Wednesday, 23 February 2011

Spanish-Swiss Strategic move in South America

In what sounds like a very smart move Zurich has taken a 51% stake in Santander's South American insurance business. Latin America is one of the few regions that seems to have come out largely unimpacted from the financial meltdown and with the fastest growing number of high net worth individuals this region continues to grow at a pace. The investment by Zurich will give them access to Santander's 5600+ branches and 36 million customers in Brazil, Mexico, Argentina, Chile and Uruguay. Santander has been established in South America for over 25 years and has a dominant position in many of the markets, with HSBC and, to a much lesser extent, Citibank, the main global rivals. In return Santander frees up $1.2bn of much needed capital given the problems at home in Spain and the increased levels of capital required by regulation. This deal seems to make a lot of sense for both parties.

Banking competition gets personal

Responding to the nab 'breaking up' campaign (see ), Commonwealth Bank has decided to get personal by making offers to only nab customers and not to those of the other Four Pillars (Westpac and ANZ). These include paying up to AUS$1400 (£865) to customers from nab who switch their home loans, credit cards or current accounts to CBA. They are also offering a discount of up to 80 basis points on loans above AUS$750 (£470) to customers from the nab.

This is a very pointed campaign and is focussed, not only on nab, but specifically the "sticky" or anchor products that are seen as the ones that maximise customer retention on the basis of a short term loss of margin for the gain of a long term relationship with the profits that go with that.

Such personal marketing campaigns have not yet been seen in the UK as the banks try to maintain some solidarity against the common enemy of the government and the media, and anyway it is not the 'british' way of doing things, however with increasing pressure to demonstrate that there is real competition amongst the big players and with three of the big 5 banks not being run by Brits, maybe we will soon see a more aggressive style of campaigning breaking out here in the UK.

Wednesday, 16 February 2011

Diamond cutting through Barclays - updated

With Bob Diamond's observation that 35% of businesses within Barclays are not profitable enough, actions to either close down or improve the profitability of businesses are being felt right across the globe.

First there was the announcement of the removal of investment advisors out of the retail branches (see )

Next has been the announcement of the closing down and putting up for sale the Russian retail banking business. Entering Russian retail banking was a Frits Seegers initiative, something that he had also done when he was at Citibank. Now, with the benefit of hindsight it is not regarded as a good decision. "The purchase by Britain's Barclays of a Russian bank for $745 may turn out being one of the worst foreign investments in Russia," the Vedomosti business daily wrote. Interestingly Soc Gen is having a lot of success with their Russian consumer business and it is now their second largest market by employees and should become their largest international contributor of earnings by 2015, so not everyone believes that foreign banks can't succeed in Russia.

Another venture that Frits Seegers embarked upon that is also being closed down is retail banking in Indonesia. Perhaps no coincidence Mr Seegers is married to a daughter of the late President Sukarno of Indonesia.

Also announced is that the Head of Global Islamic Finance Operations, Harris Irfan  is leaving the Group as "The focus of the organisation has changed back to its core operations and Islamic finance wasn't seen as part of its core business,"  "Barclays will carry on providing the Islamic finance services but in a different way without a global figurehead with expertise in Islamic finance." This is an interesting announcement at a time when a new generation of wealthy muslims is emerging (albeit other extremely wealthy muslims in countries such as Egypt and Tunisia are currently moving off centre stage).
Mr Diamond wants to strip £1bn from running costs by 2013. Some £500m of this will be removed in 2011, so it is safe to assume that these are only the first of many significant changes going across the Group.

Update 18th February: Barclays is in talks to sell its commercial mortgage servicing business, Barclays Capital Mortgage Servicing. This is a business that was set up in 2004. Given the specialised nature of commercial mortgage servicing and the size of Barclays book (estimated to be around £6.8bn) this moves does not come as a surprise.

Tuesday, 15 February 2011

Increase competition by publishing bank customer satisfaction

In Australia the banks compete using independent rankings of customer satisfaction which are published regularly. Isn't it high time that a similar thorough system was introduced in the UK banking? Whilst from time to time measures are printed and the banks robustly challenge the results, given that most banks now accept the concept of the Net Promoter Score (promoters minus detractors) shouldn't that be independently measured and published on a monthly basis to encourage competition? With new technology such as Fizzback, capturing customer satisfaction at the point or shortly after the point of interaction, the cost of capturing this information is not astronomical. Getting consumers to vote is far cheaper than regulating to create competition.

Lessons to be learnt on banking competition from down under?

Yesterday National Australia Bank, or nab as it now likes to be known as, declared that it was breaking up from the other three banks - Westpac, Commonwealth Bank and ANZ. It announced this in the social media, on Youtube and by flying a banner from a small plane over the Sydney skyline. (See ). This was rather like whtat happens in schoolyards when a boy tells a girl that they are no longer an item when she didn't even know they were dating. However this announcement got nab lots of press attention and allowed them to make the appeal to the consumer base that they want to be different from the other three 'Pillars'. In practical terms what they have done simultaneously is declare that they won't charge mortgage termination fees (except for loans introduced by intermediaries, it has been pointed out) and they will pay the customer's termination fees from their rival banks if they move their mortgage to nab. Given that a customer's mortgage is second only to their current account for anchoring the customer to a bank, this seems to be a smart move, particularly considering that most customers won't have to pay a termination fee if they've held their mortgage for long enough, so it may not cost nab that much for what could be a significant gain. This follows nab not passing on the RBA interest rate rise to their customers last time round. Aggressive competition has broken out in the mortgage market.

Like the UK, the Australian banking market is under scrutiny about how truly competitive the banking market really is. Cynics might say that the nab move is a preemptive gesture before more stringent rules are imposed by the regulator. With the Independent Commission on Banking due to report in September the UK banks may want to consider what actions they should take before then to demonstrate that there is real competition in the UK market.

Wednesday, 9 February 2011

Joy Griffiths leaves Lloyds Banking Group

It has been officially announced that Joy Griffiths, Managing Director of the Lloyds TSB and Bank of Scotland Community Banks, i.e. head of the retail bank for the two brands, is leaving Lloyds Banking Group to become Managing Director of  Experian Decision Analytics.

This is a real loss to both Lloyds Banking Group and to Retail Banking. Joy has a fantastic pedigree in Retail Banking from her time at Westpac in New Zealand and Australia through Wells Fargo to running Cheltenham & Gloucester and finally running both the Lloyds TSB and Bank of Scotland franchises. Joy is one of the few banking executives who has seen success across Asia, America and the UK and therefore has tremendous insight into what world class retail banking looks like. She is also that rare retail banking executive that has a deep technology background and knows how to leverage technology effectively. The retail banking industry will be poorer for her not being in it.

Lloyds Banking Group will be worse off for not having her as part of the executive team.

Undoubtedly Joy will not be the last executive to leave the Group given the change of CEO and the uncertainty hanging over Lloyds pending the outcome of the Independent Commission on Banking.

I wish Joy every success in her new and exciting challenge at Experian.

Tuesday, 8 February 2011

Project Merlin will be a conjuring trick

It is looking increasingly likely that tomorrow (Wednesday 8th February), the government will announce that Project Merlin has magiced up an agreement that the banks will dispense more money to the SME segments and particularly in the regions that the Government has identified as having been hit the most by the down turn in the economy. The Chancellor, as Chief Wizard, will proclaim this as a great victory for the Government over the evil bankers. However the reality is that the banks will only lend the money to the SMEs if it makes commercial sense (after all they wouldn't want to be accused of irresponsible lending), they will lend in those deprived regions where, again it makes commercial sense and where they already have a presence anyway. In fact they won't do anything that they wouldn't have already done with the Government's attempts to micro-manage them. And this will be claimed as the Government being tough on the bankers. I hoped that we left the age of spin when the previous Chief Wizard and his Blair Witch Project had left office, seems that by a sleight of hand that wasn't the case.

Monday, 7 February 2011

Why ring-fencing and holding more capital may not be the answer

An interesting background article by The Economist on Ring-fencing and holding more capital and why there is no simple answer to making tax payers safe from large global banks.

Wednesday, 2 February 2011

If switching is to become easier then banks need to excel at retention

As the banks, under pressure from both the Independent Commission on Banking and the Treasury Select Committee on Competition in Banking, have indicated that they are looking to improve the speed of switching current accounts from one provider to another (see ), they need to ensure that this improved capability is used as little as possible by their customers. (If it wasn't for the implied threat of regulation why would banks want to invest in making it easier for customers to leave them?).

This potential loss of customers throws the spotlight on retention. The banks should take a leaf out of the book of some mobile phone companies who have invested heavily in having teams of people who at even the hint of a request for a PAC code go out of their way to persuade the customer not to switch providers. Mobile phone retention teams are empowered to make the customer better offers including offering new handsets, improvements in tarriffs and other give aways.

Whilst all banks have some form of retention process or even dedicated retention teams, the question is whether in the new world, where customers expect to be able to switch providers ever more frequently, do they need to raise their game?

For banks the retention process needs to start even before a customer walks into a branch or calls a phone centre and says that they would like to transfer their current account to another provider. With all the data that the banks have about their customers in terms of the transactions they are making, banks should be able to be monitoring and acting on the leading indicators of potential defection, such as sudden reductions in savings account balances, stopping of standing orders, closing of direct debits or missed salary payments into accounts. These cues should be used to trigger such activities as putting a phone call into the customer to see if they are happy with the service being provided by the bank and ensuring that the teller or personal banker has this information available to them the next time the customer comes into the branch (though it may be too late by then).

Once the customer has actually made the request to transfer their bank account then the full retention programme needs to be  put into action. Just like the mobile phone retention teams, those responsible for retention need to be empowered to make better offers whether it be upgrades to different tiers of value added accounts, adjustments to overdraft fees, changes in savings/loan interest rates or additional features for their account.

To raise retention to world class standards there needs to be:
  • Predictive data based on customer transactions and behaviours
  • A method of delivering that data to those responsible for retention (whether it be the branch staff, the branch manager, the contact centre operative or a dedicated retention team) in a meaningful, simple and clear way
  • A measure of the customers current and protential lifetime profitability to the bank
  • Staff with strong interpersonal skills passionate about retaining customers
  • Empowerment of staff so that they can make meaningful (to the customer) offers whilst understanding the impact on customer lifetime profitability
  • An incentive scheme that makes successful profitable retention of a customer financially meaningful to the staff member who achieves the save
  • A hero culture where those most successful at retaining customers are acknowledged and held in high regard
Of course not every customer should be retained. For those customers who's lifetime value to the bank is negative or below a certain profit threshold then they should be able to take advantage of the new and improved switching process to join their new bank.

Tuesday, 1 February 2011

Will RDR see the end of advice in the bank branch?

With the recent announcement by Barclays of the withdrawal of investment advisors from their branches, coming on the back of (but unrelated according to Barclays) a record fine for misselling of investment products and the announcement that Norwich & Peterborough Building Society is transferring its in-branch IFAs to Aviva, where they will become restricted advisors, does the introduction of the Retail Distribution Review rules mean the end of the provision of advice in branches?

In principle no one can argue with the requirements of RDR that customers should expect to be given advice by qualified people who can either advise about the whole market of investment and insurance products or make it very clear that they can only advise on a restricted set of products from a restricted set of providers. Equally in principle no one can argue that if the advisors are providing value with their advice that the customer should pay for that advice and that the customer should be free of the concern that the advice is being influenced by the amount of commission that the advisor is being paid.

The challenge for the banks is that in order to get their staff up to the standards to pass the qualifications to be allowed to advise customers requires a significant investment in training and when compared with potential returns from the sales that they generate from the mass market in the existing business models for some banks, such as Barclays this looks financially unattractive. Hence why Barclays is moving to a model of pushing the mass market i.e. those with relatively low levels of investment, to online channels, whilst still providing face-to-face advise to customers who qualify for the Barclays Wealth proposition.

Of course this all depends on how you evaluate the business case. Certainly if the case is evaluated specifically on the cost of sale and the revenue generated as a standalone product sale, then it is difficult to make the case in a post-RDR world (post 2013), to provide in-branch advice to the mass market. However if the overall enhanced customer profitability of cross-selling customers insurance and investment products, many of which are seen as "sticky" products, and the impact on customer retention and customer advocacy is taken into account then the business case for advisors improves.

Another way to improve the business case is to improve the productivity of the advisors. Some of the ways this can be achieved range from simple measures such as more effective appointment management and more effective sharing of advisors across groups of branches to the provision of more effective technology enabled tools to the use of video-conferencing advisors into branches, reducing the time lost due to the advisors travelling to branches. As video-conferencing technology costs reduce and the technology improves (as with Cisco's TelePresence), the resistance of customers to video-conferencing will also drop.

Will other banks follow Barclays' lead and will the mass market be left without in branch advice in a post-RDR world? It is highly unlikely, particularly as banks such as Santander, HSBC, Lloyds Bank (with their 'For the journey' branding they would need to re-think their branding if they did) and RBSG (who have just announced the launch of the sale of two new funds) as they look to re-build trust and provide a differentiated service will follow that direction. RDR however does provide the banks with a significant catalyst to re-think how they provide advice to their customers.