Retail Banking in the Fintech Age

4 banks Cum Serv

Retail banking in the UK is supposed to be undergoing a transformation. With relatively limited choice & competition between the main incumbent players, the Government is keen to encourage a new breed of banks, the so called “Challenger Banks”. We used our DataSwarm system to understand the difference in customer perception and usage between the Traditional banks and these emerging “Challenger” banks.

Why is perception important?

Perception drives three main behaviours in potential and existing customers that create busines value:

  • Most (c 90%) of customers seek some form of recommendation when they are looking for a service. The better the perception, the more likely a good recommendation, the more likely a customer gained. This means a gain of more new customers, which impacts revenue – and potemtially ARPU if they then go on to use more services.
  • When a customer experiences a negative event, good existing perception reduces the likelihood of a very negative reaction or possible defection. This reduces operating costs, and as retaining existing customers is vheaper than recruiting new customers, will reduce costs of sale.
  • Tracking perception gives useful insight as to what is going well and badly with your company – and your competitors – and where the emerging risks and opportunities are.

For the study we picked two banks of each type:

Traditional High St Banks (both original UK “Big 4” High Street banks)

  • NatWest, now part of Royal Bank of Scotland Group
  • Lloyds, part of Lloyds Banking Group

Challenger Banks

  • Monzo Bank
  • Revolut Bank

We looked at the c 350,000 relevant Tweets in the period between October 2018 and January 2019, and looked at the volume of discussion of all the issues for each of the banks, and the sentiment attached to those issues. At a high level, the results are shown in the above chart, which is the cumulative overall sentiment over time – the relative perception – for each bank vis a vis the others.  Each of those curves is comprised of many peoples’ perception of all the banks’ services, as well as other activities that people care about enough to discuss on social media.

In a nutshell, the faster the curve climbs the better and the Challenger banks are better perceived than the Traditional banks. The question is why?  At one level, there are two drivers:

  • Accumulating positive reactions – the Challenger banks seem more capable of driving this as they are more au fait with social media and are perceived as “cooler” by social media ingenues.
  • Avoiding negative reactions – this is harder for the Traditional banks as they are servicing far more people with far more services, so have a larger probability of things going wrong.

The devil, of course, is in the details. This ranges from huge upspikes due to exciting new products to plunging downspikes from major lapses, from approval (or not) as to how they treat niche markets, to how they fix difficult problems. So what does digging under these top level curves show?

In short we see two key issues at the top level:

Firstly, it really is a Tale of two Banking Systems

Traditional banks offer far more services, to far more people (they have 10x more customers). Service reputation is more about risk management across this wide range of services, any of which can “blow up” at any time. Two specific points that emerge from the analysis are:

  • Even episodes from long ago (old mis-selling and fraud issues) keep on causing a continuous negative “drag” that weighs down perception.
  • Interestingly, being seen to be on the customer’s side in service problems, even if it is fixing your own earlier mistakes, generates positive perception.

Challenger banks have a far smaller range of services, focussed around debit cards accessed mainly via mobile apps , and it is important (probably critical) to be seen as “much better than” the Traditional banks in the service areas they do compete on. What is clear is that:

  • From our data, they are better at creating positive perception, especially on online and social media. As there are fewer events, any major event has a larger impact.
  • As Social Media is where many new banking customers are likely to be sourced (via searching for referrals, or just being the new media of choice) this gives a growth potential advantage.

These different sets of strengths and weaknesses drive different opportunities and threats in the competition for the same customers.

Secondly, for both, Good Customer Service for their Services is important for success

• For Traditional banks, having a large number of services means potential to attract, retain and increase customer use of their services. The risk is that many things can go wrong.
• For Challenger banks, focussing on doing a few things right makes for great reputation building, and can give major perception benefits. Key is to avoid major “downspike” events.

What both types of bank have to do is understand where they are succeeding, and where they are slipping up in their perception, and look at what can be done to improve. This means delving down into at the next level down of customer perception, and the underlying causes at least, and understanding what can be done to improve it. Our experience is that the impact on perception, and the cost, are not tightly related – so there is usually a good opportunity to improve perception – but without breaking the bank…

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