use that resource to become even better at helping customers with their real banking needs e.g. helping to plan for the future and improving customers’ financial health.

Douglas Blakey: Does anyone here think that you do know what a current account is costing to service, and as a result of that you have got your numbers crunched accurately? Are you not losing money on a large number current account customers?

Is there any person here who would quite like to lose a little bit of market share? The ‘wrong type of customers’ – customers who perhaps have 2 or 3 current accounts?

Jon Reavely: There is a side of that statement I think doesn’t understand the way some customers bank e.g. some customers have just one main account, some customers also have a billing account.

The thought process that says ‘every account must have their salary paid into it’ just doesn’t work. It is forcing customers to manage their money in a certain way that may not work well for them.

William Devos, International Divestments – IT at Lloyds Bank: Exactly, and given the current view towards bankers and banking it would not be constructive to be perceived as an institution who further alienates customers who don’t conform to the way banks want them to operate.

"For me, banks are and should be perceived as positive places to help people enable some of the most important occasions in their lives – from a small loan for a wedding or large mortgage on a family property.

If you deny people a banking experience based on set criteria not tailored to their needs, the bank comes first not the customer – and we know that way of thinking doesn’t work.

Alison Graham, Head of Banking Products at Citibank UK: At Citibank, we only have packaged account on sale and it works for us and our current accounts are specially designed for our customers.

Douglas Blakey: Why is it that no bank in the UK that I know of uses relationship pricing so that we pay differential amount for products based on our profitability to the bank?

Colin Tancock: It comes down to one word I think and that word is simplicity.

Relationship pricing approaches are not necessarily simple. I think all of us would have our fingers burned by putting something complex or relatively complex that we bankers think is great and then either customers don’t know it or don’t understand it, we get complaints and don’t make sales because even the banking staff don’t get it.

Douglas Blakey: Bank of America has a very interesting project. You don’t get charged if you don’t use a branch, and if you do use a branch then you pay $5.

Has that any scope in this country, is that a goal or something anyone of you could consider?

William Devos: It is an interesting concept, though rather than charging I would prefer to think about branches moving to a model similar to an Apple Store. A free place where customers engage with your brand, and come to learn about financial products through free facilitated workshops, as well as personal one on one interactions.

Moving to a model such as this would deepen a customer’s relationship with a brand, seeing it as a place where they can get help rather than be sold to, as well as alleviate fear around more complex financial services.

Products would be sold entirely through online channels for maximum customer convenience, and those who are not self sufficient with technology or who need additional support could perform their needs online but in branch with the support of the staff available.

Douglas Blakey: Is there anything in it for the customer, if their only bank is digital? Why did BNP Paribas go with Hello Bank? Is there a scope for a British bank to do that? Would that be of any interest?

In terms of Barclays’ announcement of job losses the other day and when the announcement was made, part of the justification for the headcount reduction was customers increased use of the digital channels.

Is there scope to accelerate job cuts and branch closures by banks really focusing on digital, because as we all know, banks are really keen to get their cost-income ratios down to the mid 50s?

Guy Mallon, Head of Transactional Products at Barclays: I think we have a clear position, and it has been set out. We have focused on digital for some time now and we have got a good sense and perception of the market.

Douglas Blakey: Is there a scope to use charges as part of the push for digital?

Guy Mallon: I think there is. But I think given where the market is it is more about rewarding customer behaviour rather than penalising.

Douglas Blakey: We’re going to be in a low interest rate environment for a little time yet and banks’ net margins are going to be in trouble.

If you’re not going to get money from the net interest income, it’s going to have to come from fees.

I assume you want to maximise your income from current accounts and so what to do? Do you want to run current accounts at a loss?

Kate Frankish: I don’t think anybody has an ambition to run them at a loss necessarily. But I think if it’s at a point where it breaks even and there are customers bringing profits from other products, then that would be good for the customer and good for the bank.

Jeff Mendzil, Head of Insurance and Protection at Clydesdale and Yorkshire banks: I suppose no one has really cracked product penetration and that is something that is going to have to change.

Jon Reavely: I think it comes down to a value exchange. If we take the Santander model, they give cashback on your mortgage but your mortgage rate may well be higher than what you would pay if you went elsewhere – so in essence they may be giving value via the current account but perhaps less value with the mortgage itself.

The other option is to focus mortgage value solely with the mortgage vs. splitting with the current account.

The advantage of giving the value through other products is that cross sales is a key goal for banks. It also helps you to compete directly product to product.

The question is where do you put that balance? Where do you invest?

Kate Frankish: Do we need to move away from thinking about selling to customers and more towards making it easier for customers to buy and understand what they’ve got?

Hazel Newman, Manager of C.Hoare & Co: We only have one plain current account, but there are so many choices out there when I look at them.

To actually work out what’s actually best for the customer presumably it’s left to the customer to decide, but if you look at Santander on one side where you’re getting cash back for a higher mortgage rate – can the man in the street actually work out whether that’s good value?

William Devos: It’s the same with the five big network operators – people can’t really look at all the available phone contracts a) no one has the time and b) it’s incredibly dull.

Kate Frankish: Bank accounts and financial products are not something that people enjoy purchasing – they’re not sexy at all.

Jon Reavely: Current accounts are an enabler for life, they are the thing that makes your life easier and facilitates key tasks such as paying your bills on time.

So they do play a key role, but I think the question is how do we optimise that role for customers, how do we make it the easiest it can be?

I think the difference between a financial services relationship and another one is that a financial service relationship lasts a long time.

With a current account the purchase is a comparatively small decision in what will be a very long relationship with lots of important decisions along the way e.g. should I take out a mortgage and buy that house?

Personally I think it’s about the way it adds value to the customer’s life through the way it’s delivered.

Guy Mallon: But even in just access in terms of the delivery of the product we’ve seen the amount of interaction with the current account on the mobile app even versus the online access is very different.

Douglas Blakey: Are you over 30 customer engagements per month yet via the mobile? Because it wasn’t so long ago that Barclays told me they were dead chuffed because the average was over 20 transactions per month for the typical smartphone user. Have you got over 30 yet?

Guy Mallon: We’re certainly in the right ballpark, without being drawn on the specifics.

To me that’s fascinating because it does show a level of engagement, maybe not with the product necessarily, but customers are interested in their financial wellbeing, their financial position.

When buying something customers can consider ‘do I have enough money to buy that?’ – giving them the ease of access to their balance, to do some basic banking, means that they do engage, multiple, multiple times.

Kate Frankish: But it does also bring a challenge to us as banks because every time we pool data, if you think about the strain on performance on our systems, the more and more people use it, we have to ramp up infrastructure, and there is a cost to deliver that.

So all these things have to be weighed up.

Douglas Blakey: Customers who are engaging with you regularly through smartphone have a higher cross-sell, and they have a significantly higher net promoter score than those who are just using branch. Is that not the case?

Daniel Ehreich: I think we’ve probably all looked at research that tries to break down satisfaction into constituent elements and what you’ll usually find is that the banks that are low on many parts are low on all parts of satisfaction.

When you compare things like satisfaction with branch opening hours at identical banks and one of them will be high and the other will be low.

It’s not because customers have different demands, it’s like you said – satisfaction is multi-faceted and it applies across the board, so either you’re satisfied or you’re not, and that will play out in all parts of your relationship.

Kate Frankish: But again I think these are different areas that require appropriate different steps.

William Devos: For me there are two key ways you can differentiate a current account. One is by having a superior product to your competitors, and the other is by having a superior brand.

If a truly innovative current account emerged with a market leading feature – while it may take some market share, it won’t be long until every competitor has copied the innovative technology and is delivering it as a part of their standard offering.

In short the playing field is levelled very quickly, the product is no longer innovative and we are back to square one. To me, that clearly demonstrates that the brand and the surrounding service wrapper is the most important differentiator.

As a brand, I think Tesco’s is a particularly interesting as it is associated with shopping, and not financial services.

Personally I associate the brand positively with ‘value for money – for shopping’, and wonder how much convincing it would take to turn that into ‘value for money -for personal finances’.

If it was done in the right way and positioned correctly – probably not much.

Billy Bambrough, Deputy Editor for Retail Banker International: But all the tech companies that have dipped their toes into various levels of banking have discovered that just because people like Google for its search engine and its Android systems, they don’t necessarily trust it with their money.

Kate Frankish: When you actually survey people and ask them ‘would you trust your supermarket with your banking?’ They might say yes, but it will be a tentative yes.

William Devos: I agree – will people actually put their life savings there?

Guy Mallon: I think it’s less about trusting them with your savings and more about this main relationship. What it really comes down to is trust and I think banks are fortunate in that their history means that there’s an inherent trust that exists.

Douglas Blakey: How far away are we in the UK from using the mobile channel as a sales vehicle rather than a sales prop?

William Devos: It already exists today in several forms. Some financial institutions are even trialling innovative sales/marketing techniques such as personalised videos via the mobile channel.

Douglas Blakey: And in terms of pricing, obviously Alison’s in a slightly a different position to most of the banks because every current account that Citi is offering is paid for, is anyone willing to put their head above the parapet like and suggest a nominal charge per month?

Alison Graham: Santander have already done it with the 1-2-3 account.

Douglas Blakey: Well yes, Santander has cut down their accounts from about a dozen to just two. They’ve got the basic account, which is free, and the 1-2-3 account, which is £2 per month. Is that an attractive model, simplifying, offering just a couple of accounts?

Daniel Ehreich: I think the Santander approach is a unique one, I wouldn’t say that the success of it is only because of the simplicity and I wouldn’t particularly say it is proper paid-for banking either because that account is going to appeal to customers who know that they will get more than £2 back in benefits.

In that sense it’s like a packaged account, it maybe doesn’t have insurance benefits but the value stacks up and it stacks up very obviously. If someone was to come along and offer a typical current account with no cashback, no additional benefits and charge £2 per month for it I think we’d see extremely different results.

Douglas Blakey: What percentage – a general ballpark figure – of customers are regularly paying interest on their overdraft?

Daniel Ehreich: As a rule of thumb I think the industry sees about half of customers have an overdraft and about half of those use it.

Jon Reavely: I’d say 30% is about right as a general ballpark figure of the proportion of customers who are using an overdraft.

Daniel Ehreich: But paying interest on an overdraft is a very different thing to paying charges on an overdraft.

In either case you’re very much paying for a service and you may not prefer to avoid paying but hopefully you appreciate the fact that you have the service available to you.

But the scale of unarranged overdraft fees means that they’re certainly a different proposition.

Kate Frankish: So some structures have changed, but actually the revenue you can get from those structures can be higher, depending on customer behaviour.

HSBC announced last week that they were lowering their unarranged overdraft fees because they were very high, versus everybody else. But that was a one off £25 fee versus the £6 a day fee at RBS and NatWest.

If the fee is £6 a day and you don’t actually know about it and sort it out your charges could quickly become really high.

William Devos: Banking used to be an ‘over-the-counter’, paid-for’ service. However to gain competitive advantage some banks realised that if they made banking free they would attract more customers and hence have larger deposits available for lending.

Ultimately if we went back to a paid service surely it wouldn’t be long before the cycle repeated itself?

Douglas Blakey: So the current state of the market is that around 20% of current accounts are added value accounts (AVAs
Andy, where do you think the market is going in the next few years?

Andy Morris, Chief Marketing Officer at Assurant Solutions: I think there are probably two concerns. One is the regulatory focus, the other is a consumer focus.

I think now, probably for good, what we have to do is demonstrate not only our eligibility and suitability for the market, but the acquisition model and the in-life and subsequent retention model.

And I think what’s quite interesting now is that we’ve gone through as an industry simplifying the products into an added value account, and as an industry everybody is looking really hard at how we did over that immediacy and eligibility

Kate Frankish: Do you think we should look as well at what we are offering? Because it’s the same, it’s the same, it’s the same…do we know what customers want?

Andy Morris: I think it’s about finding what’s relevant to those customers as a segment and to your brand, whether that is a free coffee, a free overdraft, or protecting a mobile device.

Douglas Blakey: And do we trust branch staff to sell it? And should the branch staff sell it?

Kate Frankish: It’s difficult when you incentivise staff on sales.

Jon Reavely: The other factor is, what’s the customer impact at the end of the day? So for example the RBS process to take out a package account takes an average of 30-40 minutes just to get through the process.

To expect the customer to sit down and be interested in that while you babble on, even I have trouble staying interested. We try to get to the point even if it’s a complex thing.

Daniel Ehreich: And the same customer if you push them onto the internet they’d get the same level of information, accurate information, and they’d be able to do it a lot quicker.

Colin Tancock: Just because customers jump through the right hoops it isn’t necessarily the case that the product is right for them. Recording customer circumstances and similar things would be difficult via the digital channel.

Andy Morris: The industry is having to move to use technology solutions and find the balance between providing customers with a complete and exciting digital channel.

Colin Tancock: You will need to have controls in place for the particular product that you are selling. If you believe that a product may be a risk, either online or in branch you need to have control over the sales process.

Hazel Newman: The problem that the regulator always comes back to is one of complexity. That the consumer doesn’t understand the products they are buying.

Jon Reavely: Simplicity is key to this, one my jobs is to make the complex simple. From a consumer perspective, our job is to minimise the complexity within the products and make it clear for the customer to understand.

Andy Morris: Even over the digital channel there has to be an involvement in the sales process, both to keep the customer interested and make sure they understand what they’re buying.

Jon Reavely: Engagement equals happy customers. I don’t want us to have a packaged account customer who does not need or want their travel or phone insurance because they won’t be engaged and they won’t feel that they are getting good value for money.

Andy Morris: Technology can give providers the option to add on a lot of features that are individually tailored to the customer.

Billy Bambrough: The sales culture we have had at the banks is not going to go away overnight, the removal of sales targets will take time to remove and just claiming it’s disappeared is wrong.

Jeff Mendzil: The branch is there for need fulfilment, whether that is a service or a sales need. We have removed the sales incentives and while it hasn’t been perfect it’s helped.

William Devos: Customers need to be able to trust the staff in branches to advise them what they need and not just what the bank wants to sell them. You could take this to such an extent that if branch staff were aware of a superior product offered by a competitor – to recommend that product over their own. This would lead to an interesting scenario – lowering sales in the short term to drive brand loyalty and potentially increased sales in the long term. While it doesn’t favour current performance KPIs which typically hold specific individuals to account for low metrics, I would be interested to trial this in a few branches. Obviously if you drive too many people away this could be damaging to the profitability of the bank, but one could also argue this would be because the products were not competitive enough.

Douglas Blakey: Is price not the most important differentiator?

Hazel Newman: It isn’t. It can give you the edge over others and will always be very important to some customers.

Daniel Ehreich: Only a minority of switchers move banks because of price alone.

Douglas Blakey: Any other points to raise before we finish?

Kate Frankish: We need to all work more closely together to push back against some of the unreasonable regulation which has been forced on the market. It stops us being agile and serving the customer which is the opposite of what it’s meant to do. We need to be proactive.