A two-year investigation into the UK banking sector has led to the Competition and Markets Authority (CMA) announcing the need for an overhaul of certain practices by industry incumbents.
It is the eleventh investigation into the sector since 1999. Among the CMA’s recommendations is a change of current overdraft practices to ensure customers receive alerts prior to going into the red and becoming liable for unexpected charges.
The industry watchdog also wants to encourage more bank account switches among consumers, and a shift towards technological standards in the sector. Banks will be required to implement ‘Open Banking’ by 2018, which will allow customers to share their data securely with other banks and with third parties through a single digital app. In turn, this is expected to give people more control of their funds and to compare products depending on their needs.
“We are breaking down the barriers which have made it too easy for established banks to hold on to their customers,” says Alasdair Smith, chair of the retail banking investigation.
“Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy. Our central reform is the Open Banking programme to harness the technological changes which we have seen transform other markets. We want customers to be able to access new and innovative apps which will tailor services, information and advice to their individual needs.”
The CMA’s ultimate goal is to save consumers an average of £92 a year by increasing competition and eradicating unnecessary fees.
Whilst the report hones in on monetary targets, a clear message from consumers is that banks must continue to improve their approach to customer service regardless of the CMA findings.
In MyCustomer’s recent analysis of European-wide retail banking sector, it was found that customer satisfaction often hinged on facets far removed from ‘value for money’ or simple financial reward.
Drawing on Efma research, the report found that in areas critical to relationship-building such as ‘trust and confidence’, ‘consistent multichannel experience’, ‘intimacy and relationship building’, ‘product-channel fit’, and ‘knowledge of customer’, less than 50% of customers across Europe said they were satisfied.
Indeed, in response to the CMA’s proposed outlines, one Guardian comment stated “£92 a year. Why would I go to hassle of learning a new online banking site, phone app, etc. to gain less than £2 a week? What I want is better service”. This opinion seems to be a shared one: Institute of Customer Service (ICS) research has found that a chronic complaint handling problem still exists in the sector, and that when things do go wrong, banks are not always adept at dealing with the problem.
Just 21% of consumers say their complaints ‘are dealt with immediately’ and only 13% said the member of staff they spoke to ‘took responsibility’ for resolving their issue. This has resulted in satisfaction scores falling by almost half a point in 2016, to 78 (out of 100), after reporting steady increases post-financial crash, in 2009.
“European retail banks are getting better at improving customer service,” adds Julian Rice, head of marketing at DST Systems.
“But many are still hindered by legacy platforms and they need to transfer their businesses over to a unified multichannel system that makes the customer experience simple and which can support the digitalisation and automation of processes. As with most industries, some firms are more ahead of this than others. As consumers are now used to, and expect, digital propositions (from Amazon to Uber), the need for banks to create compelling engagement propositions has become more pressing.”
Rice’s last point is perhaps most significant as the CMA’s report focused heavily on creating a technology-driven market that appealed more to changing consumer habits.
The internet has bred a customer expectation that service is available 24/7 and that no matter how the customer chooses to interact with the bank, the customer expects the experience to be equally good
Whilst debate has broken out whether the CMA’s recommended Open Banking programme actually helps or hinders the new challenger environment, many challenger banks have risen to the fore as a result of the poor technology systems in place in incumbent banks. And increasingly, as MyCustomer’s European banking report found, it was technology that was becoming the differentiator for consumers’ perception about customer service.
According to ICS, there has been a marginal decline in satisfaction when online communications have been used, suggesting that banks need to improve the customer experience in the digital world. The mobile channel, in particular, is emerging as a primary competitive differentiator in customer service that banks can use to attract new customers and retain existing ones.
Efma research states that the ‘importance’ of mobile increased between 2012 and 2013 by 10% in Central Europe, 9% in Asia Pacific, and 6% in Western Europe.
“Customers now need to be served across so many channels – online, on social media, on the phone and in branch,” says Louise Findlay-Wilson, digital marketing strategist and managing director of Energy PR.
“The internet has bred a customer expectation that service is available 24/7 and that no matter how the customer chooses to interact with the bank, the customer expects the experience to be equally good. Customers also expect the services to feel joined up. All of this is incredibly difficult for banks to deliver, and it isn’t cheap to do either. As a result, the customer service personnel available answering phones at, say, midnight will obviously have limited authority and discretion. To make such delivery affordable, the ‘in branch’ experience is changing too, with branches closing or operating with fewer staff.”
The CMA has clearly recognised this fact and its Open Banking programme means banks will have to provide support for smartphone apps that allow customers to shop around for the best account by listing how they charge for banking services.
Customers will also able to see all of their financial products – such as mortgages, savings, current accounts etc – in one app, whether they are served through multiple suppliers or not.
This shift is unlikely to be a straightforward one, given the complexity many banks are having to deal with. But, as Rice adds, this is where challenger banks can continue to push incumbents. “Communication needs to happen when the customer wants it and in the form the customer wants – not how the bank wants to deliver it,” she adds.
“We are seeing banks partnering with groups to provide added value services such as the ability to make deposits using a mobile. A good example is Lunar Way in Denmark which is partnering with Københavns Andelskasse (Copenhagen Cooperative Bank). This demonstrates that some groups are adopting partner strategies to help deliver enhanced services to customers. Banks will need to deploy multiple strategies based on differing audiences such as for millennials who will need a more mobile-focused strategy.”
About Chris Ward
Chris is Editor of MyCustomer. He is a practiced editor, having worked as a copywriter for creative agency, Stranger Collective from 2009 to 2011 and subsequently as a journalist covering technology, marketing and customer service from 2011-2014 as editor of Business Cloud News. He joined MyCustomer in 2014.