I hosted a meeting of a bank recently, where I just asked people to tell me what they felt were the biggest challenges for the bank in the future.
We went round the table and, unsurprisingly, the discussion covered four key topics: regulations, technology, customers and changing the internal culture. Surprisingly, the one thing that was not raised was competition.
Or is that surprising? Do banks see competition as an issue or do they see this as a given or do they see this as a non-event?
I sometimes feel it’s the latter.
Banks do care about competition of course, it would be disingenuous of me to suggest otherwise, but it’s not something that sits top of mind.
This is for a variety of reasons, with customer apathy being top of the list.
Banks don’t need to worry about competitors if customers aren’t looking for competitive offers.
Here’s a good example.
From a recent Financial Times article:
Nationwide (Building Society) has mounted an aggressive push into the current-account market as a means of attracting new customers and offering them other products.
In the six months to the end of September, it opened 214,000 current accounts, up 16 per cent on last year. About a quarter of those were customers switching from other lenders, with the remaining customers opening accounts for the first time, said Mr Beale.
Nationwide also benefited from new industry rules that have made it easier for customers to switch current accounts. Since the introduction of the system, the mutual has recorded a 30 per cent increase in customers switching to its accounts. Nationwide did not provide details of how many customers it had lost.
Overall, Nationwide has 5.3m current accounts, increasing its market share 0.8 percentage points to 6 per cent over the six-month period, and taking it closer to its 10 per cent market share target.
OK. On that basis, the Nationwide is opening about 280,000 new current accounts a year of which 70,000 are switchers.
Although switchers increased by 30 percent since the new rules were introduced to make it easier in September, it only means that about 3,000 people switched to the Nationwide in September more than usual. That’s not many.
The Payments Council reported on 22nd October that, since the launch of the Current Account Switch Service on 16th September, 89,000 switches had been successfully completed, and 11 percent increase on the same period in 2012 (80,000 switches).
Again this shows that customers are not desperate to switch in my view.
In fact, a GfK NOP survey found that only 2 percent of UK consumers intend to switch their accounts.
Year-on-year a bank therefore can be pretty certain that once they’ve got a customer, they’ve got them for life.
In fact, most banks would tell you that a customer who is with the bank at age 35 is 99.9% certain to die with that bank.
Because customers cannot be bothered to switch?
Because customers think all banks are the same?
Because there’s little incentive to switch?
All of the above.
As a result, banks only have to perform at a basic level of efficiency for the customer and do not need to worry about the competition, as they know the customer won’t leave.