News Column

Banks seek customer harmony but will there be a happy ending?

June 27, 2014

UK banks could certainly not be accused of failing to lay it on thickly enough when it comes to fine words about the importance of serving their customers and earning their trust.

At times, it has seemed some of their talk has been right up there with the classic Disney children's film, "Bambi", in terms of slushiness. It appears they really want to be loved.

There has been no end of talk about changes in culture and reining in the hard-sell of products to customers. And the banks have been at pains to explain to the public just why they must continue to pay big bonuses.

But, as the banks will know better than anyone, talk is cheap. The key will be whether, or to what extent, their talk translates into action. And, when it comes to the UK banking sector's relationship with often long-suffering customers who are also the taxpayers who bailed large chunks of it out, there is no sign at all at this stage of a Bambi-style happy ending.

The sector continues to face a flood of complaints over mis- selling of payment protection insurance to individuals and complex loans to small and medium-sized businesses.

That said, there was plenty of pain along the way in the Disney classic. So is it possible we have just not got to the happy ending yet in terms of a new-found harmony between the UK banking sector and its customers, and that we will ultimately feel the benefits of a great catharsis which will be all the better for the wait?

Royal Bank of Scotland, and its tens of thousands of staff, are in greater need of a happy ending than most.

And Ross McEwan, the Australasian banking sector veteran promoted to the chief executive hot seat at RBS last year, was at pains to focus on positive moves to restore the fortunes of the institution he leads at its annual meeting in Edinburgh on Wednesday.

He spelled out his vision of RBS as a bank that gets the basics of everyday banking right, which can support small businesses in their growth, and backs the biggest UK companies and employers as they play their full role in the global economy.

Mr McEwan declared his ambition of ensuring his charge "earns the trust of our customers every day".

He talked about RBS being much better for customers, new and existing. He said the bank had 17 million UK personal and business customers with whom it wanted to do more business.

The RBS chief made it all sound pretty straightforward. And there are elements of his strategy which seem likely to improve RBS's relationships with its customers.

Mr McEwan said, on the front line, there were already many examples of how customers could see the different approach. He declared RBS was not offering deals and products to new customers that it was not prepared to offer to existing customers, was calling time on teaser rates, and reinstating automated teller machine access for all of its basic bank account-holders.

He cited moves to ensure pricing across the bank was consistent for personal customers. And he flagged the aim of ensuring the same would be the case for small business customers by the end of the year.

However, Mr McEwan also told shareholders that, this year, RBS was on track for pound(s)1 billion of annual cost savings. And he highlighted its target of taking a further pound(s)4.3 billion out of its annual cost base by 2017, including through disposals of operations.

He talked about the pound(s)1 billion of cost savings being delivered by changes that would also improve effectiveness and simplicity. But cutting resources and improving effectiveness rarely go hand-in-hand.

Mr McEwan is a great believer in the power of technology, and there is no denying the speed of change on this front continues to accelerate.

But he has embarked on a huge cost-cutting programme which will almost certainly involve further very heavy job losses, on top of the tens of thousands already seen at the bank.

And he must not under-estimate the impact of such relentless cost- cutting on the morale of RBS's staff, who could be forgiven for being sick and tired of endless reorganisation. He should also be alert to the potential knock-on impact on customer service. It is also interesting, in the context of Mr McEwan's stated determination to get the basics of everyday banking right, that branch closures remain a key part of RBS's cost-cutting strategy.

Speaking to The Herald in April last year, Mr McEwan revealed about 10 per cent of RBS's UK branches were likely to be axed, with the institution considering any closure of the last bank in town on "individual merits". Mr McEwan was head of RBS's UK retail banking division at the time.

Sine his promotion to chief executive, RBS has unveiled a raft of branch closures. And chairman Sir Philip Hampton made it plain at the annual meeting that there would be more to come on this front.

He told shareholders that further branch closures were inevitable.

Noting RBS had "more branches than Asda and Sainsbury stores combined", he said: "With continued rapid change in the way people choose to bank, there will inevitably be further [branch] closures."

So Mr McEwan talked about earning the trust of customers, while Sir Philip flagged plans to close more branches.

This appears to be a funny way of going about things.

Mr McEwan has highlighted rapid growth in the number of customers wishing to bank on their phones or other mobile devices, on their way into work for example. But that does not mean every customer wishes to take advantage of the technology RBS has been rolling out on this front. And what about Sir Philip's talk about "the way people choose to bank"?

Some people just want to go into a branch to bank a cheque or discuss their finances. And RBS says on its website: "Our nationwide network of branches means it's possible to deposit cash and cheques wherever suits your business best." Try telling that to a business in a town in which RBS has shut the last branch.

RBS has not been alone in talking a good game about getting back in customers' good books. But this aim still seems very likely to be hampered by banks' voracious appetite for cost-cutting. This appetite appears to have much to do with banks' desire or need to make sizeable profits as they rebuild balance sheets, but it is difficult to see how cost-cutting in itself can possibly make things better for customers.

These customers should not be holding their breath for some great catharsis at this stage of the turbulent tale of the UK banking sector.


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Source: Herald, The (Scotland)


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