Another interesting week in the world of banking:
- Computer glitches result in jail time
- Interest rates fixed “big boy”
- And now, today, the news that Bob Diamond has resigned from Barclays
Recent events in this ever more bizarre sector throw up some interesting questions – including the critical subject of trust.
- Incompetence along the lines of RBS’s recent computer problems
- Or apparent deception of the kind we’ve recently seen from Barclays (and potentially others) fixing of LIBOR – described by Jonathan Ford in the Financial Times as “It’s a bit like discovering that the vicar not only runs a casino but controls the roulette wheel from a hidden pedal in his pulpit”?
My suspicion is that although deception would seem to be the graver sin to many, manipulating a rate that many may think is an Egyptian holiday resort will reduce its long term impact to “Oh well, that’s what investment bankers do”.
On the other hand, the problems with RBS/NatWest systems and the subsequent horror stories of what that meant for ordinary people – unable to get cash, not getting paid, not able to complete on house moves – will have far greater implications for the man/woman on the street and how they interact with financial institutions.
Although no savers have lost money deposited with collapsed UK lenders (Northern Rock and Bradford & Bingley), we’re constantly reminded by financial journalists of the importance of not having more than £85,000 with any one institution, as it won’t be covered by the Financial Services Compensation Scheme (FSCS).
Will the RBS system problems drive further behavioural changes in the British consumer? Not only will they move savings around to ensure a maximum £85,000 in any one place, I suspect increasing numbers will want to have split banking relationships.
Partners having sole accounts with different banks and their joint account with a third seems a relatively easy way to protect against ‘glitches’ in future.
This throws up some interesting problems for banks. Their boardrooms are awash with Powerpoint presentations about the importance of primary banking relationships. The primary current account is seen as the panacea for banks:
- The transactional nature of current accounts mean they’re difficult to switch (trusted?) – for fear of errors such as direct debits not being set up correctly
- Critically, current account transactions also provide a wealth of information about the customer – the banking equivalent of the Tesco Clubcard – which can be used to understand the customer more deeply, improve cross selling and create a virtuous circle of ever deeper relationships
If consumers start to resist the single relationship model in greater numbers what are the implications?
- Further commoditisation of banking products (and they’re already heavily commoditised) with price as not only King, but also Queen and Head of the Military?
- Or increased efforts by banks to convince their customers that they are THE bank to trust
How could they achieve the latter?
Making sure things work as expected is key – but this isn’t enough. Many people will have banked with NatWest for years without any problems, but have now been spooked by the realisation that things can go very wrong without warning.
So what else?
- Maybe it’s through improving interactions, rather than complex Customer Relationship Management tools, that banks can reconnect with customers
- Understanding that life events – marriage, births, deaths – have significant impacts and finding ways to help at these stressful times
- Moving away from standardised ‘top down’ processes, to reacting to the needs and wants of individual customers
However, removing standardisation may, prima facie at least, cost money. Despite the gripes of consumer champions, any simple review of best buy tables:
- Mortgage rates minus a chunk for risk minus savings rates = relatively narrow spreads
This has to equal very low cost bases.
These low cost bases may mean
- not enough checking when new software is uploaded
- inefficient oversight of functions involved in setting and trading interest rates
Who knows? But the British bank customer may ultimately have two choices:
- Relatively cheap products, but with poor service and the risk of things going wrong
- Paying for better service and flexibility from their bank
This article is inspired by and about banking, but I think the corollaries with investment advice are there: how can clients, less trusting of financial services than ever before, be convinced that undertaking all their investments via a single adviser and/or provider is a sensible approach?