How To Get A Bank Customer To Love You

Transcription

1 Current accounts the big bang? Why retail banking can t bank on customer loyalty TNS 2013

2 The loyalty disconnect The illusion of loyalty They want loyal customers, but the UK s High Street banks idea of what loyalty looks like bears no relation to the way their customers see it. Banks are certainly aware that much of what appears to be loyalty is in fact inertia. But thinking about how to remedy the situation centres on expensive sticking plasters such as loyalty schemes rather than fundamental change. To tackle the problem, the banks must first reach a real understanding about what loyalty looks like when viewed through their customers eyes. At the moment, banks and their customers are not even on the same page. This has been a problem for many years, but there have been few serious consequences for the banks. Market factors have helped them to hold on to their customers. However, changes in the marketplace threaten to expose the gulf in understanding and destabilise the customer base of all the banks, especially the leading players in the market. This could be the Big Bang for retail banking in the UK. The moment when everything changes. New research from TNS* has exposed the depth of the loyalty problem facing the banks, and the seriousness of the potential consequences. In this report, we discuss the implications for the banks and how they might seek to change the negative perceptions that customers have of them. *TNS 2012 current account study. TNS undertook research among 1990 bank customers in October 2012 as part of its in-house consumer insight programme. The research was carried out in consultation with the retail banking industry and covers all major institutions offering current accounts and other retail financial services. This includes building societies. All data in this report comes from this research unless otherwise stated. Current accounts - the big bang? TNS

3 Reframing the customer loyalty debate around commercial loyalty People value loyalty very highly in their lives. It is part of their closest relationships with family and friends, where commitment and support are both given and received in good times and bad. It is a two-way street, but there is plenty of room for forgiveness if someone close upsets them or lets them down. In qualitative research, customers told us that banks simply don t have the right to occupy this space. They say that the banks break all the laws of personal loyalty: they don t build mutual respect, they don t value the longevity of the relationship, and they certainly don t work to deepen the relationship. Customers are prepared to allow banks into the commercial loyalty space, where they put most of the businesses and brands that are part of their lives. It is not personal, but give and take is still important: each party values the other, and each contributes something to the relationship. Respect and understanding go both ways, and the balance needs to be maintained to keep the relationship healthy. But customers don t think the banks are getting it right in terms of commercial loyalty either. In fact, many talked about their banks in angry terms. One customer said it was bizarre to have the words loyalty and banks in the same sentence. Another said he knew that whenever his bank got in touch they are not doing it for me. Yet another was amazed that, after spending thousands getting you through the door the bank then proceeded to mess the customers about. The sentiment was so negative that they would not miss the banks if they disappeared. In the research, customers were asked to write obituaries for their banks: one envisaged a tombstone on which his bank would be remembered for over-indulgence and not caring about anyone and would be replaced by another bank that would behave just the same way. These are very harsh negatives, and they are a symptom of a lack of engagement by the banks to build loyalty in terms that their customers recognise. Banks need to start their own evaluation of loyalty from scratch, asking what loyalty really means, what it is like to see loyalty through the eyes of their customers. It s bizarre to have the words loyalty and banks in the same sentence. My bank would be remembered for over-indulgence and not caring about anyone. If my bank went, it would be replaced by another that would behave just the same way. Banks are not doing it for me. After spending thousands getting you through the door the bank then proceeded to mess the customers about. 4 Current accounts - the big bang? TNS

4 The illusion of loyalty and a measure of (dis)satisfaction Stability in the banking marketplace is often mistaken for loyalty. Banks, along with utility companies, command lower satisfaction and loyalty The index for the Main Seven banks Barclays, Halifax, HSBC, Lloyds TSB, NatWest, RBS and Santander is only 54, just a point above the very low level of Europe s utilities. Select Few TRI*M index Main Seven TRI*M index New TNS research shows that the overwhelming majority of customers (74%) have just one bank and two thirds (66%) have been with their bank for at least five years. Most retail brands would be more than happy with that level of consistent support from so many of their customers. But there is a real imbalance of power between the bank and the customer. People have to have bank accounts; it is very hard to operate a normal life without one. So people pick the best of a bad lot there is often little that is positive about the choice, or the continuing relationship. Using its customer satisfaction TRI*M methodology TNS found that the long-term relationships people have with their banks do not translate into high levels of loyalty and satisfaction. And even the banks modest overall TRI*M loyalty index of 61 (compared to the supermarkets score of 80) gives a distorted picture because it is inflated by very high scores for a small number of high-rated players in the market Supermarkets Source: TNS TRI*M centre Auto (Europe) UK business 66% have Base: all Mobile Operators 61 All Banks 53 Utilities (Europe) been with their bank for at least five years. A small number of high-rated banks the Co-operative, First Direct and Metro Bank along with the Nationwide building society, have an average loyalty index of 89. In this booklet we will refer to the latter group as the Select Few. The top two banks for generating customer loyalty are the Co-operative and First Direct, with TRI*M indices of more than 90, a very powerful performance for any consumer brand. These two banks and the Nationwide building society are well ahead of the Main Seven banks, whose scores are mainly in the low 50s, with RBS lagging behind with an index of Base: 471 Base: 1351 The High Street Current Account Loyalty League (TRI*M indices) Co-operative Bank First Direct Nationwide Halifax NatWest HSBC Lloyds TSB Barclays Santander RBS Base: varies from 118 to Current accounts - the big bang? TNS

5 Apostles and Rebels Rebels, defecting Apostles and Alternative Seekers This TRI*M analysis enables us to drill down into the loyalty levels, to find out more about the attitudes of the banks customers. Those with high levels of both satisfaction and loyalty are considered to be Apostles. Those scoring low on both are deemed to be Rebels people who really want to be somewhere else. The High Street Current Account Apostles League Co-operative Bank First Direct Nationwide Halifax NatWest HSBC Barclays Santander Lloyds TSB RBS % Apostles 15 Just over one in three (36%) of the High Street banks customers fall into the Apostles category, well behind consumer sectors such as autos and mobile phones, where consumers evidently feel stronger attachment to the brand. Again, the Main Seven banks lag well behind in the loyalty and satisfaction stakes only 30% of their customers can be considered as Apostles As with the TRI*M index, the the top three for Apostles are the Co-operative, First Direct and Nationwide with the Main Seven banks well behind and RBS lagging. A hidden threat lies amongst the friendly Apostles, as 49% of this group would prefer to be with a different bank but have not moved across yet. Even among your most satisfied customers a significant number are willing to ditch you (All High Street banks analysis) High satisfaction Low satisfaction Mercenaries Rebels Low loyalty 20% 37% 7% Apostles 36% Hostages High loyalty 49% At risk Base: varies from 118 to 438 Base: All (1990), Apostles (755) 8 Current accounts - the big bang? TNS

6 Customers aren t switching in droves largely because of the banks Power in the Market Alternative Seekers an emerging challenge The latest research also used the TNS brand equity approach its ConversionModel which takes two main factors into account when understanding purchasing behaviour the brand s Power in the Market and its Power in the Mind. Currently, the banks Power in the Market is keeping switching rates low. Market factors include the major banks sheer number of distribution channels, the perceived hassle involved in switching, and the lack of incentive to abandon Tweedledum in favour of Tweedledee. Power in the Market is not enough Strong Power in the Market is an important advantage for any brand, but it must also have Power in the Mind the customer affinity to the brand that can protect it at difficult times, and allow it to grow when the business environment is fertile. The retail banks have weak Power in the Mind, raising the potential for issues even relatively minor ones to cause customer defection, or for a brand with superior equity to tempt people away. The lack of Power in the Mind is a serious risk for the banks We asked consumers about the importance of the choice of a bank, whether banks and building societies are differentiated, their desire to see new banks, what notice they take of news stories about banks and their rating of their own main bank. From analysis of the responses, an important group of bank customers emerged the Alternative Seekers, a group of customers who represent a potential threat to banks. As they are predominantly younger customers, they represent the future for the industry. They will determine whether the banking line-up looks much the same in 20 years time, or whether one or two High Street banks will go the way of High Street retailers like Woolworths and Comet. Three quarters of the year olds think there is no difference between the banks, they are much more likely to have multiple accounts and to wish there were new banks they could turn to. They are four times more likely to switch than the average. And more than half are actually embarrassed by their bank. Essentially, they would like to find a bank that they actually like, and would ditch their current bank without a backward glance. Alternative Seekers more sceptical and chasing the deal % I think all banks are the same I wish there were new banks I could use I am embarrassed by my bank Multiple accounts to benefit from special offers 47 Base: year olds, Alternative Seekers (169) 75 Developing Power in the Mind both mitigates risk by reducing churn, and improves performance by attracting new customers. Customers join or stay with the bank by expressing an active preference, rather than making a passive choice. 10 Current accounts - the big bang? TNS

7 Defecting Apostles Potential consequences for market share are dire The really bad news for the banks is that Alternative Seekers are to be found not just among the Rebels but among the Apostles, who might have been expected to be a stable part of the customer base. Analysis by TNS found that more than a quarter of the banks TNS s ConversionModel analysis shows how likely people are to switch, and which brands they are likely to switch to. There is likely to be considerable switching between the big banks as well as away from them, but the net effect is that the Main Seven are at risk of losing 12 points of market share ConversionModel market share analysis indicates a potential 12 point share loss for the Main 7 Main 7 Select Few Apostles are also Alternative Seekers, rising to almost a third overall, falling from 73.4% to 61.4%. for the Main Seven banks, meaning that only 15% of their customer base can be considered as safe. As many as 42% of Barclays Apostles are also Alternative Seekers for the Co-operative and First Direct it falls to 13%. A further risk for banks is that younger switchers are most likely The Select Few, with their superior Power in the Mind, will have growth opportunities in picking up defectors from the big banks, with a potential gain of 4 points. Even before the implementation of the Vickers Report, the Select Few are doing better than the Main Seven banks in the 61.4 (Power in the Mind) 25.3 (Power in the Mind) to share the experience on social media 40% of the under-35s telling the world that switching is easy, and why they decided switching stakes, with the number of new customers easily exceeding the number of those switching away. In the survey to abandon their bank. period, they had a net gain of nearly 200 customers while the Main Seven experienced a net loss of 173. And once switching gets under way, it is likely to accelerate. -12pt +4pt Although only 13% of customers have switched in the last Base: all 27% of Apostles are Alternative Seekers two years, 89% of the switchers said it had been a positive experience. Only one in seven switchers said they would not contemplate doing it again. Base: Apostles (755) Current accounts - the big bang? TNS

8 The time bomb The time bomb 2012 The Alternative Seekers behaviour in the marketplace represents a ticking time bomb for the banks. Alternative Seekers are a younger group; they grew up happily ditching one mobile phone provider after another as they flitted from deal to deal. They move around between brands, especially in undifferentiated sectors and that currently includes banking. Brands of all types have to create a reason for them to stick around. There is no reason to think that this age cohort will change its attitudes as it grows older. The number of Alternative Seekers is likely to grow, and in 25 years they could be more than half of the banks Apostles. And the Vickers proposals could lead to even more switching in the next few years, it is likely that a climate will be created in which switching will be seen as a positive thing to do. Regulatory pressure can only encourage that trend, as regulators in all sectors are under pressure to enforce more transparency and to facilitate consumer choice. It is quite possible to imagine that in future a regulator could publish regular data on customer satisfaction with individual banks. This could be especially appropriate for the Financial Services Authority as it reshapes to become the Financial Conduct Authority (FCA), with the remit to put a greater focus on the needs of the consumer. As Martin Wheatley, the FCA s chief executive-designate, has said: Things need to change: fresh thinking, new strategies and, above all, a focus on the consumer, which will lead the way to delivering a financial services industry that meets the needs and expectations of the people it was established to serve. * *From Journey to the FCA, published by the Financial Services Authority, October In 25 years, Alternative Seekers may be more than half of the banks Apostles 27% % Base: Apostles (755) 14 Current accounts - the big bang? TNS

9 Functionality still vital Connecting beyond the functional While emotional factors are key to generating and retaining loyalty, being good at the job in a purely practical way is crucial for the retail banking industry. Asked about a range of transactional, financial and service qualities offered by the banks, having a good internet banking service was far ahead of any of the other factors. What customers want in practical terms Transactional Financial Service Quality 57% 27% Good internet banking Branches near home and work 46% 44% No monthly fees Good interest rates on savings 36% 23% High quality service Friendly staff The functional benefits of the banks are an attraction, but they are not enough on their own. It seems likely that adding to them the softer emotional factors outlined by our focus group participants would bring about a real improvement in banks connection with their customers. In the research, customers of the Main Seven banks mentioned practical factors such as easy access to branches as relative strengths, while the Select Few have important relative strengths in service and reputation. Relative strengths of Main Seven and Select Few Main Seven Accessible branches Branch opening hours Convenient ATMs 24% Good interest rates debit/od Select Few 23% Rewards Base: all Good customer service Low fees Reputation Bases: Main 7 customers (1351), Select Few customers (471) 16 Current accounts - the big bang? TNS

10 Some quick wins for banking The high TRI*M ratings for the Select Few institutions shows that banks really can generate strong customer engagement. Even in the big banks, there are pockets of loyal customers. This may simply be because they have had a good experience at a functional level, for example of mobile and online banking services. However, the Select Few come out ahead in all the person-toperson services, and only lag the Main Seven in mobile banking. The Select Few have the edge apart from mobile banking Average Main 7 Average Select Few Best Worst Talking to the banks customers, it turns out that they are not asking for very much simply for what common sense suggests that their banks should always have offered. In the qualitative research, they did not say that they are looking for expensive, grandiose solutions, such as loyalty schemes. Their wish list is relatively simple, and may not be very expensive to implement. What they want is: Recognition from the bank where they have been customers for a long time Not to feel that new customers are more valuable than longstanding ones Banks to be sensible and reasonable Problems solved quickly and efficiently, and for the bank to take responsibility when it makes a mistake Online Mobile Call centre Branch counter Bank advisors/ personal bankers To be treated like human beings in a more equal relationship Bases: Main 7 customers (1351), Select Few customers (471) 18 Current accounts - the big bang? TNS

11 Looking ahead growing cynicism towards business What banks can learn from the wider marketplace The new consumer The attitudes of bank customers that emerged in the TNS research are in line with the general consumer environment, as described in the 2012 Global Monitor study by The Futures Company, a sister company to TNS. % feeling a lot of or a little anger about the following A little A lot more angry, UK consumers are especially prone to take a cynical view of the motives of business, with 81% agreeing this year that if the opportunity arises, most businesses will take advantage of the public, if they are not likely to be found out. That s up from 69% in There is one set of rules for the richest people, and another set of rules for everyone else more cynical Most people feel angry about the huge inequalities in wealth, and their perception that the rich don t live by the same rules as they do, and a substantial number are angry about business putting profit before the community and having more influence with government than the electorate. TNS qualitative research found these views equally reflected in the banking market. Too much money is concentrated in the hands of too few people Big business maximises profit at the expense of community and consumers Business and corporations have more influence on government policy than citizens do The Futures Company: Global Monitor survey 2012 Current accounts - the big bang? TNS

12 Acknowledging a growing desire for control Banks need to focus on customer needs, loyalty will follow Relationships are built on trust And banks have a lot of making up to do with customers The Global Monitor study also found that one overarching theme stands out more strongly than ever before the consumer s desire for control. Businesses can generate real consumer engagement by recognising that need for control, by seeking to build relationships that are not one-sided. As consumers, they are taking other forms of action against The Futures Company study clearly shows an attitude to financial services that corresponds to the specific research on retail banking carried out by TNS. Financial services has a poor loyalty profile The concept of loyalty suggests a real relationship but the starting position is a key challenge in financial services This shows through in four main areas: Controlling risk exposure: Heightened need for risk-avoidance and reassurance Controlling spending: Increase in price-sensitivity and value-seeking Controlling against brand hype: Even more discerning about claimed brand attributes Controlling complexity: Growing desire to simplify and reduce mental clutter They have to do that under more rigorous scrutiny than ever before, as consumers examine organisations and their brands more deeply. People want their commercial relationships to be with companies and brands that have a strong centre of gravity rooted in truth and a clear point of view. To prove businesses are worthy of the consumer s loyalty, they need to take on some of the characteristics that people value in their personal relationships. They need to prove that they are fair as well as competent, that they take the trouble to get to know and understand the individual, developing a relationship of real reciprocity. And they need to show that they share their customers concerns about longer-term value and values. If a business starts by focusing on the needs and interests of the customer, then loyalty will follow. companies. They will continue to look for outlets to express their anger and effect change, so represent a powerful and potentially dangerous vanguard. Mounting evidence suggests we are finally reaching a tipping point of popular outrage and consequences. Even healthy companies and brands could soon find themselves falling through air. The Futures Company (October 2012) In relationships of personal loyalty, people trust others to look after their interests. For relationships with business in general identified in the TNS research as commercial loyalty there is trust that both sides will look after their mutual interests, though there is pressure on this loyalty given the hostility that many feel towards over-mighty businesses. With financial services companies, the trust that people talk about is the trust that the company will put its interests above everyone else s. Financial service providers Trusted to put their own interests above anyone else Business (in general) Trusted to look after our mutual interests (but this is clearly under pressure) Personal Trusted to look after my interests very loyal less loyal 22 Current accounts - the big bang? TNS

13 Building loyalty through trust is crucial to overcoming customer inertia The future Where do banks go from here? The TNS research has made it clear that that people are looking for the same qualities in a bank that they value in other commercial relationships. They want to feel that it is trustworthy and honest reputation is also important, but it is their own feelings that carry most weight. A small but significant minority are also keen to have a bank that is a traditional High Street bank, not an investment bank or a retailer, offering a potential advantage to the traditional banks if they can mend their relationships with their customers. With the Vickers changes on the near horizon, it s time for all the banks to think hard about how to replace customer inertia with genuine loyalty. Customers want their bank to be a bank but to behave differently 27% 21% A high street bank not an investment bank A traditional bank not a retailer 76% 69% 53% Trustworthy Honest Have a good reputation Base: all Current accounts - the big bang? TNS

14 How TNS can help TNS is the world s largest custom research company we have more conversations with consumers than anyone else. Our service to clients is entirely focused on generating insights that lead on to actions that they can take to drive the growth of their business. We have world-leading expertise in advising clients on brand management and stakeholder management. TNS has a deep understanding of the financial sector, with expertise in more than 50 countries. So each year, we conduct more financial sector research than anyone else. We can bring that expertise to bear for retail banks that are seeking to address the very real problems that confront them, especially given the government s desire for regulators to put customers centre stage. This report contains the main summary data from a special survey by TNS. We can supply full SPSS or data tables, whether just for your bank or for the whole retail banking sector, and we would be happy to meet to discuss the findings in detail. To get the full story, and to find out how TNS can help your business, contact: Maureen Duffy CEO, TNS UK maureen.duffy@tnsglobal.com 26

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