More Customers for Reckless Banks?

Where do bank customers figure in the proposed banking reorganisation? The article in the Daily Telegraph's business section titled "Europe unveils sweeping plans to rein in reckless banks" (Jan 2, 2011) illustrates trans-national thinking about the future of banking following on the near collapse of the banking system. Action at a corporate level is planned to be swift with a harmonised legislative proposal complete by the summer and an insolvency structure by next year. The ultimate outcome envisaged is an EU body with powers to override the matching national body in extremis; the European Resolution Authority.

This seems to save the state and the politicians from future embarrassment with troublesome retail banks, but where are the customers in all this?

The basis for evaluation of debt and risk in these proposals is based on a regime of 'stress tests' which are more biased towards situations where failure could have high impact, even if the event is viewed as low probability. It is supported by sweeping powers for the oversight authority to tightly monitor banks and to require banks who are assessed as being in danger to manage equity and senior or subordinate debt according to specific rules so as to ensure minimal impact of any bank failure. The ultimate sanction is a forced take over triggered by unfavourable Tier 1 debt ratios.

The British government is being very active and leading the way in the thought process around this solution. But there is a key difference.

In the British proposals as currently reported there is an acknowledgement that retail banking is the area that requires the strictest supervision. All hell breaks loose when a retail banks shows any signs of failure; remember the queues outside every Northern Rock branch? Politicians strength is sorely tested at times like that: they don't want to be held responsible for problems with the money belonging to millions of voters.

The problem with retail banking, as contrasted with commercial and investment banking, is that the vast majority of retail bank customers are seeking a safe place for their funds with transaction capability and some investment services. They know practically nothing of the operation of banks and wish to be able to sleep nights knowing that their money is in safe hands. It is, therefore, the regulator's prime responsibility to ensure that happens.

In turn this can lead easily to a very constricting regulatory regime for retail banking. One outcome is a bland set of retail banks where the customer perceives little real choice. It could become practically impossible to distinguish one offering from another. You could easily argue that this state is already present.

For example, the current Vox Populi customer engagement survey of retail bank customers shows that customers cannot reliably recognise the various bank marketing slogans. Only one, out of ten tested, was correctly attributed to the right bank from a survey of 1,000 bank customers. NatWest's slogan 'Helpful banking' was not recognised as theirs, in fact they were beaten into fourth place!

The typical solution applied to such a dilemma is for the marketing department to attempt to build and reinforce the bank's Brand. In past market conditions this was the right approach.

But we are now in a new age, one where control of the brand is being wrested from the organisation by the customers. Savvy customers whose Tweets and Facebook pages tell stories to the wide world about their thoughts. Banks are responding, siezing what they see as the exciting on-line and active communication way forwards, but are they doing it in the right way; are they doing it in a way that will build engagement with the new generation of customers whilst retaining thier older, more valuable, core customers? Are they aiming at the right target the right target when over two thirds of customers in the Vox Populi survey say that they 'believe that banks do not care very much about what customers' think of them'?

The best way to find out is to consider what customers are saying. Not with simple attitude surveys (of which hundreds abound). These are valuable, but much more suited to evaluation of specific products or campaigns. No, the real measure that affects the bank in the long term is the degree of engagement it generates with its most valuable customers.

Find those customers and ask the right question in a well structured way and you can measure your current position, trends over time and generate practical action plans to move forwards as you build the new banking future.


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Tony Lord is a director of TripleIC, specialists in the measurement of
Customer Engagement. He has been engaged in the science and practice of
Customer Engagement and on line surveys for almost ten years.
http://www.tripleic.com