This week an independent commission set up by the UK Treasury proposed the most radical reform of British banks in a generation. The government put its money where its mouth is. Or rather a little known former chief of the Office of Fair Trading called Sir John Vickers has made recommendations that mean banks must pay. And when banks are told to pay we know who usually gets to foot the bill.
The headlines from the weighty banking war and financial peace document are:
1. Banks must ring-fence retail banking from investment banking.
2. Banks must keep 17- 20% of certain assets as “loss-absorbers.”
3. The Lloyds branch sale will be an opportunity to bring in competitors.
4. New system will help customers easily switch current accounts.
5. Reforms to be implemented by 2019 at the latest.
6. Cost to banks between £4bn – 7bn.
All quite eye-catching stuff and potentially positive for consumers. But as the Grateful Dead once famously pointed out, every silver lining has a touch of grey. Consider points #5 and #6: banks have eight years to lobby hard against reform and the cost to banks, which is estimated at up to £7bn, might actually be conservative. And there’s 100% probability that banks will pass on those nasty costs in the form of higher charges on mortgages, credit cards and lower rates on savings.
How banks use these reforms to build deeper relationships with their customers will be key. How banks can improve the customer experience will also be important.
The brand becomes ever more crucial in delivering successfully on these things. There’s certainly an opportunity for the traditional, retail-focused and community-based banks to tell a nice story around their continued focus on fundamental, “basic” banking. They’re the guys who didn’t get caught with loading up their balance sheets with toxic assets in an attempt to make profits for shareholders– with little to no benefit for their “everyday” customers.
And if your bank upsets you, a free redirection service will be available by September 2013 to make it easier to switch your bank account. That’s potentially a big deal. Especially when you consider you’re statistically more likely to leave your wife or husband than your bank.
We saw something similar in the mobile communications industry when customers were allowed to take their phone numbers with them to a new service provider. Overnight, the mobile networks went from having customers that we’re quite literally locked into their service (no matter how poor the experience might have been) to having to fight for retention and invest in delivering a high-quality, differentiated brand experience. I’d imagine you’d be hard-pressed to find a single mobile user who thought this change in regulation didn’t improve the service they received.
And those banks with investment arms can also get on with what they are good at: bringing money into the City and ensuring London is a global financial centre going forward. The big bonuses can come back and can both retain and attract the very best talent, without upsetting the public quite so much.
How much distance is necessary to put between the investment and retail entities will be open to debate. Maybe investment banking divisions change their names to be completely separate but lightly endorsed by a group brand? Allowing banks to turn the new rule into an opportunity to highlight transparency and eliminate any confusion with the public when investment banking volatility is discussed in the news.
Maybe some of these changes, if they can be woven into the brand experience, could work to the bank’s advantage in building trust with their customers? With fewer stakeholders to please, trust should increase as customers are distanced from the investment risk takers.
And maybe we’ll see the emergence of more boutique offerings taking advantage of the specific needs of certain groups. It should certainly raise the imperative to deliver what the customer wants, through a simple interactive experience. It’s time to really embrace a sense of purpose and see banks deliver a seamless experience to all of their retail customers.
Reform. Restructure. Rethink. Rewarding? Let’s see. It’s certainly potentially refreshing.
Philip Davies is president, EMEA for Siegel+Gale.