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The latest regulation-driven attempt to gee up an apparently slothful business sector is “open banking”. This is meant to improve the customer experience by increasing transparency and hence competition. The aim is to make it easier to switch banks, with, for example, mobile apps to alert customers to the best offers and accounts. Some have talked breathlessly of the Uberisation of banking.
There has been a degree of success with energy groups subject to similar treatment — the market share of the Big Six energy companies has fallen from 97 per cent five years ago to 85 per cent today. It seems less than clear what extra competition, even the trendy technology-assisted variety, or “comptech”, can do to diminish obstinate customer inertia in high street banking.
With one-third of UK customers sticking with their bank for 20 years or more, many people are more faithful to their banks than to their partners. Could it be that it is the wrong kind of competition?
At bottom, the regulatory stance is based on the standard economic assumption that individuals are rational and self-interested. That being the case, given the chance they will choose an offer of something better or cheaper. That is the rationale behind “choice”, dear to politicians of all stripes.
But the choice that the economists’ competition has given us is quite particular. For example, many industries these days — retail, insurance, telecoms and internet, mobile, airlines and transport — are highly concentrated, even oligopolistic.
But market concentration and near-identical offers matter less to regulators than the fact that participants compete, even if only in fractions of pence and by advertising rather than through distinctiveness or customer service. Ironically, this becomes a self-fulfilling prophecy as businesses naturally take their cue from the regulator who sets the rules and only then from consumers who buy their wares.
For most normal people, a high street with the same chains of shops as any other is no real choice. Similarly, choosing between near-indistinguishable suppliers of the same mediocre banking, insurance or social care services is not a choice that they recognise. Outside economic textbooks, the idea that people will spend their commute or lunch break on their smartphones eagerly looking up official databases and price comparison sites to respond to offers of new bank accounts or energy tariffs is already a stretch. When the choice is no choice it simply fails the commonsense test.
In a recent Financial Times article (“ The American consumer’s impotent rage”), Edward Luce suggested that the unexpected bolshiness of US voters is partly due to pent-up rage at being treated as second-class citizens economically as well as politically, denied the personal service and human interaction now only available to the wealthy. He may well be right.
The choice people really want is a doctor who can take the time to answer all their questions; a carer who comes when they want to have a bath rather than when a computer schedules it; a bank that knows their name and listens to their individual circumstances; and customer service that means what it says. In short, they want to be treated as humans rather than numbers or transactions.
There are individual companies and service providers flourishing doing all these things. But they are below the radar, working in the niches left by the monolithic, oligopolistic purveyors of industrialised services sanctioned by the regulators. The danger is that the authorised oligopolists end up squeezing out the good management and real choice offered by the minority.
Banking comptech is the answer to the wrong problem. Most consumers do not want a better means of switching between faceless institutions that are all alike: they want a bank (or energy or telecom supplier) that they can trust to do its best for them over time — that they can have a relationship with. In which case, why would they switch?
On the other side, long-term customer loyalty, reflected in repeat buying and word-of-mouth recommendation, is an essential ingredient in the success of outstanding companies such as Apple, Toyota and Handelsbanken. Managers of such companies know that retaining customers through products and services that reliably make their lives easier, supported by real customer service, is smarter and less costly than trying to shout above the hysterical din of today’s advertising to reach unenthusiastic new ones. Are the smart apps of “open banking” going to help bring this about? Don’t bank on it.
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