The Financial Services Club's Blog

Social Media Survey

Brett King, author of the new book Bank 2.0 - which I can recommend to those of you working with social media in finance as a focus – has worked with me in the past few weeks, analysing the inital and general results from our social media survey.

Almost 450 folks responded to the survey (thank you all) and here are a few fast facts:

• the majority of the participants would participate in social media before making a decision on a financial service provider

• 93% of participants consider social networking will be worthwhile or critical for banks in the next five years

• 78% said social media is worthwhile or critical for corporate banking relationships today

• the majority of customers would go first to independent community discussions before coming to the brand itself

• Facebook and Twitter scored as the highest value social media channels for retail banking engagements

• LinkedIn, Blogs and Privately Managed Online Communities scored as the highest value social media channels for business interactions

• 74% said their use of social media organizationally will increase over the next two years, whilst only 1% said it would decrease

For the full 30-page report analysis:

Our conclusions

93 per cent of the 443 respondents to the Financial Services Club survey indicated that a focus on social media would be essential to the future of financial institutions over the next five years. Only 1 per cent of the survey group said that they feel their institution would be likely to decrease their use of social media in the next two years...only 1 per cent! All indications are that this is a hot topic for pretty much every service organization out there which is surprising as so few firms are doing anything about it!

Adoption rate of social media is scary. Two years ago Twitter was unheard of. Although Twitter started beta testing their concept in 2006, it is largely agreed that it didn’t formally launch till April 2007. Since then Twitter has taken off by storm – globally, in the USA and in Australia, Twitter ranks as the 12th most popular website by traffic, in the UK it ranks in the top 10, and in most of the EU it ranks in the top 30 or 50 websites. It took Facebook 4 years to achieve the same impact; so social media adoption is definitely speeding up, not slowing down.

Given the rate at which Facebook, Twitter and other such social networking sites have impacted popular culture, it should come as no surprise that financial service providers are starting to think about integrating social media into their business. However, the path to integration of these new media tools into the institution is a tough challenge. Firstly, organizations understand that this is an issue requiring total commitment across the organization, but achieving such is difficult because finding someone who can garner that support is a challenge. Secondly, brands in general are starting to understand that social media is a medium they can’t ‘spin’ – that is customers are largely in control – and that is worrying, particularly in the current environment where FIs are facing significant perception challenges at large.

The real conclusions of our research show that individually we know that it is inevitable that social media will be integrated into our business, but our organizations are looking for direction. The difficulty is that there is no one size fits all solution. Each of the popular social networking sites works in different ways, so we need strategies that reflect this. The survey showed, for example, that LinkedIn is a far better tool for business-to-business discussions and for promotion of services to professional individuals, such as priority banking and wealth management. For general brand marketing, Facebook is an effective tool, but our respondents wouldn’t use Facebook for banking contacts or LinkedIn for private and personal socializing. So banks must target effectively if they are to get the socialization of finance right. The strategy needs to be localized and involves pay-per-click embedded advertising as well as sponsored groups and consumer support.

Twitter as a tool is an excellent research tool. We would say that this medium in its current form would probably yearn more data than your best of breed focus groups and customer satisfaction surveys if it can be harnessed correctly. When it comes to Twitter it is all about listening. Our survey showed that consumers would use social media first to ask other customers about their experience with your brand, rather than engaging with your brand directly.

The survey shows the biggest missed opportunities for banks and financial service providers are more in respect to their own properties. Banks need to be using blogs to give more of their own voice to the social discussions, along with privately owned social networks embedded into the customer website experience. If you are not sure what privately owned social networks mean, think say Amazon’s product recommendations and rating system, PayPal’s Blog, and Wells Fargo’s Stagecoach Island?

Our survey essentially shows that most banks are missing a key development in customer engagement – both at the consumer and, more importantly, at the corporate level – by not deploying and utilizing this media effectively. For example, respondents are familiar with some of the key bank provided B2B networks, such as those from Bank of America and HSBC, but these examples are few and far between. This is the case even though most consumers and corporations feel this is critical to the future!

There needs to be an immediate and concerted effort to integrate social media into your organization today. More than that, this needs to be a cross-discipline, multi-department effort and it’s going to be difficult, but not necessarily expensive. If used properly, the bank will improve delivery, revenue and customer engagement significantly.

For the full 30-page report analysis:

Every little (bank) helps ...

 

Methinks change is afoot ...

 

2013 Vision of Banking

Commonwealth Bank of Australia put this video onto YouTube the other day:

It's a vision of 2013. 

Come back here in three years and see if it's come true!

I'm fairly sure that, if it is, then this is how you'll be getting to work (thanks to Barclaycard):

Cool!

 

David vs Brick Wall: How Banks are Sticking to Customers

Mint’s blog, a must-read for all bankers if you want to know what consumers top of mind priorities are, sent a post out yesterday titled: “David & Goliath: How Customers are Sticking it to the Big Banks”.

It immediately caught my attention because the Huffington Post in the USA has been promoting the idea of switching banks, as have others such as the Guardian and more.

The Mint blog caught my attention as it quotes extensive research reports, including that of UK website the Money Stop from March 2009, which advises that consumers are “withdrawing billions due to poor returns” on their savings accounts.

In the USA, they cite a Reuter’s survey from May 2009 which finds that “Only 35 percent of customers polled said they are highly committed to their retail banks, down from 37 percent in 2008 and 41 percent in 2007.”

It then moves into analysing the Huffington Post campaign to Move Your Money, which has apparently resulted in millions of dollars moving from large Wall Street Banks to small credit unions. Only running for two weeks, the campaign already has over 26,000 Facebook fans, with daily Web traffic tripling “on the National Association of Federal Credit Unions’ CULookUp.com, a credit union locator site” according to Financial-Planning.com.

The Mint blog entry is worth a read, as is the Huffington Post where “Glenville-based Trustco Bank has seen a surge in business ever since the Move Your Money campaign began calling for consumers to stop lining the pockets of the too-big-to-fail banks and to support their local community banks. Trustco saw 30 new accounts opened in one day, including one worth seven-figures.

Some people challenge this campaign, saying that moving money from a bank that is too big to fail to a small bank that can be allowed to fail is stupid, but it all makes good media news.

The trouble with all of these campaigns and discussions is that it does make good news stories but little changes in reality, as blogged about before.

Do I have any proof?

Actually, yes I do.

The UK Office of Fair Trading has carried out a range of analyses (pdf) on the UK Personal Current Account (PCA) – the equivalent of USA deposit account – situation over the past eighteen months and their last report, October 2009, states the following:

“The £8 billion PCA market is the cornerstone of the UK's retail finance system and an essential service for 90 per cent of adult consumers. However, the OFT's market study concluded that the PCA market was not working well for consumers. The OFT was concerned that a combination of complexity and opacity made it extremely difficult for individual consumers to know how much their account could be costing them compared with others on offer. This, together with perceived difficulties in switching, had led to very low switching rates and thus reduced incentives for banks to compete on price or provide new products and services.”

And calls for more transparency of charges and easier access to switch accounts.

Without a regulatory change, then things will continue to stagnate. For example, here’s the stats for current account market share from 1996-2001 as discovered by FSA across four key groups in the UK:

– Big Four: Lloyds TSB, Barclays, HSBC/Midland, NatWest
– Building societies (present and former)
– ‘Direct’ banks
– Other banks (BoS, RBS, medium & small banks)

So, the share of all current accounts was concentrated in four banks in the last half of the 1990s, with a slight decrease over that time.

Ten years later, RBS owns NatWest and Lloyds has acquired Halifax/BoS.  The OFT report (pdf) states:

“The PCA industry is moderately concentrated, with the four established banks representing a combined share of 65 per cent of all current accounts (increasing to 84 per cent with the inclusion of HBOS and Nationwide).”

Take out the Nationwide in other words, and the Big Four banks have actually increased their stranglehold of the UK’s core banking sector significantly over the last decade.  That is even with millions of discussions of bank switching and issues with service and charges.

This will not change without regulation, even with all the media promotion to switch accounts, and yet the conclusion of the OFT’s October report – to deal with bank charges – was a case lost in November.

Net:net - banks are not only too big to fail but they’re also too big to mess with, and I suspect that Barack Obama and Arianna Huffington will find this to be the case with taxes and impacting market share.

Halifax's marketing is the worst I've ever seen ...

Every time the new Halifax ad comes on the box, I cringe ...

Now I’ve blogged about their awful advertising before and how insensitive it seems post-crisis, but this one really gets me down.

Not only is it cheesy, poorly executed and raw, but it actually makes most of the folks I talk to feel sick to see a bank that has cost billions in bailouts advertising as though nothing has changed.

And I’m not alone as the Telegraph decided to run a page last week asking what readers thought about a bank that offered a reward of £5 as long as you depsoti a minium £1,000 per motnth.

This advertising seems a bit rich, the Telegraph claims, when this particular bank has cost each and every family in Britain £5,500 to bailout in the last two years.

Steve Griffiths, director of brand and customer marketing for Halifax, says that their new advertising campaign focuses on "the core message that Halifax rewards its customers for their business and shows that our colleagues are enthusiastic, friendly and approachable".

The Telegraph’s readers say:

“Never mind the advert, I want my £5,500 back. I need it more than they do.”
Polly

“Who ever authorised this at Halifax needs stringing up for crimes against society!”
Paul

“Look closely and it really does show them up as a bank that cant be trusted.”
Simon Hawking

“Rather than coming across as "friendly and approachable" they come across as a load of immature bumbling morons.”
Dave

"If they changed the tune to 'sorry seems to be the hardest word' then maybe, just maybe, there might be some mileage in this. Talk about misreading the mood of the country."
Jeremy

There's a few amusements in there too, such as (excuse grammar):

"With lyrics like 'you're indestructible' (HBOS was considered 'too big to fail') and 'you've got the power to return' (thanks to a government bail-out), was the advertising agency having a sneaky dig at its clients by any chance?"
Ian

“At least it answers one question - what banker do to deserve such large bonuses. They have to work with the inane idiots that feature in the advert.”
Mike

“Stop knocking these ads. It gives me valuable exercise reaching for the mute button. Let's have more ads like it and I could achieve fitness and a Zen like calm during commercial breaks.”
Tim

Most worryingly for Steve Griffiths, director of brand and customer marketing for Halifax, should be the comments that read:

“I bank with the Halifax and this advert makes me want to leave them. It is that annoying!”
Phil

“Absolutely atrocious! Maked me want to change my bank!”
Jonny

“I am embarrassingly a Halifax customer, but not for long, I couldn't handle people knowing I bank with such morons, & that's not counting the £39, they charge you for an email for a £2.50 failed payment.”
Caz

“What the advert doesn't mention is the £12.50 per month which they charge you just for having the account, which of course does include the overdraft charges of £1 per day, the £1.50 per month 'debit card fee', and anything else they can think of to sting you with.”
Peter

“If you already bank with Halifax, and don't have a reward account, open one and just transfer £1,000 straight in and back out each month to get your fiver, you don't even have to do it in one lump sum, just £200 backwards and forwards 5 times, still counts, it's easy if you bank online.”
Ian

Message to Halifax: start advertising with honesty and sensitivity, and stop advertising as though the great British public are numbskulls believing that nothing has happened.

What the Halifax should have done ...

Thinking about the Halifax’s ads a bit more, some may say: “they are so bad, they’re good”, in a Shake & Vac sort of way (one of Britain’s most memorable and iconic ads – see end of blog entry if you want to see it).

I disagree.

The Halifax ads are just plain bad and have been well past their sell-by date for a long time.

For example, Delaney Lund Knox Warren & Partners (DLKW) won the Halifax account ten years ago and has run the "cast of characters" campaign – the one with staff members such as Howard – ever since.

Ten years is a long time for any campaign, particularly a cheesy one that has seen the bank bankrupted two years ago and now trading under new ownership, 43% of which is taxpayer funded.

So what should the bank have done?

How about a bit of honesty?

Run a campaign called: “we’re sorry”.

Get a serious but consumer liked presenter, such as Martin Lewis the consumer champion, to front it.

We may not like him, but the public do and they trust him.

So pay Martin a big chunk of money, or someone like him, and get him to be a talking head.

Then I would script him to say something like:

“The credit crisis has affected everyone, and the Halifax has been a part of that. They are sorry about this and, to recognise their gratitude to their customers they are rewarding every customer with a £5 payment for making a deposit of £1,000 each month. This is to reflect the fact that they have changed. They thank you for your continued support and guess what? I think they are OK, so give them a try.”

Something far more genuflective, like this, would be received so much better than using a ten year old, tired campaign that demonstrates that Steve Griffiths, director of brand and customer marketing for the Halifax, just isn’t doing his job properly imho.

Postnote #1: here’s that Shake & Vac ad. It ran from the late 1970s and is still remembered by most UK adults word-for-word. Enjoy!

Postnote #2: if you want to know the Top 10 most annoying UK finance ads ever according to the Times, here they are

Postnote #3: if you're interested in the ads we liked a lot, then here's our top five from 2009.

Over half of UK's internet users bank online

As if to support my contention that a NEW bank should focus upon offering the world's best remote channel banking, the Payments Council released the following press release today:

"It is just 12 years since internet banking began, but its popularity has grown so much that, in the first half of 2009, 22 million adults used internet banking on their main current account.

"This means that for the first time ever more than 50 per cent of regular internet users (41.4 million) are banking online.

"The number of people banking over the telephone has declined to 14.5 million from a high of 16.1 million in 2005, as many of us have found it more convenient to switch from banking over the phone to the internet.

"Last year 26.8 million adults used at least one of online or phone banking.

"The most popular tasks that people who bank online carry out on their main current account are checking account balances and checking statements, used by 95 per cent and 83 per cent of users respectively.

"Phone banking still remains a popular way for people to enquire about their account, with more than six in ten phone banking customers using the service in this manner, compared with less than two in ten people doing this who bank online."

A good time for a new bank?

One of today's headlines states: the time's right for the bold to enter banking.

I agree, but based upon what I see happening right now, there's very few people being bold.  They are just following the same old way of doing banking business.

For example, call me a party pooper or something, but I cannot believe all these people who think they can make a difference to retail banking by opening up a retail bank with branches.

Why would you open a bank in the 21st century based upon branches? No-one goes to a branch except to deposit a cheque. And cheques are dead by 2018, so the only reason you’d open a bank today is to open one without branches surely?

And yet Virgin, Tesco, Metro and the Post Office are all opening new branch-based banks.

Is this madness or is there a logic to this madness?

Well obviously, there is a logic and that logic, as put to me by all banks and bankers, is that the #1 area for any account opening activity is through the branch network.

Remote account opening just does not work.

So what are the new banks, and particularly Virgin, Tesco and Metro, thinking?

Well each has a different challenge, the first of which is to get a banker’s licence.

Banker’s licences are like gold dust, subject to rigorous vetting and requirements for strong executive credentials and balance sheet approvals.

For example, here’s some words of gravitas from Thomas Huertas, FSA Director of Banking, in June 2008:

In light of the protection afforded to deposits and the trust that the public should be able to place in banks, any institution or person seeking to own or manage a bank must demonstrate to the authorities that it or (s)he is "fit and proper". Banks receive a license to take people's deposits, and the authorities need to be sure that they are granting that license to someone who will not simply take people's money. For this reason, those seeking to control a bank must meet what the Financial Services and Markets Act  terms "threshold conditions" -- that they have the integrity, financial and managerial resources necessary to run a bank, that they are worthy of the trust that people expect to be able to place in the bank that holds their deposits and, in many cases, their life savings. Banks and their controllers need to meet these threshold conditions at entry and on an ongoing basis.

You would think with such stringent requirements that banks could not fail, wouldn’t you? And they wouldn’t, were it not for global markets and complex derivatives that simplistic bank executives did not and could not understand ... but that’s another story.

The result is that, due to the recent bank failures, it is actually far more difficult now than ever before to get a banking licence.

This is why Metro has taken so long to gear up for launch – jumping through the regulator’s hoops to get their licence – and why Virgin has acquired a bank in order to get theirs.

So you get a banking licence ... what next?

Create the internal infrastructure, choose a core banking platform, deploy staff and plan launch.

All sounds so easy doesn’t it, but it isn’t because each strategy demands massively different approaches.

If you are growing organically for example, then you can choose a fresh technology platform and fit your business to the platform; whereas, acquiring another’s existing infrastructure through buying a branch network, implies massive conversion and transaction costs, not just for the systems, but also the training of staff and organisation.

The latter challenge is what the Santander’s and Lloyds’ are going through right now where, in usual fashion, the acquired bank’s organisation is transitioned onto the acquiring bank’s infrastructure. This means that all the staff in the acquired bank have to be trained in the acquiring bank’s systems and processes. That is no small task in itself and, for a Virgin who are likely to acquire branches from Northern Rock, Lloyds and RBS, this will be a core challenge in their approach.

Growing organically may also sound worthwhile as you can begin with a totally greenfield approach, but this also has issues. For example, Metro Bank intend to grow organically to over 220 branches by 2020, starting with four flagship branches this year. But 220 branches is still a far cry from 2,200, which is the sort of branch density each of the Big Four incumbent banks claim.

Even acquiring branches may not give fast results. For example, if Virgin acquires Northern Rock they immediately gain 70 branches (and £19 billion in deposits and £10 billion in loans) but 70 branches is peanuts, as Santander have discovered.

That’s why Santander acquired Bradford & Bingley’s (B&B) and Alliance & Leicester’s (A&L) branches over the past year to add to their Abbey franchise.

The result is that Santander now has over 1,000 branches and are ready to compete against the Big Four – RBS, Lloyds, HSBC and Barclays – across the UK.

So, we have a Big Five. Add on National Australia Bank, Nationwide Building Society, the Post Office and you could claim a Good Eight.

Virgin and Tesco make that a Decent Ten.

Ten Decent Banks competing on the high street for our banking business.

And the UK authorities claim there is no competition here, when most markets are dominated by just two major players?

Admittedly, today, there are only four real powerhouses here but there is room for another one and, of these, the ones that I would be most alert to are Santander and Tesco.

Santander because they’re a bank, so they join the incumbent four.

Of the new boys, Tesco is the one that should have the greatest opportunity to shake things up.

Why?

Because Tesco already have the branch infrastructure and experience.

Like Virgin, Tesco has been marketing personal financial products since the mid-1990s but, unlike Virgin, Tesco has over 2,000 branches. Physical stores. Distribution outlets.

This is why Tesco reject the need to buy branches: “the only reason to buy a lender such as Northern Rock, or any offshoots of either the state-backed Royal Bank of Scotland and Lloyds, was to buy a well-known brand, existing customers and a branch network – and Tesco did not need these.”

Tesco are also a full service retailer, unlike the banks, and – as discussed recently in this blog – they have a really strong, intimate, customer analysis and relationship management system for selling and cross-selling.

So, of all the new players, Tesco are the gorilla in the room.

They can not only offer better rates and products than incumbents based upon interest rate churn – just use their cash pool* – but also have the experience, brand and distribution network to win.

For these reasons, if I were opening a new bank in Britain today, the last thing I would do is create one with a branch network.

There are too many of them out there and little reason to change.

Instead, if I were opening a bank in Britain today, I would build a really strong internet-based, mobile and call centre focused operation, leveraging social media and networking.

But then I’m biased (as everyone who reads this blog knows).

* As demonstrated by this comment from Steve Perry, executive vice president of Visa Europe:

“Why do you think supermarkets introduced cashback ... it's because they want cash out of the system so there is less to manage.”

2010: what’s in store for the technology of banking?

After various predictions yesterday, including the return of Glass-Steagall and a Chinese bank buying an American or European one, today it’s the turn of technology.

There are lots of questions about technology, such as:

• Will Google make us stupid?
• Will we live in the cloud or the desktop?
• Will social relations get better?
• Will the state of reading and writing be improved?
• Will online anonymity continue?
• Will the Semantic Web have an impact?

Lots of things we could talk about, but here are five key things that will happen this year with banking tech:

• Banks will start using cloud computing services across the board
• Real-time becomes normal
• Real-time disrupts the status quo
• Mobile services will continue to rip through banking and payments innovations
• Contactless payments will finally start to make some inroads

Banks will start using cloud computing services across the board

The use of cloud was a big discussion point through 2009, with this blog arguing that many bank infrastructures could move to cloud style services if they wanted to. But then some say cloud is just old-style mainframe computing, except that it has moved from the host contorleled environment beign private in-house to being public and open. Whatever.

The fact is that today’s investment markets, due to latency requirements, are moving towards cloud for trade execution regardless. Proximity hosted, co-located servers will sit in massive server farms in Chicago, New York, London, Frankfurt, Mumbai, Shanghai, Hong Kong, Tokyo, Sao Paolo and other major trading cities, all connected by lightspeed communications enabling global trading to take place faster than the blink of an eye. These comms lines already allow a global packet of trade data to move 32,000 kilometres around the world in less than 400 milliseconds (that’s two really fast blinks of your eye) and networking firms tell me they will get these speeds down to under a millisecond by the end of this year/early next.

Therefore, the idea of having everything available through the Web on a secure plug and play connections anywhere, anytime (including on your mobile) will be the way to architect throughout 2010.

Real-time becomes normal

With such lightning speeds, the idea of connecting and then having to wait three days or more for something to happen will become so last century. Banks that sit on funds for days will become targeted by consumers as weak banks. I mean, when you use a mobile phone to make a call, is it acceptable for the call to be answered in D+3? Send a tweet and get it 24 hours later? No way.

How long do you take to answer an email or get annoyed that someone hasn’t responded to one (oh yes, and email is also way out of date – use Facebook and Twitter instead)?

So the idea of D+ or T+ is going to die a death in the 2010s, starting right now. Payments, transactions, cross-border money movements, fraud checks ... everything in banking will move to real-time.

The real-time infrastructures will change the nature of banking and are of concern to some – “if we saw Lehmans collapse over weeks, what would happen if they could collapse in real-time” – but the movement to real-time is inevitable and unstoppable.

However, the thing that goes with real-time money is real-time risk and real-time risk management. This is why real-time analytics and real-time reporting will become key. For example, the UK’s FSA has already required trading firms in London to move towards real-time trade reporting, a move that will supposedly cost upwards of £2 billion to implement.

Real-time disrupts the status quo

Now, real-time doesn’t necessarily mean that you give the customer real-time. You might charge for real-time or near real-time, and that’s where it gets interesting. After all, if you can process a payment of £100 million for the same price and in the same speed as a £1 payment, then where is the bank adding value?

Equally, infrastructures that inhibit real-time – such as the complexity of SWIFT messaging around transactions – may start to call into question the raison d’être of those infrastructures.

SWIFT has been challenged many times over its raison d’être – Heidi Miller, 2004, “if the internet is ubiquitous and free, why should we pay SWIFT for messaging?” – and they’ve continued to innovate and push for change through SWIFTNet and XML messaging.

Now however, the community based infrastructures of the past – created due to the cost barriers of implementing technology in the 1970s on a global scale – are no longer necessary. This si why Visa and MasterCard IPO’d, and why community infrastructures will give way to open infrastructures with secure networking layers.

This last point will be a critical challenge to SWIFT and others – the London Stock Exchange, for example – in 2010, and will see further upset of the status quo.

Mobile services will continue to rip through banking and payments innovations

One of my favourite subjects of 2009 was the mobile telephone as an interface to the bank. This was particularly down to the fact that 2009 was the year that mobile internet become easy thanks to the iPhone.

The iPhone will transform banking generally, and is already proving to be a killer app for finance thanks to iPhone apps.

iPhone apps abound for finances, http://www.apple.com/iphone/apps-for-everything/managing-money.html with Bloomberg, Mint and more featured. Banks have started rushing out iPhone apps too, with NatWest being one of the first UK banks to major on this http://www.natwest.com/personal/more-ways/g1/mobile-phone-banking/iphone-users.ashx, although BBVA, Bank of America and others have been on the case for a while now.

But the transformation starts to happen when you see innovators like Twitter co-founder Jack Dorsey starting to think about using the iPhone as a payments system.

This is his new venture Square, a simple clip-on to the iPhone headset jack that turns the phone into a payments processing machine:

Now that clip shows a very heavy US-centric view of the payments world and what Jack doesn’t know is that the mag stripe and signature is also so last century.

We’re now into contactless cards and Chip & PIN.

Contactless payments will finally start to make some inroads

For a while, contactless has been discussed and hasn’t really taken off. This is no reflection on the banks, as several have tried to rollout major programmes such as the Chase Blink Card  and Barclaycard OnePulse. Barclaycard recently reached five million cards issued for example, but that still doesn’t make this a major success ... yet.

The reason is not enough places to use a contactless card.

But that’s changing, as can be seen in this video:

Suddenly, bringing together the mobile phone with apps that turn it into a point-of-sale doesn’t seem stupid or strange ... it just makes sense.

Like Jack Dorsey’s Square, turning the mobile into a payments system for both transmitting and receiving money is not the future ... it is here and now.

And that’s what we will see more of in 2010. More innovations on the mobile internet to make money on a mobile as easy as cash in your pocket.

Now that makes 2010 a very exciting year doesn’t it?

No wonder we're getting rid of cheques

With the announcement that the cheque is ending its existence in 2018, I wonder whether Gordon Brown inspired this decision.

This is because one of his cheques bounced way back in 1972, during his student days.

 

 

It was sold on eBay for £3,100 yesterday (double click to enlarge).

 

That's 1,000 times more than the value of the cheque itself which was for £3.

Here's the description from the eBay item:

"This is a cheque for £3 which Gordon Brown bounced in his student days. The Bank of Scotland cheque is marked 'refer to drawer', and is supported by a completed form from the Royal Bank of Scotland, advising the payee that the cheque has bounced, and debiting him 13p in charges. The cheque was payment for Brown's room rent in a student house at the University of Edinburgh; the payee was Bill Paterson (misspelt by Brown), who was the Warden. The cheque should have been made out to the University, not to the Warden. Failing to find Brown again, to get the cheque made out properly, Bill dealt with Brown's mistake by writing a cheque to the University himself, and paying Brown's cheque into his own account.. Bill demanded, and got, Gordon's repayment in cash. The cheque is currently owned by Kate Paterson, who was given it as a present by her husband, the ex-Warden."

It's amazing how your student days can set you up for the way you manage finances for life!

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Sberbank's Branch of the Future

There have been many attempts to create the branch of the future (Accenture, IBM, John Ryan ... Deutsche Bank, Barclays Bank, Umpqua Bank ...), and so I was intrigued to hear that Sberbank in Russia had made a major investment in creating a flagship branch in Moscow.

I meant to drop in during my recent visit, but didn't have time, so I was pleased to catch the announcement of the branch opening this week.

Although it may look, on first impression, like a normal branch ...

With the lobby loaded with automated self-service machines, as you would expect, there are a few surprises.  For example, self-service contactless and remote advisor machines ...

And then, as you go into the advisory banking area, you get a totally different look and feel ...

With self-service advisory stations and 3D virtual advisors ...

There's also a major 'relaxation area', with coffee, magazines and games for the children.

The branch is also loaded with technology, including biometric pass identification where customers are scanned through the branch security systems using a special card.  This means that staff are aware of who is coming in for advice in advance through the facial recognition system.

The branch was designed by Fitch and, according to Sberbank President Herman Gref, will service customers in as personalised a manner as possible.

This is why the bank plans to open twenty branches of this type across Russia by September 2010, with all branches converted by 2016.

Sberbank is the largest bank in Russia with over 19,000 retail outlets, so that's a major challenge and significant investment.

Worth watching.

*

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WaMu and MPs expenses

In the UK, we've been talking for a while about the issues with our politician's expenses being blanked out. 

See:

 

It's downright disgraceful.  Hiding secret purchases including porn movies and duck houses, how are we ever to trust our leadership again?

It's so refreshing to see how America does things so differently with the release this week of the  internal communications between Washington Mutual's (WaMu) regulators, the Office of Thrift Supervision (OTS), that led to the closure of WaMu.

Of particular interest were the communications that might explain why regulators seized the bank in September 2008, even though WaMu appeared to meet regulatory standards for operating a bank, notwithstanding its burden of bad loans.

Here is an example of a few of those emails:

 

 

 

Thanks to the Puget Sound for championing the cause.
 

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A Brand New Bank

I've been blogging for a while about Vernon Hill's new bank.  Vernon created Commerce Bank in the USA, which revolutionised retail banking there.  He's now got the green light to launch Metro Bank in the UK.

The aim is to launch on February 15th, which is why the flagship branch in Holborn has this wrapping:

 

Can't see it?  Look closer ...

"Love your bank" ... that's a different sentiment to marketing a bank these days and, bearing in mind that February 15th is the day after Valentine's Day, you can see the logic of launching then.

The new branch is one of four Metro will open in London, and will have the usual Vernon magical elements including the massive change machines in the front of branch.

 

In fact, expect many of the Commerce Bank style innovations at Metro Bank.

This has been a long time in the making, as I first heard about it back in summer 2008.  The challenge has been to get the banking licence, and the FSA plays hardball on this stuff.  They've been particularly stringent on Metro Bank's choice of management team and non-executives, but they appear to finally have it sorted out and approved.

Oh yes, and in case you're wondering, they are using core software from Temenos (Tesco has gone with Fiserv).

All good stuff and watch that space.

New bank Metro just wants to be loved - Guardian

Part Three - Real-time risks and opportunities

In the final part of this discussion of risks and opportunities in CEE, I was asked to give a view (see if you can spot me).

 

So here’s my brief summary:

What are the risks for the next year or two?

First, we are still in the middle of what I call the internet, or www, recession. There are still foreign exchange and trade issues between China, Europe and the USA, and doubts over sovereign debt defaults in key countries such as Dubai, Greece and Ireland. In addition, we still have a UK AAA-rating risk of downgrade, as do other countries, and all of this will make 2010’s economic recovery a challenge, although not as hard as this year has been.

Second, we are seeing a major contraction in debt amongst businesses and consumers. This means that those who can pay-off debt are doing so, leaving those who want to borrow or increase debt being those who are increasingly viewed as being higher risk because of their need. This will potentially result in a ‘debt squeeze’.

The debt squeeze is where banks are left with the people who want lending being those they can’t lend to, whilst those they can lend to are the customers who don’t want it and have paid it back.

Third, there are still risks, especially liquidity risks, that will require banks to seek further diversification of risk by either entering new markets or, more likely, pulling out of all markets where risks are less quantified. This could still lead therefore to national protectionism, where a bank actively seeks to focus on known home territories, whilst selling off or shutting down any more recent and therefore less known expansionism.

Fourth, there are issues of corporate governance as mentioned by John McFall.

Fifth, there are the nerves created by the change of leadership of the management of the internal markets of Europe, from the City-friendly Irishman Charlie McCreevy to the unknown but pro-French minister Michael Barnier.

Finally, there is a challenge with technology, in that there is fast cycle change in technologies in the front office areas of retail banking (mobile) and trading rooms (high frequency trading) versus very slow change in back office infrastructures (SEPA is now seven years old and interoperability in Clearing and Settlement is still to happen). This dual carriageway of slow lane back office and fast lane front office technologies is going to crash somewhere in the middle, unless something is done to align the two better.

On the opportunities for the next year or two.

First, things are cheap. If you are a bank with liquidity, then you can pick up a bargain these days. This is no better demonstrated than JPMorgan with Bear Stearns and Washington Mutual, or by Santander with Alliance & Leicester and Bradford & Bingley. If you have capital, then today is a low hanging fruit picking season.

There are also opportunities for those who can innovate. With so many firms focused upon operational excellence and internal management issues, firms that have clearly unblinkered and unfettered capabilities to compete can begin to decimate.

Some of this opportunity is being created by deregulations that have been years in the making. For example, non-bank payments institutions in Europe could sweep up a lot of activity now that they can be registered for processing under the Payments Services Directive. MiFID is still allowing change and competition for the MTFs, with Chi-X and BATS taking a lump or two out of those markets.

Most important of all, of course, are the ability for new banks to enter weak markets. This is why the UK has flurry of new banks, from Virgin and Tesco to Metro and the Post Office.

Therefore, strong, well-capitalised, financial institutions and non-banks can start to cherry pick much of the banking market profitability if they want, leaving the incumbents with the festering gristle.

So, all in all, here’s the message.

For most banks, 2010 will be a return to basics and a focus upon getting the most efficiency and effectiveness out of operations. Operational excellence will still be the key management competency. This was the focus for 2009, but the ‘back to basics’ approach will be even more resonating and loud.

Real-time reporting will be critical from all angles, especially from a risk reporting viewpoint. The FSA has been pushing for real-time liquidity reporting, and it would not surprise me if a move towards real-time clearing and settlement becomes a focus on the table. That’s the focus of trading exchanges, such as Eurex or the Russian exchanges, and real-time is also becoming a focus in the retail world as the march of faster payments progresses. So real-time everything will be key.

Finally, intimate customer knowledge and using the tools for strong customer analysis with data mining tools will be high on the agenda. As bankers, many are looking for more cross-sell opportunities and you only get those if you have customer intimacy. This is a key.

In fact, it is best illustrated by the Tesco example given the other day, where the fact that I know your buying habits means that I can tailor my offer and rates to you on an individualised and personalised basis. If you buy lots of alcohol and cigarettes then your car and life insurances cost more than if you buy muesli and keep-fit supplements. That’s real customer intimacy.

In summary, back-to-basics, real-time everything and customer intimate operations will be the key.

Istvan Lengyel of the CEE Banking Federation didn’t like the idea of real-time trading. In particular, he was concerned that if a bank collapse, such as Lehmans, takes four days today then what happens if it is four nanoseconds tomorrow. What can you do?

I think he missed the fact that I was talking about real-time risk management and real-time liquidity reporting too.

John McFall of the Treasury Select Committee didn’t like the idea of Tesco giving discount on car insurances based on lifestyle. He thinks that two MP’s who find one saves £100 on car insurance because he or she doesn’t smoke would be grounds for a good early day house motion.

I did try to make clear that risk-adjusted pricing is the very heart of finance, and the better you are at this then the safer the markets would be. Equally, risk is at the very heart and nature of insurance. Also, if I give Tesco permissions to mine my lifestyle by being a Clubcard member, then so be it.

 

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(Stagecoach) Islands in the Stream

I've blogged a lot about Wells Fargo's innovations in the past.

This is because they are one of the banks in the stream of innovation that comes out of Silicon Valley.  This is why they are great proponents of social media:

• Blogging: FIVE corporate blogs.
• Online video:  YouTube channel.
• Social networks:  MySpace profile for Cassie, from Stagecoach Island. 
• Facebook Stagecoach Island application and fan page.
• Virtual worlds: Stagecoach Island.

Stagecoach Island is one of their key platforms in this space.

Stagecoach Island was first piloted in September 2005 to provide financial education in a fun and engaging way.

Initially, it was piloted in Second Life but, after some issues over virtual hackers and bombers, Wells Fargo moved Stagecoach Island onto their own platform in 2006.

Three years later, it is still going, with its own community, blog and facebook fanbase.

So I was intrigued yesterday when I saw that they’ve just launched the Stagecoach Island University (the official launch was on November 30th).

What’s this I wondered?

And so I asked Tim Collins, who looks after Experiential Marketing at Wells Fargo, to tell all. I also gave him a hard time over some of the sceptics’ views on the value of these developments.

Here’s our chat:

Tim: We continue to be happy with the results of Stagecoach Island and invest in new features every year. We have tens of thousands of members and see double digit growth in membership every year. Engagement is also growing, as our session lengths are approaching an hour.

We are about to launch Stagecoach Island University, which was created in partnership with Educational Financial Services and WF Foundation. The “Admissions” module expands the Stagecoach Island curriculum to include saving for college, financial aid, tips for budgeting and information on funding post secondary education. The “University” content provides direct access to the entire young adult and adult sections of Hands on Banking in a virtual space.

To add a user incentive component and incorporate real world lessons, once members complete their university experience and pass a comprehensive exit exam, they will be eligible for a new tier of “high-level” jobs within Stagecoach Island, each of which requires the completion of Stagecoach Island University.

Chris: In other words, by completing the Stagecoach Island University examinations, users become more knowledgeable about their finances and use of money, and should be better capable of managing budgets, borrowings and investments.

Tim: That’s right.

Chris: But the sceptics out there always ask me the same questions about this stuff.

Tim: Such as?

Chris: Well, the first question would be: why would a bank keep investing in Virtual Worlds as most virtual world experiments, such as all the banking trials in Second Life, are dead and gone. Isn’t this a broken business model?

Tim: I don’t think it’s fair to compare Stagecoach Island to Second Life. It’s like comparing a private community to the entire blogosphere. Stagecoach Island is a private community with an educational purpose. Second Life has a generalist business model in a world that is increasingly specialized. They are adapting, but since their data security breach, I doubt many financial services companies will want to engage with them.

Chris: OK, even if this is worth doing, aren’t all the users young, zero profit students, or are there any real people on Stagecoach Island?

Tim: Our average age for a user is 23 years old, but we have learned that our members are much more profitable than your average 23 year old. They have higher balances, more products, and will recommend us to their friends. And did I mention their great dental hygiene :-)

Chris: Can you provide any proof points that show this to be a worthwhile venture?

Tim: I think I just did.

Chris: Maybe, but every time I mention what you’re doing to others, those are the questions I get.

Tim: I’m not surprised. Bankers are a literal audience. They want to see a direct cause and effect. If they spend a dollar on marketing today, how much will I get in sales and profits tomorrow?  Experiential Marketing is different. It doesn’t directly support the sales process. Rather, it’s the warm up act for the sales process.

If we invest the time and effort to educate consumers, whether they be our customers or not, they will think kindly of us when it comes time to doing their banking. It will make the sales process easier, and we will make more money.

We have proved this with project after project....social media as a prime example. I think you are getting these questions because many companies don’t have the patience.

Chris: Thanks Tim, and good luck with it all.

 

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Who's afraid of Tesco Bank?

Just back from Athens at a conference on retail banking with the star attraction being yours truly ... well, I thought I was the star attraction until the post-lunch heavyweight speaker Sir Terry Leahy, Chief Executive of Tesco, turned up ...

I remember hearing Tim Mason, Tesco's Marketing Director, back in 1997 talking about internet deliveries and their vision for the future. That was the year Tesco became bigger than Sainsbury which, when you think about it, is quite remarkable.

For example, Terry became CEO in 1992.

Back then, Marks & Spencer was Britain’s biggest and best retailer and Sainsbury were the country’s largest food retailer.

Back in November 1992, their market capitalisation was around twice that of Tesco’s, with each valued at around £9 billion compared with Tesco’s measly £4.5 billion.

At the time, the Times had a view that: “if you want quality shop at Sainsbury, if you want price shop at the discounter. Tesco is stuck in the middle so who needs to shop there?”

Well something happened, and the answer is Sir Terry and his team.

Today, Tesco’s market capitalisation is a phenomenal £33 billion, compared with Sainsbury and Marks & Spencer who are worth less today - around £6 billion each – than they were in 1992.

As Sir Terry said, “this is regarded as the greatest transformation in British business”.

He then went on to state his ten lessons for management which I’ve put as the next entry in the blog.

One lesson he left out is a key one that Tim Mason shared a decade ago: for every strategic initiative, know what your next move will be.

Most firms run strategies that say, “let’s get from A to B”.

Tim taught me a lesson back in 1997 which is that, like a chess player, plan a strategy that assumes you will get from A to B and calculate what reaction that move will create amongst your competitors.

Then plan moves B to C, C to D and, if you can, D to E and beyond.

That’s how Tesco crushed Sainsbury and M&S.

Anyways, after Sir Terry gave his general thoughts and position, what was far more interesting was the panel debate with various Greek banks (we are in Athens) debating the customer-centric model of banking.

A few choice comments from the bankers included:

“Banks are not customer-centric, they are human-centric.”

“I don’t believe we have a crisis of trust with our customers, we have a crisis of insecurity. Banks and their customers are insecure and uncertain about the future.”

“Any strategy that has pricing of the product at its core will fail.”

“As the cost of risk is our greatest cost, this has become one of the most important factors in our pricing mix.”

“If the law forces us to price our customers based upon risk, then a large group of customers will be forced to leave the banking system.”

Sir Terry was allowed to interject on three occasions and, each time, his words fascinated me because it gives a great insight into how Tesco Bank is thinking.

Here’s what he said:

“In our move from retailing products to bank retailing, it amazes me that the current incumbents reward the new customer rather than the existing one. That encourages promiscuity and commoditisation. If you can reward the existing customer more than the new one, by learning more about them, then you can price your products better. For example, our Clubcard (their major loyalty program) data allows us to price our products 15% more accurately than the Royal Bank of Scotland for any particular risk type by customer segment. This means we can be the best at risk-adjusted pricing.”

Wow! I always thought that Tesco would get to the stage where they would know if you purchased whisky and cigarettes regularly at the checkout, then they would price their financial products accordingly ... and there you go, Sir Terry has pretty much made it clear that they will do just that.

Here’s his next interjection comment:

“It must be frustrating for those banks that have performed well before and during this crisis to be lumped in with the ones that anger the public. It’s frustrating but you have to live with it, as this crisis is all about leverage and the mispricing of risk. I don’t think that this needs more regulations to resolve the issues – we have enough regulations as it is – but it does require a return to traditional banking methods and practices. And that is what we are doing. We are focusing on the existing customer base – in our case, that is the Clubcard base – and offering them targeted products that meet their needs and are priced appropriately. The fact that we know the customers well means that we can then focus on the supply chain, and that means quick approvals and fast delivery of products and services. Equally, by going back and pricing things effectively, it means there will be more profitability because we are right pricing.”

As I listened to this, I’m not only thinking that Sir Terry understands banking, but also that he has a clear insight into how to differentiate. Finally, he pipes up with:

“On being too big to fail? That question has been asked of Tesco many times, but our customers buy more from Tesco because we are trusted by them. The more we are trusted, the more they buy; and the more they buy, the more loyal they become. The bottom line therefore has to be: closer relationships, more realistic pricing, more thoughtful and helpful approaches to customers and better use of data. Those four factors will improve the state of banking overall.”

Ye Gods my banking friends. With these simple words, along with Terry’s Ten Commandments for Effective Management which follows, means that banks should be a little nervous about Tesco’s entry into banking.

But nervous is not a strong enough word. Banks should be scared.

This is because, after his speech, I got some one-to-one time with Sir Terry whist waiting for our flights – he also flies on regular airlines, not private jets – and so I asked him how they could price so effectively.

He stated that they use their Clubcard data to see what customers are buying through the checkouts and use this to look at, for example, car insurance quotations. This is why they are 15% more accurate than Direct Line or Churchill, the insurance divisions of Royal Bank of Scotland. It is because they know how healthy or unhealthy the customer’s lifestyle appears.

So yes, I guess Tesco will be pricing financial products based around whether you buy lots of alcohol or medications through their tills.

I wondered how he had chosen Benny Higgins as the new CEO of Tesco Personal Finance, as they might have considered a retailer to run banking rather than a banker. Sir Terry stated that they have plenty of retail experience, but Benny was their main anchorman at Royal Bank of Scotland through the years of their partnership – he was head of RBS Retail Banking from 1997 to 2005 – and so his appointment made perfect sense.

And I double-checked their interest in opening new branches, such as buying up Northern Rock’s assets when they come to market. His answer was a categorical, we don’t need any branches. He would rather focus upon customers and it is quite clear that they will use their in-store reach, Clubcard information and client knowledge to really differentiate the Tesco financial services from those of rivals, with a clear focus upon data mining to add a little twist.

This last little twist however is a key one.

For example, the data mining system built into the Clubcard database comes from a firm called Dunn Humby.

Dunn Humby built this capability from scratch for Tesco and it is so effective that it means Tesco can produce a personalised magazine for every Clubcard holder every quarter. The magazine knows what you like based upon what you buy and then targets products specifically to your purchasing and lifestyle preferences. Potentially therefore, every single magazine of the millions sent out every quarter is totally different, unique and individual.

This is why Tesco have such great loyalty and following from their customers.

Now I know several banks who have tried to use the Dunn Humby system for their loyalty programmes and targeted marketing efforts ... and most have failed because banks have too much disparate data, spread across too many silo-based systems to be able to bring it all together effectively into a single data warehouse and mine it.

You may think I’m kidding but, by way of example, I worked with a bank in 1989 to re-engineer their mortgage process. We gave up because it was too difficult: “too many disparate systems across too many silos” was the response from the Executive.

I bumped into the Board Member of the bank in question two decades later and asked if they had ever tackled that mortgage process. “No”, he said. “Still too many different products across too many different systems and divisions”.

Oh dear.

With Tesco’s highly targeted, razor focused approach, banks in Britain (to begin with) should be afraid.

Be very afraid.

Mashup technologies in real-world banking

For quite a while, I've been trying to find some real-world examples of mashup technologies in banking.  I use these services extensively in other areas of my life - on this blog (the widget for search for example), my Facebook account (feeds and videos), my Twitter account and more.

However, I've never found a bank that is using these technologies in the real-world.

I have found some examples internally for services, and in some corporate to bank services but real-world with consumers?  No, although I suspect there are a few out there such as BBVA.

But I have found an IT provider who gave me a great example as to how this might work.

Here is their mashup mockup.

OK, imagine you're looking through your bank statement online and you spot a dodgy transaction (double-click the image to enlarge) ...

Mmmm ... don't like the look of that cash transaction at an ATM, let's have a look at my last few card transactions.

Here's the real reason I'm posting this.  Now we see the card transactions integrated with Google Maps, context based advertising and other services to make the card experience part of a mashup of my web experience.

In this case, I can now click to check that ATM transaction using Google maps:

 

and remind myself as to whether I was really there or not.

Love it!

And thanks to Toni Plana for the screenshots.

*

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Does customer service in banking matter?

When talking with bankers, they refer to banking as "a utility".

It’s just something that’s there, like gas and electricity. It’s not valuable or differentiated and no-one wakes up wondering how their payment will take place. That’s why it’s not priced or serviced as something of value, but just thrown out there and use it or don’t, we don’t care.

I say this because customers don’t switch banks because they see it as just a utility, and bankers know this so they don't try to compete on customer service as they can make money regardless.

Even though it’s easy to change bank accounts and the European commission is making it even easier, banks know customers can’t be bothered changing because they think they’re all as bad as each other.

For example, Santander took over Abbey and now Abbey get awful customer reviews. If you go by the surveys, Abbey are the worst bank in Britain for customer service. And yet their actual customer numbers, announced last week, show a massive spike in customer growth.

If they’re known to be the worst bank in Britain for service , how come their business is growing?

Because customers don’t care.

Abbey offer better loan and savings rates, and customer flock in their hoards to the bank.

Meanwhile, the Co-operative Bank is a lovely cuddly bank. They’re known to be eco-friendly and nice. If you call them, their customer service and call centre staff are fantastic. Nothing is off-shore and it’s all very personality driven and friendly. Their internet site, Smile, is regularly voted as the best in Britain and their overall bank service comes top of most people’s lists.

But have they gained significant market share?

No.

They haven’t bought customers with good rates and so the customers have not followed.

So banks don’t need to care a jot about good customer service because it makes not a jot of difference. I mean Wachovia were known as the best bank in America for customer satisfaction, according to the American customer satisfaction index, and look what happened to them (bust if you didn't notice).

Added to which good service costs, and banks don’t want that overhead.

So do everything as cheaply as possible, don’t bother giving good service and just ensure your utility works.

Like gas and electricity, just make sure it works and be the lowest cost provider.

Then a little bird starts tweeting in my head: what if we made our bank the best it could possibly be?

What if we broke this utility mould and focused upon being exceptional?

What if we got customers to pay an annual fee, and then told them they would get the best of everything?

What if we bundled all the bells and whistles on the account, and gave them birthday cards and Christmas gifts?

What if we met with them once a year for a chat, called them with reminders of key things happening with their account, alerted them to better interest rates and deals whenever we released a new product ....

What if, what if, what if ...

The what if’s are endless but, you know what, all of the above are available, have been tried and, you know what, the customers didn’t care.

They didn’t come, they didn’t pay, they didn’t want it.

Customers just want utility banking and bankers have become meshed in providing just a basic banking service.

Can this mutual apathy ever be broken I wonder?

*

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Virgin gets easy pickings

It’s been a bit of a manic day today as we've spent most of the day talking about the news that the European Commission, after an eighteen month investigation, have given the all clear for Northern Rock to be split up into a ‘good bank’ and a ‘not-so-good bank’.  Not just this news, but also the news last week that they would shrink ING by half and the implications for other banks, such as Lloyds.

The Northern Rock news will call the 'good bank' Northern Rock plc, and will have all the branches, customer deposits, savings and low-risk mortgage book. The other half will be the Northern Rock Asset Management firm, and will keep the more risky mortgages worth about £40 billion.

The intention is to sell the good bank and for the government to keep the not so good bank until it can be made good, or the losses written off.

This gets interesting as it means that Britain’s first sign of big trouble – the Northern Rock –which went into terminal decline after a bank run back in late summer 2007 can finally pay back the £28 billion invested and give a return to the taxpayer.

The fact the European Commission saw no competitive issues is also interesting, as the government pledged £9 billion to help get Northern Rock lending this year – in fact, they told the management to stop repaying the £28 billion loan so fast – and this resulted in very attractive rates for new mortgages that, in the case of three of their products, are far better than anyone else’s. Is that competitive?

There’s also the question of who will buy them, and all money is on Virgin Money.

Virgin applied for a banking licence last week, and is clearly positioning to get more business. But without branches they may feel confined to just being a telephone bank.

They expressed interest in buying Northern Rock back when these troubles started, and still want a slice of an existing bank operation.

The real interest must be however in how much more of the UK High Street Virgin could get.

For example, the European Commission came out against ING last week and told them to split into two firms – a bank and an insurance group – and to get rid of ING Direct in America.

In other words, shrink the bank to about half its current size.

Similarly, back in May, they did the same with Commerzbank.

It would be unthinkable to imagine that when they look at the Lloyds TSB and HBOS merger that they wouldn’t do the same – in other words, shrink the bank – but the question is by how much.

Forty percent plus may seem harsh, but as the new Lloyds Banking Group has a third of all UK customer mortgages and deposit accounts, it must be major cutbacks.

Rumours are, for example, that Lloyds will need to sell off about 500 of their 3,000 branches.

Meanwhile, Santander has a lot of overlap on some high streets, thanks to having Alliance & Leicester, Bradford & Bingley and Abbey in their group. So they will probably want to sell some branches too.

As will Royal Bank of Scotland.

This means that Virgin could rapidly become a 1,000 plus branch-based bank in Britain by the end of the next couple of years, if they want to be.

So this is good for competition?

Or is it just creating a new bank brand for Virgin at low cost based upon easy pickings.

We shall see, but either way having a few new banks like Virgin, Tesco and Metro in the UK must be good for the consumer as we do need a bit more competition that the cartel that has been there historically.

So thank you Nellie Kroes and the European Commission.

What’s next?

  

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Is 'poor' acceptable as the industry average?

I wrote yesterday's blog about Mr. Grump versus Mr. Smiley bank because someone recently said to me: "Chris, you seem so angry ..."  It wasn't a reference to my blog content but to the way my face was purple with steam coming out of my ears because I'm not angry ... I'm bloody livid!

And I'm livid with (some) banks.

Not for the credit crisis or banker's bonuses - ferchrisakes, we're over that aren't we? - no, because some banks are just delivering bad service.

There are a variety of banks I use you see.  Some are excellent and some are not so good and some are just plain lousy.

Here's a couple of real life examples of some recent issues.

First, the incorrect payment.

I was hassling a customer over an invoice that had been outstanding since January.

I had hassled them every month over the missing payment since it became overdue in March.

They claimed to have paid it when we finally got to deal with the issue in July.

And they had.

But to an account in the name of "Balatro Ltd", a fairly unique business name, but with a sort-code and account number (BIC and IBAN) that had no relationship with my business.

OK, so the customer had put the wrong details in ... but the bank process the payment as they only refer to the sort code and account number and don't check the account name when doing so.

It took the client and I another two months to sort out the payment, and they are still trying to get the money returned from the account that was incorrectly credited as the bank say it's their fault.

The client and I - both in financial technology markets - just wondered why a bank doesn't check the account name, as well as the BIC and IBAN, when processing a payment.

Far too obvious (btw, this is a common issue in UK banking).

The second example (there are many more) is that I got locked out of online banking.  Probably put in the wrong details, but don't think I did.

So the bank sends an activation code a few days later in the post.

It doesn't work for some reason.

So I call up the bank.

"Oh it's your fault, sir", says the unhelpful Northern lass, "you put in the wrong activation code."

We end up in a tete-a-tete with me saying "No, I didn't" and she saying "Yes, you did".

I start losing the will to live and think, what great customer service.

It ends up that she promises to send me a new activation code in the post.

Five days later, no sign of the new activation code.

I ring the bank.

"Oh well, sir, it can take up to seven days for the letter to arrive", says the helpful Northern lad.

"And if it doesn't arrive then?" I ask.

"Of course it could take longer", says the young guy.

"Well, should you send me another code then", I beg, "as it's now two weeks since I got locked out of my account and it's end of quarter."

"We can send you another code sir", says the autobot helpful young man, "but it would mean if the one you're waiting for arrived first, it would be invalid".

"OK, howabout I give you my inside leg measurement, last three years of statements and some blood.  Would you reactivate my account then?" I plead.

"Oh no, it can't be reactivated over the telephone", he states matter of factly.

"Why?" I ask.

"It's just the way the system works, I'm afraid sir."

I could give you about twenty more examples of poor service from the bank that took three phone calls to get a direct debit set up or the bank that took four phone calls to report a fraudulent transaction .. and all of these occurred in the last few months.

Maybe it was best summed up by the comment made in a keynote presentation given by one bank CEO recently: "I know one major High Street UK Bank where staff satisfaction is just under 50%", he said.  "This means that if you walk into one of their branches with two tellers waiting to serve you, one of them hates working there and probably hates serving you too.  That's not good."

No, it's not, is it.

The conclusion is that some banks (many?) have a lousy standard of service.

But that's ok isn't it, as customers don't switch because they get lousy service.

They expect it, because that's the average benchmark in the industry.

Someone's gonna shake that tree one day and turn average into exceptional however.

When someone comes in with exceptional then lousy won't be a benchmark, it will be substandard.

I just wonder why the average performance indicator of banks' today allow the benchmark to be lousy however.

Is it just because the banks realise the lethargy of their customers and know that they won't and don't switch?

No wonder our consumer firms are now launching campaigns to get better banking.

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