Are customers so important for banks?

I was asked the other day about what’s on the CEO’s agenda?  Revenue, restructuring, regulations, share price, bonus, wife, mistress … whoops, sorry, I digress.

In fact the four key areas top of mind with most bank CEOs are:

• Competition: and that’s not just interbank competition, but also new competitors in the form of challenger banks and Fintech firms, as well as remaining competitive when, if you’re an EU bank, your regulators are diminishing the importance of financial services as a sector by making it safer through forced limits such as bonus caps and transactions taxes;
• Culture: having built a culture focused upon sales at the expense of all and trading with maximum risk, along with a few other insider dealing and price fixing, banks are all trying to reconfigure their cultures; that’s really hard, especially as a culture is like a personality: could you change the way you behave overnight? Over a year? Ever?
• Regulations: much of the competitive and cultural change has been created by forcing banks to rethink their business models through regulatory change such as ring fencing and shutting down proprietary trading, along with massive fines for breaching money laundering rules, lack of customer knowledge and abuse of customer trust; these are all still matters in hand and will remain a focus through the end of the decade;
• Technology and Innovation: banks know they are slow to change, and can see massive change coming thanks to the internet, mobile and blockchain; how to keep up with such massive change when the core systems are embedded in the past is a huge challenge and a risky one; after all, changing systems is never going to be easy and plenty of banks have demonstrated failures through such efforts

For me, these are the Big Four but then I realised, as I talked through them, that nowhere do these challenges mention the customer, apart from not Knowing them well enough or abusing their trust by mis-selling products to them.  Now this doesn’t mean banks have no customer focus – I know quite a few banks who have departments dedicated to customer insights – but it just doesn’t resonate at the board level decision making of the institution.  It would if customers were leaving in hoards – see the mice in their million hoards, from Ibiza to the Norfolk broads* - but they’re not. Customers aren’t shifting in millions, which begs the reason why?

For most of my career, we have talked about customer loyalty and how unhappy customers tell ten friends whilst happy ones tell no one, so how come customers aren’t leaving banks if they have so many unhappy experiences?

IMHO, it’s because customers are generally not having unhappy experiences with banks.  Equally, it’s because banking is a hygiene factor like toilet roll, petrol, washing powder and toothbrushes.  Obviously, banking is slightly different to these commodities – I wouldn’t want to use the toilet with my cheque book – but what I mean by this is that customers don’t need to change their bank once they have an account established.  As long as that account works ok, then why change it?  For a slightly better interest rate?  For a promise of £100 for a new account opening?  That’s not that compelling, is it?

Thinking of it this way – I have an account and it works – then switching becomes difficult, and gets more difficult with time.  The longer the bank knows me, the more they can deal with my needs, the easier and more flexible the relationship becomes, unless I’m a bad customer of course but, in that case, please leave and don’t come back.

So most consumers, businesses and governments have bank accounts they’ve held for ten or more years, and they won’t leave the bank unless the bank screws up.  Now that’s where it gets interesting as yes, some people have left Royal Bank of Scotland for their IT glitches and yet few left Barclays over their moral issues related to LIBOR fixing even though the media said they would once they got rid of Bob Diamond.  After all, all banks were involved in LIBOR, weren’t they?

And so maybe this gets to the heart of why customer comes up so infrequently in discussions with banks or at banking conferences.  The customer is happy.  They’re not leaving unless the bank screws up.  They think of their bank as a hygiene factor like toilet roll, and as long as it’s there and works, then who cares about changing, especially as change is a risk?

This then worms to the heart of why challenger banks have such a big challenge: how will they attract customers away from existing banks to join them?  Most of the Fintech firms are either dealing with under-served customer segments – students, SMEs, unbanked and underbanked – or attacking areas that are weak, such as currency transfers and remittances.  Attacking the core deposit base of a bank has not really been seen to be effective yet, and yet this is what a host of British start-up banks are trying to do.  Will they succeed?  I hope so, but they will only succeed if they can demonstrate something that the existing banks do not provide, such as a massively differentiated digital experience with human interface, and that is nowhere near as simple as it sounds.

I look forward to seeing my Atom, Mondo, Tandem, Starling bank accounts this year.

* a line from Life on Mars by David Bowie, for those who don't know