Tomorrow s World. Understand the next generation of retail banking. April Introduction

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1 April 2014 Understand the next generation of retail banking April 2014 Introduction Procter/Imparta gathered together 8 of the most senior bankers in UK retail financial services at to talk about the state of the nation in banking today. Four hours later, after much discussion, sharing of anecdotes and challenging debate, a picture of UK retail banking emerged which is both complex and contradictory. With representatives from the Big 5 and Challenger banks, these leaders were well placed to draw together the strategies for the future. Conducted under Chatham House rules, what follows is a summary of the dialogue, shaped by the Procter team to help other bankers sharing similar challenges to move forward to a better outcome. 1

2 Summary of some key conversation points Purpose, purpose, purpose In the wash-up from the banking crisis, the purpose of retail banking needs to be redefined, reshaped and reformed. While some felt this task was near complete, others were less sure. Had the banks changed in the eyes of the public? Whatever the answer, there was consensus that the business of banking was threatened: The commercial viability of the current retail bank is broken: it s not sustainable. The bank in 20 years time will be completely different. For these bankers more needs to be done to re-frame banking in the eyes of customers, who remain unsure of the motives of the sector. What is the societal role of banking, now that the pursuit of shareholder value is less acceptable than it was in the 1990s under heralded leaders such as Sir Brian Pitman? What is a meaningful purpose for employees, customers and leaders? It s not easy to define in an age where people are sceptical about corporate speak and suffer from trust flutters when responding to the demands of those in authority. How can banks define a purpose which is motivating for employees and customers? And is there time to do this before the pressure for financial performance from shareholders requires overbearing commerciality? Some of the more innovative and forward thinking banks may be further ahead with defining purpose but are struggling to operationalise it into meaningful and consistent action. This is a huge journey to undertake and therefore easy to slip up, relapse or get distracted with the latest marketplace noise. It s vital to stick to the purpose and be true to it use it as the yardstick to make decisions around, recruit, develop and manage your people on an ongoing basis. Captain Mainwaring is not the answer, Challenger banks may be For all the calls by George Osborne, some in the media and customer bases, bankers can t see a return to the personal banking model where the manager had their noses in all our affairs. Customers wouldn t welcome this level of intrusion, although the example of Handelsbanken, a decentralised bank manager model, was cited but some were sceptical about the commercial viability of the model. The Government has set its store in the power of Challenger banks to create competition for the Big 5 of Barclays, HSBC, Lloyds, RBS and Santander. TSB has launched as the local bank, Williams and Glyn is set to emerge and other players such as Metro, Handelsbanken, Aldermore are already operating. These organisations offer a different and new proposition to customers, and claim to be more tightly focused on their customer base. However, the challenge they can mount is a long term one and the troubles at Cooperative Bank have compounded this immediacy. 2

3 7 steps for the future 1. Leadership - never more important Despite the growth of self-service banking and declining call centre and volumes, the role of banking leaders in setting out the purpose, strategy and culture of the retail bank in 2014 is paramount. Given the hierarchical nature of banking employment structures, change must come from the top and some commented about the power of new CEOs to lead in a new direction. It s the same as it s always been, our leaders create the right culture and strategies for success we need to refocus here. Senior leaders have the challenge of giving meaning to employees who are uncertain of their role and empowerment in the new banking environment. 2. Women in banking There was a strong view from some that the role of women in leadership needed to be increased. This could drive a different culture, but also would help to challenge some of the excesses of old-fashioned banking as exemplified by the PPI misselling. However, questions were raised about attitudes of some towards women and whether this needed to change before the % targets for women in senior management roles could be met. 3. Culture clash new and old Creating a new culture within banking is vital and a given. Many employees are long serving and exist in a culture defined years ago, where rules, structures and incentives were directive and related to a driven sales environment. There was acknowledgement that this sales culture had driven poor outcomes, but equal support for the view that many bankers questioned this modus operandi at the time. Creating a culture which supports a new retail banking purpose must be a priority going forward. Clearly banks are already embracing this however many wondered if there was enough going on to drive a substantially different look, feel and ultimately service to the customer. 4. Empowerment Can I, can t I? Related to culture, empowerment of frontline staff was characterised as a major barrier to change. People feel afraid to take control of a customer interaction: if they get it wrong it s a black mark on their assessment with serious consequences. We force our people to follow rules and processes which mean the customer experience is structured and unwelcoming, lacking in spontaneity and engagement. The root of these 1990s behaviours are partly regulatory, but created by the command and control structures in banking. Creating empowerment which enables frontline staff to match the bank s capability better to customer needs is vital and that means better knowledge, but skills in people engagement and communication. 3

4 5. Reframing incentives Incentives have traditionally been related to process adherence and sales commission. This has driven unfriendly customer outcomes in some situations. Creating the new culture in support of a revolutionised purpose for banking requires new rewards and bonuses which build the behaviours which create change. At the moment, while some banks have moved to a remuneration scheme which supports these objectives, others have yet to update for the new world. There was a suggestion that the balance of remuneration was out of kilter, with head office being overly rewarded at the expense of front office: It s the people out there in the branches and call centres that drive our business they are the ones that build value. We ve changed our incentives completely we re building different behaviours. Building rewards and bonuses which drive customer focus, correct process and customer experience outcomes is a priority. It was debated whether all reward programmes could be abolished and focusing on the sense of accountability and pride within the job however this was not commonly agreed as a way forward. 6. Handling complexity and delivering humanity Bankers feel they have their finger on the pulse of their customers today, although there were differences in the view of that pulse. However, agreement was strong around the need to handle complaints, complex queries and issues in new ways. Linking back to the issues around empowerment, frontline people need more freedom to resolve issues person to person without fear of retribution if mistakes are made. Inherent in this issue is striking the balance between compliance and being human: the regulatory requires the former, the customer the latter. 7. Managing the regulatory environment Some bankers felt the role of regulation was limiting change by being overly prescriptive about process. This complicated customer interaction, making the relationships clunky and obtrusive. The culture created was one of fear, rather than empowerment and regulation needs to focus on building the right behaviours. As always, this is a process of discussion between the FCA and banking leaders to create the right guidance. 4

5 Recommendations from Procter/Imparta Stick to the plan. Be true to it. Operationalise the leadership intent. Senior leaders may have got it however does that manifest itself into tangible and sustainable action at middle management & front line leader level? Make empowerment more than gestures of goodwill. Create a climate to do the right thing naturally through words, actions & attitudes. Take a leap of faith on incentives challenge convention some companies have even stopped completely Is every conversation with the customer meaningful? For more information Call us for a chat on or us at hello@procter.co.uk 5