“Customer
satisfaction”, “customer experience”, “sentiment”, “loyalty”, “net
promoter score” – any way you put it, the public perception challenge
facing Australian banks is more complex, critically important and
closely scrutinized than ever before. Much more is on the line than
simply profitability, return on equity (ROE) or executive remuneration
as highlighted by the House of Representatives Standing Committee on
Economics Big Four banks inquiry.
Treasurer Scott Morrison asked the committee to hold annual public
hearings with the four major banks, focusing on financial market
developments, prudential regulation, funding costs, pricing decisions
and their ongoing responses to major customer issues.
The timing of the inquiry is crucial, with Wells Fargo addressing its
damaging ghost account scandal, Deutsche Bank straining under the
weight of a US Justice Department fine following the investigation
into residential mortgage-backed securities and RBS addressing serious
misconduct concerns raised from the group’s post-GFC Global
Restructuring Group (GRG).
Banks are responding actively, seeking to repair trust, improve
transparency and return banking to the ranks of trustworthy
professions such as doctors and teachers. It is estimated that
Deutsche Bank, HSBC and JPMorgan cumulatively allocate over US$1
billion annually towards compliance and regulatory requirements. As a
proportion of the total 175,000 Big Four employees, dedicated
compliance staff are expanding rapidly towards 15 percent.
Chaired by David Coleman MP, the review emphasised the pressing need
to clearly outline and communicate internal risk management and
misconduct procedures. Additionally, these must be linked expressly to
bank executives core remit in order to reinforce accountability. David
Coleman stated that “the hearings provide an opportunity to scrutinise
the banks on how they balance the needs of customers, shareholders and
the broader community.”
A major query hung ominously over each hearing - what material
outcomes will we see from this exercise? Is the likelihood of a Royal
Commission diminished or supported? It appeared various measures had
already been drafted by the government and these were essentially
tested for suitability in the inquiry, such as a dedicated banking
tribunal (as separate to the existing Financial Ombudsman Service
currently dealing with customer complaints), mortgage ‘tracker’
accounts, increased competition and account portability.
Each Big Four CEO expressed contrition for ‘bad customer outcomes’
across their financial planning, wealth management, markets, insurance
and credit card arms. Long term market share and revenue impacts
linked to adverse customer experience are well understood...in the
sense of ‘ignore at your peril’. Needless to say a ‘trust gap’ was
acknowledged by Westpac CEO Brian Hartzer as opening up between banks,
the community and customers.
To the dismay of Australian CFOs and corporate treasurers, endemic
business banking dissatisfaction, particularly among small businesses,
was not addressed in nearly enough depth or detail. Elevated business
credit spreads relative to mortgage rates were highlighted however
credit accessibility, administrative burdens, working capital
constraints and several other key growth barriers were overlooked at a
time when the government is under increasing pressure to progress the
National Innovation and Science Agenda. |
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East & Partners
enhanced Business Banking Index (BBI), combining customer sentiment
and proprietary segment-based credit demand ratios, reveals Micro
businesses’ and SMEs’ hold an antagonistic relationship with their
bank overall. Overall ratings for loyalty, satisfaction, empathy and
advocacy are critically low at 11.6 and 14.8 respectively (where 10 =
lowest to 100 = highest rating). Highly satisfied mid-market
enterprises also display the highest credit appetite, operating a low
DFDI ratio of 0.31 (depositing $31 for every $100 borrowed). In fact,
one in ten small businesses now prefer not to deal with their bank at
all according to E&P’s SME Transaction Banking program. This is a
concerning new trend to be followed closely in upcoming rounds of
research, highlighting small business owners overwhelming
exasperation.
Methods applied to monitoring customer sentiment in many instances are
inappropriate, inaccurate or misunderstood. In the age of ‘big data’,
strategic decision makers are inundated with satisfaction statistics,
survey results, primary research and analysis. Significant resources
are applied to tracking historical trends, establishing current KPIs
and forecasting future targets. Ultimately however they are not
correctly ‘tuned’ to Australian businesses feedback and behavioural
changes brought about by rapidly advancing digital technology and
innovation. The problem is akin to capturing digital radio waves with
a transistor radio.
The Net Promoter Score (NPS) has become a popular customer
satisfaction monitor that tracks customer loyalty and is suggested to
link closely with revenue growth. However, the NPS was criticised
openly by the Parliamentary Inquiry, in particular Deputy Chair Matt
Thistlethwaite MP, given many banks heavy reliance on this
controversial metric. That criticism has been previously highlighted
by a range of researchers including Morgan and Rego (2006) who said
that the NPS performs worse than satisfaction. In their
research paper they stated: “Our results indicate that average
satisfaction scores have the greatest value in predicting future
business performance…”
Although NPS operates effectively in other sectors, its focus on
intent in banking and finance does not provide useful inferences
because most firms fail to act upon these stated intentions. E&P’s BBI
figures reinforce this fact, showing that the banking industry
registers low or in fact negative advocacy. This factor also explains
why the bank’s strong and well broadcasted retail banking satisfaction
ratings do not necessarily transfer into commercial banking
gratification. In many instances the same customer expresses high
retail satisfaction but low business banking satisfaction.
The impact of technology is keenly felt by the banks and was
referenced repeatedly in the inquiry. Digital innovation is driving
bank and customer interfaces closer but also creating new ‘Fintech’
competitors. Commenting on 3Q 2016 results for Bank of America Merrill
Lynch, CEO Brian Moynihan stated, “We delivered strong results this
quarter by focusing on the quality of the relationships with our
customers and clients. Our investments in innovation, including
industry-leading digital banking capabilities, continue to transform
how we serve our customers. This innovation across our businesses is
benefiting customers and shareholders.”
In conjunction with regulators ASIC, APRA and the ACCC, the banks must
incorporate business customers’ feedback more closely and take the
initiative powerfully before the stretching ‘trust gap’ extends beyond
the point of no return.
To find out more about how East & Partners can help,
enquire now. |
