Thursday, 31 March 2011

Bank of Ireland forced to dispose of UK Operations?

Update: 170511. With the FSA to investigate the claim that the Bank of Ireland's UK operation is a 'sham bank' this could do one of two things either accelerate the disposal of the UK operations or result in the value of the UK operations dropping like a stone if their UK banking licence is suspended.

Shares in Bank of Ireland and Allied Irish Bank have been suspended today (Thursday 310311), pending the publication of stress test results later today. The stress tests are expected to show that far more capital needs to be pumped into the two banks than was predicted at the end of last year. There are rumours that Bank of Ireland may need to be nationalised as a result.

Will one of the consequences of taking additional state funding be that Bank of Ireland will be forced to dispose of its non-Irish operations? Given that toward the end of last year the UK operations were put into a separate subsidiary this would be easier to bring about than it might have been. See which posed this question in November of last year.

Adding the Bank of Ireland UK operations to the 600 branches of Lloyds Banking Group, Northern Rock, Yorkshire Bank and Clydesdale Bank and a number of building societies potentially up for sale, the opportunities for new entrants into the UK banking market are plentiful. Bad news for the UK Government and for UK tax payers having such a large number of businesses up for sale is bound to drive prices down.

Tuesday, 29 March 2011

Santander moves into rural China

Santander has announced a joint venture with China Construction Bank to establish a rural bank in China. This is subject to Chinese regulatory approval. It follows similar announcements by HSBC, Standard Chartered and Temansek.

The rural market in China has largely been neglected in terms of banking as the focus has been on urban areas and the more sophisticated and up and coming Chinese consumer. The income gap between rural and urban China has become an increasingly difficult politic issue for the government, so investments that are focussed on rural areas will be looked upon positively. Historically in China uprisings have always begun from the rural areas and the Chinese government is more than aware of this.

Santander with significant experience of providing banking services, including microfinance, in Latin America is very well positioned to be successful in rural China, a less competitive arena than urban China. The traditional Santander branch-based model will play well in this unsophisticated market. Santander has traditionally grown by saturating an area with branches, working on the premise that proximity is the primary reason that customers choose a bank.

For Santander this is a low-risk toe in the Chinese water with plans to open 100 branches over the next three years and taking only a 20% share in the joint venture. Certainly worth watching as Santander rarely makes a bad strategic move.

Monday, 28 March 2011

Banking complaints don't try and shut them down - encourage them

Britain's banks are fielding nearly 7000 complaints per day according to the FSA, a rise of 3% over the previous six months. Complaints about Payment Protection Insurance rose by 62%, however it is still complaints about the core banking product, the current/checking account that received the most at 474,456.

Having come from Santander (second in the table for the number of customer complaints), whose reputation for taking cost savings over customer service, Antonio Horta-Osorio, new CEO at Lloyds Banking Group, has not taken long to signal that complaints are going to be treated very seriously at the new Lloyds Banking Group. This was heralded by the announcement that the executive responsible for addressing customer complaints, Martin Dodd, was to be a direct report of the CEO (see ). This has been followed by Horta-Osorio's internal announcement that he is aiming to reduce complaints by 20% in the first half of the year. The new targets – which aim to reduce banking complaints from 2.1 per 1,000 customers to 1.7 by the end of this year and refer 30 per cent fewer problems to the Ombudsman – were revealed to 5,000 senior staff on Friday.

Of course the cynic would say that one way to reduce complaints is to make it more difficult for customers to complain. Some would argue that many banks have already done this by making it difficult to find out how to complain on websites, allowing complaints only through a branch and generally making it inconvenient to complain. The second way that banks have traditionally reduced complaints is to re-define what a complaint is, so for instance unless the customer actually uses the world 'complaint' in a conversation or in writing then it isn't a classified as a complaint and low and behold complaints have gone down!

However playing these sorts of games to look good only has short term benefits and is missing the point entirely. In an increasingly digital world, where branch visits are dramatically down, opportunities to interact with customers are becoming increasingly rare for banks. Rather than discouraging customers from complaining, banks should be actively making it easier for customers to complain, to provide feedback. As Bill Gates says "Your most unhappy customers are your greatest source of learning".

Most customers don't complain, on average only 1 in 26 will actually lodge a complaint.. They either put up with poor service or a problem, or take away their business, without the bank even being aware of the issue. In the meantime they will typically tell 10 other people about their complaint.

However a complaint handled well and, most importantly in the eyes of the customer, fairly, can turn the complainer into an advocate for the bank.

The challenge has been that traditionally the role of the executive responsible for handling complaints has ususally been assigned to the executive who's career in the bank is over - it hasn't been seen as being important. Given that it costs five times more to acquire a new customer than it does to retain one, that traditional thinking is flawed. Rather than the putting the journeyman on managing complaints, banks should be putting their high-flyers, those who see their careers in the upper echelons of the banks into those roles. This is why the appointment of Martin Dodds at Lloyds Banking Group is to be applauded. Likewise whereas the staff members allocated to managing customer complaints have tended not to be the high performers from branches or call centres, the opposite should be true - those with the best interpersonal skills and the highest levels of empathy should be put into the complaints handling teams and be empowered to do something about the complaint, not having to hand it off elsewhere.

When handling complaints it is important that the complaint is not looked at in isolation, but rather in the context of the customer's total relationship with the bank, but not just the current relationship, but the potential life time value of that customer to the bank. This requires significantly more sophisticated customer insight and analytics than is currently found at most banks, but will ensure that the most valuable customers have the most effort put in to resolving their complaint and hence retaining them and, ideally, making them an advocate for the bank. A single view of the customer and their contacts with the bank is only the starting point, one that is missing for many banks. A senior banker from a global bank recently recalled that one of their ultra high rich customers had a problem with their credit card. The customer's complaint was moved from function to function without any part of the bank realising their status and their complaint took over nine months to resolve. Fortunately for this bank the customer was sufficiently forgiving that they did not take their significant portfolio away (yet), but how many of his wealthy friends did he tell about his experience bank and what was the consequent impact on the bank as a reuslt of this?

The most effective way of reducing complaints is to get feedback from customers before they complain. In the digital age this is far easier than it has traditionally been, whether it is prompting feedback by an SMS message, an email, a phone call or through social media, getting quality feedback, and acting on it gets results. A company in the telecommunications industry has shown that by implementing SMS  feedback following call centre interactions they got a 30-60% reduction in complaints. Not only were they able to reduce the complaints, but they were able to analyse the feeback and proactively re-design their processes to remove the causes of irritation.

Important to getting complaints down and customer advocacy up is to get the customer facing staff incentives right. Simply rewarding customer facing staff for a reduction  in the number of complaints will lead to the sorts of behaviour attributed to the cynic above. Linking the incentives to an improvement in the Net Promoter Score (Customer advocates minus customer detractors) is a far more effective way of improving behaviour and performance of customer facing staff. Particularly when the feedback on interactions, mentioned above, is specific and identifies the customer facing staff who dealt with the specific customer. Not to be used as a stick to beat the staff member with, but rather for positive feedback and coaching purposes. There are straight forward innovative technologies available today to support this.

So why the focus on complaints and why now? Certainly the banks are undoubtedly the most unpopular they have ever been with consumers, fuelled by constant media attention. Trying to stand out from the crowd on the quality of the service provided to customers is one of the few ways for retails banks to differentiate themselves. Getting customer complaints down helps to address this.

Secondly the Independent Commission on Banking is due shortly to give an early indication on which areas there recommendations are likely to be in. If one of their recommendations is to limit or even reduce the market share of banks such as Lloyds then it will be even more important for the banks to retain their customers as they may not be allowed to take on new customers, so customer satisfaction will become increasingly important. The Independent Commission on Banking will also have looked abroad for best practice. In Australia the banks are regularly ranked by customer satisfaction by segment e,g. consumer, micro SME, SME, business banking, etc. See Should the ICB decide to recommend that the UK should follow the Australian example then addressing complaints will become an even higher priority.

The announcements by Lloyds Banking Group are to be welcomed by consumers, following hot on the heels of the NatWest Charter. There is a lot of understandable consumer cynicism to overcome, but implemented sensibly, honestly and pragmatically this should be good not only for Lloyds customers, but also retail banking customers across the UK as the bar is raised on providing good customer service.

Friday, 25 March 2011

RBS to provide insurance to Sainsbury's

Sainsbury's is in talks with RBS  to provide insurance to the supermarket's customers for the next five years. The deal is expected to be announced in June.

This is an interesting move on the part of Sainsbury's since RBS has to dispose of RBS Insurance as part of the price for taking state funding due to the financial crisis. RBS Insurance has been on the market for some time, but there are no indications of a deal any time soon. This is hardly surprising at a time when personal lines insurance, and particularly motor, is proving to be so unprofitable for insurers with the increase in claims for injuries fuelled by the no-win, no fees, ambulance-chasing claims companies. Whilst a few years ago RBS Insurance business, including such well known brands as Direct Line and Churchill, would have sold for a significant premium, now it would be quite the opposite.

Sainsbury's is obviously demonstrating confidence in RBS Insurance being around for at least the next five years, so presumably with so little interest from acquirers RBS must be exploring the idea of a flotation for the business.

Thursday, 24 March 2011

C&G closes branches to intermediaries

Lloyds Banking Group has announced that C&G will exit the IFA market and from the end of this month only accept applications from consumers direct. Lloyds Banking Group states that the reason is that having a number of mortgage brands that they wish the C&G brand to be focussed on selling direct to consumers. This follows on the heels of Barclays stopping having advisors in its branches due to the costs of meeting the Retail Distribution Review (RDR) (see ), the Co-operative selling its IFA business and Norwich & Peterborough transferring its advisors to Aviva.

Is this the beginning of the end of advice for the mass market in branches? Whilst there has been a significant drop in the numbers of UK consumers using bank branches, the most likely reason behind the C&G announcement is to do with tidying up C&G as part of the forced disposal LBG has to do as a result of taking state funding. Among the 600 branches and associated customers that LBG must sell are the C&G branches, so a cleaner, simpler model will make the sale more attractive and the separation from LBG simpler.

Wednesday, 9 March 2011

Updated: Only the beginning of the changes at Lloyds Banking Group

The announcement this morning that Helen Weir and Archie Kane will be leaving Lloyds Banking Group is undoubtedly only the first of many changes that the new CEO, Antonio Horta-Osorio, will implement.

The news that Archie Kane is leaving is no great surprise as it has been rumoured for some time that he would retire. Archie came from the TSB side of the merger with Lloyds and was was one of the architects of that integration, some would say takeover of Lloyds Bank by the smaller Trustees Savings Bank. He has held many senior positions in the new Lloyds TSB culminating in his current position responsible for Scottish Widows and Lloyds Banking Group in Scotland. His departure will be a loss to the UK Financial Services sector.

The departure of Helen Weir should come as no real surprise following her losing out to Antonio Horta-Osorio. The official explanation is that the reason is that in his new Lloyds Banking Group this role no longer exists.

If, as it is rumoured, Helen will return to her retail roots, this will be a great loss to the Retail Financial Services sector where she has made a significant positive impact.

What is interesting is who will step up to replace Helen. This is Joy Griffiths who is currently responsible for the Lloyds TSB and Bank of Scotland businesses and David Nichiolson who runs Halifax. The interesting aspect to this is that Joy Griffiths has resigned to become CEO of Experian Analytics (see ), so is currently working her notice, so this arrangement can only be until June when she is due to take up her new post. Expect more arrivals from Santander. Update: 23rd March. Lloyds Banking Group has announced that Alison Brittain, the Executive Director for Retail Distribution and Intermediaries at Santander UK, will take up the role that Joy Griffiths has been holding. It is unlikely that Alison Brittain will be the last Santander appointment in Lloyds Banking Group.

They will report into Horta-Osorio but not join the Executive Committee, however Antonio Lorenzo, Director of Wealth and International, who Horta-Osaoio brought with him from Santander, will also have responsibility for all Retail Products and marketing. Antonio Lorenzo will be on the Executive Committee. Antonio Lorenzo was Horta-Osorio's CFO at Santander.

The promotion of John Maltby onto the Executive Committee with a specific responsibility for the SME (Small Medium-sized Enterprises)  sector signals a continuation of the strategy adopted at Santander of specific focus on growing the SME sector. The difference being Santander was a new entrant and a challenger brand as opposed to Lloyds Banking Group where it is an established player with a significant market share. One of the recommendations of the Independent Commission on Banking may even be that Lloyds Banking Group has to reduce its share of that market.
Finally the appointment of Martin Dodds as the executive responsible for complaints and the elevation of complaints as a function reporting to the CEO is a reflection of how important fixing customer service is to Horta-Osario. Given the level of complaints at Santander, this is a further example of  Horta-Osorio bringing his learnings from Santander to Lloyds Banking Group. It is a well deserved promotion for Martin who is a very customer centric individual, who has direct experience of dealing with the customers and the challenges his colleagues on the front line face.

These moves herald significant changes to come at Lloyds Banking Group.

Thursday, 3 March 2011

Is videoconferencing the answer to RDR?

With Barclays having announced their withdrawal of investment advisory services from their branches for all but the very wealthy see - and both Bank of America and Bank of Moscow announcing the roll out of videoconferencing in their branches, could this be the answer to the issues brought about by the introduction of RDR?

The reason Barclays has said that they have withdrawn from advice is that with the cost of training for RDR it has become financially unviable to offer the service. What they have said is not the reason, but surely must have been an influence, is the high amount of the fines that the FSA has been handing out for misselling of complex products.

There is no doubt that RDR is going to increase the cost of training sales advisers and once trained it is then a question of making those advisers productive. Having them sitting in branches waiting for customers to come in is not necessarily the most productive use of their time and that is where videoconferencing comes in. With the use of videoconferencing it should be possible to have a smaller team of advisers who are busy more of the time and therefore generating more profit per adviser. Add on top of that an efficient appointment booking system that customers can access via the banks portal, social media presence, call centres as well as in the branches and you have further productivity gains. It is also true that a customer who makes an appointment is more likely to buy than one that simply walks in off the street.

However we've been here before. Over the last ten years or so there have been many attempts to put videoconferencing into branches and none have been particularly successful, so why could it succeed this time?

Firstly the quality of videoconferencing has significantly improved since it was last tried. Cisco's Telepresence (which Bank of America is rolling out to its branches), is a very lifelike experience where the customer sits at one side of an oval table and the adviser appears to sit on the other side, life-size and in high definition. There is none of the awkwardness of having to look away at the camera you simply talk to the person who appears to be opposite to you.

Secondly the cost of Telepresence has dropped significantly so it can become far more viable for smaller branches and doesn't only justify itself in the busiest urban branches. Indeed it is getting towards the point where it is beginning to be targetted at the consumer market and not just business.

Thirdly with the increasing use of smartphones, iPad2 and Skype-type personal videoconferencing, social media and Youtube, we're all beginning to get a little more used to videoconferencing and seeing ourselves in videos, so the willingness to videoconference is much higher than it was ten years ago.

So as long as the placing of videoconferencing in bank branches is done sensitively (in the meeting rooms that the advisers would otherwise have been in), then yes it might be a way of in the post-RDR world customers getting  investment advice.

But this will most likely only be for the medium term, for as videoconferencing prices drop in the longer term not only will the customers be able to do it from their own home, but the advisers will most likely be doing it from theirs as well!