November 7, 2012 7:45 pm

Banks’ customers have left them behind

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A rewarding relationship has been squandered

My bank manager keeps inviting me in for a chat. I throw the letters in the recycling bin.

The last time I responded to a similar invitation from one of her predecessors, it turned out the aim was to sell me home insurance.

I have been into my bank only once since then, to complain that it had cut a savings rate almost to zero without telling me. The person I spoke to told me it was my fault for not checking.

The message was clear. Retail banks’ aim seemed to be to sell you products you didn’t want and to rip you off when you were not looking.

I remember when it was different. So does Martin Wheatley, managing director of the UK’s Financial Services Authority. “Banks for me were all about making sure my money was safe and my best interests were looked after. The type of place where you would go in, have a pleasant chat with the clerk and go about your daily business,” he said in a speech in September. No more. “Financial institutions changed their view of consumers from people to serve, to people to sell to.”

Why did it happen? Mr Wheatley believes incentives were to blame. Retail bank staff were rewarded for what they sold, regardless of whether the products were good for the customer.

Andrew Haldane, the Bank of England’s executive director for financial stability, argues that retail bankers learnt their bad behaviour from colleagues elsewhere in the building. “The culture and practices of investment banking infiltrated retail banking – a sales culture which culminated in harmful cross-selling and unlawful mis-selling,” he said last week.

British banks are paying for their misdeeds. They have had to set aside more than £10bn to compensate customers who were mis-sold payment protection insurance. Bank customers in the US have also been sold insurance against disability or unemployment on which they would never have been able to claim.

Bankers have realised it is time to change. Barclays said it would stop rewarding staff for the volume of products sold. HSBC and Royal Bank of Scotland are also reviewing the links between pay and product sales and have made some changes. Lloyds Banking Group is testing a programme of rewarding staff for customer service rather than sales.

That rewarding customer service is seen as an innovation shows how far the banks have fallen. It is going to be hard for them to climb back up. They have been sullied by so many other scandals, from Libor rigging to money laundering, quite apart from having plunged the world’s economy into its worst crisis since the 1930s.

The 2012 Ernst & Young global consumer banking survey found worldwide disenchantment, with 40 per cent of customers saying their trust in banks had fallen this year and only 22 per cent that it had increased.

Redemption has to start somewhere, but I doubt there is any going back to the time when customers had a warm, or at least civil, relationship with their bank.

Many customers no longer even think of themselves as having a bank. They may have a principal account that their salary goes into, but they are likely to shop around for their mortgages, loans, insurance and savings elsewhere.

The Ernst & Young report said the number of customers worldwide with a relationship with only one bank fell from 41 per cent in 2011 to 31 per cent this year. Nearly one-third of bank customers had dealings with three or more banks.

The reason is that customers search for better rates and deals – and they do it online. Almost two-thirds of banking customers around the world use financial comparison websites and more than half use online networks and communities for banking advice and information. The days when you would go to your bank for financial advice (yes, it used to happen) are over. As well as comparison sites, 71 per cent of customers seek banking advice from family, friends and colleagues.

What can banks do? With customers increasingly banking online, they can make sure their customer data are secure and that their technology does not collapse, as RBS’s did this year. They can ensure that their savings, insurance and mortgage rates are competitive. They can stop selling unsuitable products, if only to avoid huge compensation bills later.

But there is no going back to the old days. Banks may want to reinstate old-fashioned personal chats with their customers, but the customers have moved on.

michael.skapinker@ft.com

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