Time to switch your bank account?

Changing banks is one of those activities that most people seem to avoid. Despite the industry moving to seven day account switching, the number of customers switching bank accounts in the UK is virtually flat and according to the Payments Council, in 2014 there were only 1.2 million switches. The recent FCA report (Making Current Account Switching Easier) states:

“Since September 2014, annual switching volumes have begun to fall back and by January 2015 were 16% higher than when CASS was launched and only 2% higher than the November 2012 peak in switching volumes using the previous switching mechanism.”

The report from the FCA on the effectiveness of the Current Account Switch Service suggests this is because of consumer inertia and awareness and confidence in CASS being low. My experience of using CASS last year was good. Apart from a lot of paperwork that had to be completed, my switch went through as planned, with no errors. The FCA has suggested that account number portability would improve the situation but as the current system works it’s hard to see that spending a huge sum of money on making switching simpler will make a difference.

The Payments Council publishes data each quarter showing gains and losses by bank. Whilst the legacy banks are net losers (as expected) it’s impossible to build a clear view of challenger bank gains because some of them (e.g. Handelsbanken, Metro Bank) don’t provide data and others are included under parent brands (e.g. First Direct and M&S are included under HSBC). TSB data would be interesting as with 630 odd branches and a ‘new’ brand on the high street I would expect it to be making an impact but the most recent figures include it under then parent Lloyds. Last year TSB added 500,000 new accounts, many presumably from other banks.

I see the biggest barrier to encouraging consumers to switch banks being consumer inertia, driven by a perception that most banks are similar, both in products and service. We have yet to see much market differentiation via product differentiation. Whilst there are some excellent ‘challenger’ banks out there, their profile is often very low and their range of accounts limited; some like Aldermore and Charter only offer deposit accounts. As the challenger bank market grows and the number offering current accounts increases, consumers will have more choice of where to switch. Digital banks like Atom and Starling plus the RBS spin-out Williams & Glyn will add to the choice. However ultimately it will be up to consumers to show their banks what they think of them; identify more appropriate organisations for their banking needs and move their accounts to competitors.

You can read the full report here.


Leveraging the low euro (avoid banks)

With Sterling hitting 1.40 against the Euro for the first time since pre financial crash days thanks to ECB quantitative easing, it makes spending in the Eurozone cheaper than it’s been for a long time. However most of the banks are adept at removing extra money from their customer’s accounts via transaction fees. A 2.75% transaction fee on non Sterling transactions is typical and may also include a minimum charge. ATM withdrawals abroad also usually incur a charge of around 2%. Some notable exceptions to this practice include Metro Bank who don’t charge transaction fees in Europe on their debit and credit cards and the Halifax Clarity credit card which doesn’t charge a fee anywhere in the world.

Travel money prepaid cards have been around for a while but are now an increasingly attractive way to avoid these transaction fees and lock in foreign currency at excellent rates. Ukash (I must declare an interest here!), FairFX and Caxton FX are disrupting the travel money market with their rates on currency exchange and ATM cash withdrawals. Ukash is seeing a lot of success in this market because of their strategy of combining market leading exchange rates with no fees for the card or ATM withdrawals.

An interesting innovation in this space is multi currency travel money cards where multiple currency wallets are linked to a single card and the consumer chooses which currency to use. Travelex are a leader here although their rates are not as attractive as some of the single currency cards. Travelex has also announced their new Supercard which is linked to a customer’s existing debit and credit cards so doesn’t need to be topped up. Supercard users avoid out of UK transaction fees but don’t have the benefit of locking in cheap foreign currency in advance; they just have to take the rate at the time of the transaction.

As consumers increasingly latch on to the benefits of travel money cards it would be good to see more banks following the lead of Metro and Halifax and removing transaction fees. However as with most products from the legacy banks, pricing is based on customer inertia and rarely attractive.

Jonathan heads up core products at Ukash.


Looking back on payments disruption in 2014

As the year draws to a close it’s worth reflecting on some of the more interesting disruptions in payments we’ve seen this year. Highlights for me include …

The launch that will perhaps have the biggest impact on consumer payments over time was Apple Pay. Apple Pay takes a lot of the friction out of the transaction process and combines this with much improved security. Whilst it has got off to a fairly slow start in the US, once Apple starts promoting it via handset prompts and merchant acceptance improves, it will start to make a major impact. International expansion is scheduled for 2015 so will be interesting to see which banks jump on board in the UK.

The roll-out of contactless card payments across the London Underground, following the move to cashless travel on buses, is probably the biggest boost to contactless payment adoption we’ve seen since contactless first emerged. This will help contactless payment become a more mainstream payment choice in the London region – I’ve already surrendered my Oyster card!

Moven in New York launched to the public and showed the rich functionality a digital bank can deliver to its customers via an app. Moven has since licensed its technology to Westpac NZ and TD Bank, showing the interest that traditional banks have in delivering an enhanced digital service. I’m hoping we will see a UK Moven licensee in 2015.

The launch of Paym in the UK marked the start of simple, ubiquitous, mobile, person-to-person payments. Being able to pay someone with just their mobile number (no more account numbers and sort codes) was something I imagined many years ago and it’s now a reality, at least for customers of the banks that have got round to launching; and launching both pay and receive (unlike my friends at NatWest!).

One of my personal favourites this year was discovering there is a bank in the UK that has over 180 branches, no counters and offers a service that combines the best of personal banking with decent apps. Handelsbanken must be the best kept secret in UK banking!

The decline of the bank branch

One of the most contentious subjects in UK retail banking is around branch closures. According to the Campaign for Community Banking Services, more than 8,000 UK bank branches have closed since 1990. This decline will continue (Lloyds has announced they are closing 200 more branches although curiously they are opening 50!) and potentially accelerate because of the dropping footfall in branches.

It’s not news to learn that customers are increasingly using online banking and mobile apps to manage their accounts and inevitably this leads to less branch visits. For many bank customers the branch is a redundant piece of history. However there is no ‘one size fits all’ model for bank customers; many older customers are challenged by technology, many business customers rely on cash handling, some customers prefer discussing financial matters face-to-face. These customers are marginalised by the branch closures as they have very limited alternatives. Some of the banks have deals with the Post Office but they could go further to help customers.

The last branch in a town or village should be able to generate revenue by charging other banks for servicing their customers. Banks should ensure there are convenient free to use cash machines available in all locations where branch banking is limited or non-existent. Bank staff, including managers, should be available to talk to customers face-to-face in areas where there are limited or no bank branches.

Of course there are costs involved in doing this but customer satisfaction comes with a cost and also it provides the opportunity to generate revenue via an improved relationship with customers.

Although contentious, dropping ‘free if in credit’ banking would remove a significant cross subsidy and barrier to innovation. It would allow banks to price their services sensibly to reflect different customer needs. Banks already tariff some accounts to favour electronic transactions over physical transactions and removing ‘free’ banking would allow this model to apply to all current accounts. Offering branch centric accounts would allow the customers who wanted branches to use them and pay accordingly, eliminating the cross subsidy from digital centric customers.

It’s time we saw a real debate on the alternatives to branch closures.

A dystopian future filled with bank branches?

Recently The Economist had an article on Metro Bank and its strategic focus on bank branches. We hear much about the death of the branch but here is a bank building its entire strategy around the branch. And these branches (or ‘stores’ in Metro speak) are grand affairs, seemingly designed in the style of yesterday’s branches. Metro clearly believes there is customer demand for the traditional banking model and that digital delivery is not the future of retail banking.

Metro is so branch centric that you cannot open an account online, plus their online banking and mobile apps are quite basic. Unless you live or work close to a Metro branch you can’t take advantage of their products, which is a missed opportunity to grow their customer base.

Local bank branches also feature heavily in the marketing from the relaunched TSB and my conversations with the soon to launch RBS spin-off Williams & Glyn indicate they will also be putting the branch at the centre of their strategy.

I’ve long been an exponent of a digital future for retail banking – my banking utopia. However apart from the yet to launch Atom, none of the new challenger banks is developing a focus on digital engagement.

There is a generation starting to use banks who cannot understand why they need to visit a physical location to engage with their bank when that engagement could take place via an app. Banks, old and new, risk missing out on this generation if they don’t adapt and change.

So is the future of retail banking destined to be a branch based dystopia? Or will the banks step up and deliver my digital utopia?

Originally published on Billing Views.

Drop me a message when I can build my bank account

Originally posted on Billing Views.

I was thinking the other day about where retail banking should go next. However hard you look for the account package that suits your needs, you end up choosing accounts that have been designed by people who think they understand your needs but of course don’t.
So why don’t banks let you build your own account package? You choose the features you want and see what the monthly cost is. You flex the features to find the right balance between features and cost. And of course you do all this via the bank’s mobile app.

Of course the reason why banks don’t let you choose is that they can’t – their systems stack wouldn’t support it. Plus they don’t want to give customers choice that would erode margins. However, being able to download a bank’s app, select the type of account, select the features you want and see what it would cost would be marvellous. What interest rate do I want? What card features?

What the banks are missing here is that a self-selected banking package would build huge loyalty. Why go elsewhere when you’ve got your ideal package? If your needs change, just tweak the package.

Whoever gives customers the power to build their own bank account  will be on to a winner – and that’s my challenge to the retail banks.

Drop me a message when I can build my account …

What can we expect from the challenger banks?

There’s been a lot of discussion recently in the UK about challenger banks. But what exactly constitutes a challenger bank? In the consumer space, for me it’s a bank that aims to take customers from the big names by doing something different around service delivery. That could be a digital focus enabling customers to do more via apps or a more personal focus with bank staff empowered to take decisions and resolve customer queries.

So who are the key challenger banks aiming to change retail banking in the UK?

Atom – Little has been mentioned by Atom so far but digital online and app delivery will be central to the way Atom engages with customers. Telephone support will be limited to technical issues. This approach will be unique and it will be interesting to see how customers engage with this model and whether it’s enough when things get tricky.

Verdict – With the right apps could appeal to technology aware customers, especially in younger demographics.

Hampden & Co – a new private bank, based in Charlotte Square in Edinburgh, will be opening its doors before the end of the year. This is an enterprise based on ‘old fashioned’ customer service. BillingViews had lunch with its Chairman, banking veteran Ray Entwistle, who emphasised that decisions will be made quickly and on an individual basis. Even before its launch, the bank has attracted a lot of support from Scots who see the need for a personalised service.

Verdict – the jury is still out, since the bank has yet to open its doors, but a small bank based on personal customer service seems to have a lot of support in the UK.

Handelsbanken – A large Swedish bank (Svenska Handelsbanken, to give it its full name) that now has around 180 branches in the UK. The bank does no marketing and relies for growth on recommendations and enquiries. Handelsbanken is unusual among the challengers in not being a mass-market bank and assessing all applications on their individual merits. Each branch is responsible for its own pricing and profit and loss account – a model successfully used in the Swedish operation. Handelsbanken also provides customers with good digital banking apps and online banking.

Verdict – Not suitable for everyone but has developed a good balance between personal service and digital delivery.

Metro Bank – Launched in 2010 and now up to 27 branches (or stores in Metro speak) in the South East. Early branches are profitable and Metro is now starting to see the importance of digital delivery alongside branches. A much-improved online banking presence is now live and mobile apps are imminent.

Verdict – Improved digital delivery will create a much better balance and ensure the bank doesn’t just appeal to people who want branches.

M&S Bank – Although using a long-standing retail brand, M&S Bank is actually part of HSBC. Branches are located inside M&S stores and the focus is very much around personal service.

Verdict – Will appeal to the loyal M&S customer base but is dependent on HSBC and M&S having an aligned view of where to take it.

Tesco Bank – Tesco’s long awaited current account finally arrived this year allowing the bank to position itself as a challenger bank. Whilst the Tesco brand is a powerful player in retail it remains to be seen whether consumers will use it as their primary bank, rather than somewhere to get competitive credit cards or savings accounts from. Online banking and mobile apps are at the heart of customer engagement backed up by telephone banking and very limited in-store facilities.

Verdict – Massive consumer customer base to tap into but needs to overcome the brand challenges and market positioning of the parent.

TSB – 631 branches spun out of the Lloyds monolith at the behest of the EU (a requirement to receive state aid). Many of the TSB branches were originally Cheltenham & Gloucester branches and as such have a strong bias towards consumer banking. This consumer / business imbalance is creating some challenges for the bank with a lack of businesses to lend money to. The heavy dependence on old Lloyds banking systems is another problem to be managed.

Verdict – The promotional video (with a very annoying soundtrack) for the new website suggests TSB doesn’t understand digital delivery and is still stuck in the past. Talking about local branches will not be a differentiator.

Virgin Money – Created out of the wreckage of Northern Rock, Virgin doesn’t yet qualify as a real challenger bank because it is yet to launch its current account. Like Tesco discovered, launching a current account has been a lot harder than originally envisaged. A dated online banking website and no mobile apps leave Virgin with a lot of catching up to do.

Verdict – No evidence yet that Virgin Money can do more than be a niche player in areas like savings accounts.

Williams & Glyn – 318 branches due to be spun out of RBS in the next year or so. It’s still unclear when the RBS and NatWest branches involved will start trading as Williams & Glyn although John Maltby, the new CEO, has been appointed. Williams & Glyn looks better placed than TSB to build a new bank because it has a better-balanced portfolio of consumer and business customers. Much has been made of resurrecting an old and trusted brand although as Williams & Glyn’s, the bank only existed for 15 years. The new bank will use RBS banking systems which given their performance over the last couple of years must be a worry. Plus, with their major focus on bank managers, there is a risk that the bank will not balance that with next generation digital banking apps.

WGVerdict – If Williams & Glyn fixes a lot of what’s broken with RBS NatWest then it will make a good start but it needs to to use the opportunity of being new to put digital at the heart of customer engagement. And it really needs to rethink the dismally dull logo it’s chosen for the new bank.

It’s early days for the challenger banks and given the size of the incumbents it will be difficult for them to make a significant impact. However the challengers are starting to add more choice in the market and it’s no longer the case to say that all retail banks are the same. Now consumers have more options it’s up to them to make the most of it.

Originally posted on Billing Views.