Why banks are struggling to escape the storm clouds overhead

TSB: back on the high street
TSB: back on the high street

TSB's return to the UK high street shines a light on the struggle banks are facing to regain customer trust, if not affection, writes Alex Brownsell.

There is a strange moment in the animated film announcing the return of high-street banking brand TSB.

Dark rainclouds hang over a fictional town and the booming voice of actor Patrick Stewart tells the viewer that "a storm" has descended on society. In the midst of the gloom, a young girl discovers a glimmer of light between two buildings (pictured, far right). With the help of strangers, she is able to slide her way through the gap toward the light, discovering a utopia of ethical, local banking.

The scene neatly sums up the fantasy of marketers in the sector, as they look to squeeze their tarnished brands through an ever-smaller window of consumer affection and achieve the kind of acceptance and trust that evaporated after the banking crisis in 2008.

Life has been made doubly difficult for those marketers by the intervention of the government. Earlier this year, Chancellor George Osborne vowed to "reset" the UK's banking sector by doing all he could to encourage competition in an industry where the big brands have been accused of operating like a cartel.

As a result, an industry in which the pace of change had hitherto been notoriously slow is now undergoing its most significant transformation since the early 19th-century days of TSB founder Reverend Henry Duncan, who wished to help ordinary workers to save money for their retirement.

New brands and technologies are changing the face of retail banking, while the recent introduction of a guaranteed seven-day account-switching service may galvanise the UK market. Nevertheless, doubts remain about the ability of banks to step out from under the cloud still hanging over them.

New brands

Banking on the high street has been changing for some time now. Old names such as Northern Rock, Bradford & Bingley, Cheltenham & Gloucester and Abbey have disappeared; in their place, the likes of Santander, Metro Bank and Virgin Money have arrived, while retailers such as Tesco and Marks & Spencer also sense an opportunity to attract disillusioned consumers.

The (re-)launch of TSB, spun out of Lloyds Banking Group at the behest of the European competition authorities, represents arguably the most significant challenge to the major players yet. It opened the doors to its 631 branches last month, alongside a £30m marketing campaign using the strapline "Welcome back to local banking".

With consumer trust in banks at an all-time low, it may appear counterintuitive to resurrect a brand that disappeared as recently as 1995. However, product and marketing director Mike Regnier claims TSB possesses the perfect brand attributes to combat post-credit crunch cynicism.

"We could've chosen any brand we liked for the bank, but when we looked across the range of options, the TSB brand was too good an opportunity to turn down. We have a blank sheet of paper without the heritage of misselling scandals and things like that," says Regnier. "The most important thing for customers to realise is that we're a high-street bank, not a Wall Street bank. All of our deposits go back into fuelling growth in the communities in which we operate."

Switching service

Newcomers will be buoyed by the launch of the new account-switching service by industry body the Payments Council, promising to transfer customers from one bank to another within seven days. The scheme came into effect on 16 September.

UK consumers have been notoriously slow to swap their banking provider, doing so on average only every 26 years, in spite of persistent levels of dissatisfaction. Marketers hope to be able to attract new customers beyond the 3% or so of "rate-chasers" who change bank each year.

Between July 2012 and June 2013, banks increased their spend on current-account advertising to more than £66m, up from £26m in 2009-10.

Halifax, First Direct and Santander are among those to have been offering cash incentives to attract new customers, while building society Nationwide has launched a tactical campaign targeting potential switchers with the message "You do need a bank account. You don't need a bank".

The trend goes back still further. Evidence suggests that over the past few years banking brands have increased their efforts to win new customers outside of the traditional "life-trigger" moments, such as going to university or buying a first home. Between July 2012 and June 2013, banks increased their spend on current-account advertising to more than £66m, up from £26m in 2009-10, according to Payments Council data.

Pete Edwards, chief strategy officer at Engine Group, the agency behind the campaign promoting awareness of the switching service, believes it will change the traditional marketing patterns used by the banks.

"It will mark more of an 'always-on' approach to marketing, rather than brands targeting specific life-stage triggers. Brands may target different times of year, such as post-Christmas after heavy spending, when people review their finances," says Edwards.

Rewarding loyalty

Already the biggest banks have moved to shore up their customer base. Barclays recently rolled out a campaign assuring customers it is "listening", asking them to submit ideas about how it can improve its services.

Even First Direct, a leader in customer advocacy among financial-services firms, is attempting to reinforce its credentials as a challenger brand and target a younger generation of consumers with an "unexpected bank" positioning.

RBS, under the "Helpful banking" mantra it has used since the banking crisis, is turning to technology to reward customers for their loyalty. Its Cashback Plus digital loyalty scheme offers customers the chance to earn at least 1% of their debit-card spend back on purchases with retail partners including Tesco, BP and Caffe Nero.

Gavin Dein, founder at Reward, the company which created the platform for RBS, says banks hope these innovations will "shepherd in a new attitude" toward their brands, as well as giving them the "tools to acquire and retain customers".

However, perfecting this ability to attract and retain customers could prove tricky. Richard Exon, founder of agency Joint, which helped devise TSB's brand positioning, argues that banks may have a tough time attracting new custom without compromising their overall positioning.

"The most powerful brands will not want to be the cheapest, so the challenge for financial-services marketers will be to find the right way to behave. They will want to avoid attracting the wrong type of customers, namely rate-switchers, and, in the process, damaging their brand," says Exon.

Reinvention dilemma

James Boulton, a former marketing director at Halifax, HSBC and Nationwide, goes further. He believes that, rather than helping consumers by offering them greater choice, the increased number of banking brands may, in fact, perpetuate the consumer apathy which has proved so damaging.

"I believe ease of switching is not the nub of the problem," says Boulton, now founder of consultancy Truth Marketing. "The consumer issue is that it's not worth the hassle, given the lack of differentiation in the market. The 'big six' brands (Lloyds, Barclays, HSBC, Halifax, NatWest and Santander) find it hard enough to differentiate, so how about the new entrants?"

Of the latest brands to arrive, Boulton believes Virgin Money is the "most exciting", especially if it can gain the assistance of sister brands such as Virgin Media and Virgin Atlantic. Tesco, he argues, has an opportunity to combine its customer-service expertise with its Clubcard data muscle, while TSB must first successfully "reinvent" itself if it is to challenge the establishment.

Bank marketers, then, remain at something of an impasse: keen to attain consumer acceptance but conscious not to overstretch and compromise the brand equity they do possess. Yet, with the ground shifting below their feet like never before, only the most decisive will reach a satisfactory destination. Otherwise, the storm that has engulfed the sector will continue to rage for some time.

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