In a movie called The Bank a man devotes his life to bringing down the bank that foreclosed on his family’s farm when he was a boy. When the film was released in Australia last year, it tapped a rich vein of consumer sentiment, summed up in the words of the film’s protagonist who, when asked why he went to all that trouble, says, ‘It’s quite simple – I just hate banks.’ Film reviewer Richard Kuipers spoke about being at a preview: ‘At that moment I felt the strongest collective swell of agreement I’ve ever experienced in a cinema. If timing really is everything, the stinging satire of The Bank couldn’t have arrived at a more opportune moment.’
While most Australians have better things to do than plot the destruction of financial institutions, the theme evidently touched a nerve. And banks are taking notice. ‘People don’t like banks,’ echoes Westpac’s chief executive David Morgan in the introduction to the bank’s 2001 annual report. ‘That’s why we have set ourselves a clear challenge: to front up and tackle the issues that our customers are most concerned about.’
Bank bashing, it seems, is a national pastime. So what are banks doing about it? And what is the connection between customer satisfaction and shareholder value?
Healing the hurt
While Westpac may offer the most candid assessment of the state of play, all four of the major banks in Australia – National Australia Bank, Commonwealth Bank, ANZ and Westpac – as well as the smaller ones nipping at their heels, realize that keeping the punters happy is a major factor in their ability to remain competitive, to maintain growth, and avoid being gobbled up as the inevitable consolidation of the industry continues. In an era of triple bottom line reporting, banks know they have to get it right on many levels to ensure their survival.
Besides, a bank’s customers and shareholders are often the same people. This is not such a problem for Westpac, which is 60 percent held by institutions in Australia and overseas. ‘We don’t have as large a retail shareholder base as, say, Commonwealth Bank, which floated to its customers and has a much bigger retail base than the other three majors,’ says Hugh Devine, senior manager of Westpac’s IR.
But Westpac is still answerable to that shareholder base in terms of customer satisfaction. ‘For shareholders who are also customers and members of the community, when banks put up fees, it’s a two-edged sword,’ Devine says. ‘Their concerns are as much about equity and fairness, and being good corporate citizens, as anything else. They want to make sure they have an adequate return, but they are also concerned about fee increases. There has to be a justification of what you are doing.’
This is one reason why Westpac puts so much effort into its annual report, which is also available online to all stakeholders. ‘In terms of investor relations, Westpac’s annual report is the most important document,’ the IRO continues. ‘In the past two years, we have put less emphasis on it as a marketing tool, and more on engagement with shareholders.’ Devine says the bank has identified a number of issues that are important to customers, and an equal number of strategies to get around them. These are all outlined in the annual report, to allay shareholder fears that negative consumer sentiment will impact on shareholder value.
‘Branch closures are still an issue, one that gets ignited when another bank says it is closing some branches,’ Devine says. ‘Westpac has made a commitment that we will not take away from existing service points in the bush. Furthermore we’ve said that the total number of branches nationwide is about right.’
Another issue is that people feel banks aren’t listening. Although, this can be improved through systems and training; Westpac has set up an external customer complaints review committee, chaired by the head of the St James Ethics Center, Simon Longstaff, and other industry experts.
‘We know we can do better. We are trying to become as transparent as possible. We are looking at external benchmarks, and constantly testing to see – are we making the grade or not?’ Divine states.
Westpac also makes an effort to put back into the community. ‘We have a matching gifts program, so staff can raise money for the charity of their choice in their name, and the bank will match that dollar for dollar,’ says Devine. Despite the money Westpac pours into this scheme, as well as extensive sponsorship (it was a major sponsor of the Sydney 2002 Olympics and the recent Winter Olympics), Devine says there is more to do: ‘We still have a long way to go in terms of the sentiment of the community at large in relation to banks. We believe Westpac can differentiate itself in terms of leading the charge. We accept that we haven’t got it exactly right yet, but we believe our community involvement may be a point of difference that will have a bottom line impact in the future.’
Ignorance breeds contempt
Ross Brown, who is a banking analyst with Deutsche Bank based in Sydney, believes the most compelling reason for widespread dislike of banks in Australia is something which banks are probably unable to do much about. He’s talking about ignorance of the real cost of banking.
‘Banks seem to be spending a lot of money marketing themselves as customer-friendly,’ Brown says. ‘Unfortunately, the notion that if someone has my money, why do I have to pay them anything for the privilege? is deeply rooted in the minds of many Australians. In reality, there’s a lot more competition in mortgage lending and deposits, and margins have fallen. Banks don’t make a lot of money out of customers with A$100 (US$52) in a savings account. In fact, it probably costs them money.’
Clearly Brown has little sympathy for the whinging masses. ‘It’s not like the consumer has really lost out,’ he maintains. ‘Certainly they are now paying for every service they use, which in the past they didn’t have to. But they’re paying a lot less for their mortgages. Ten years ago, customers were paying 150 basis points more than they had to because of branch banking, and that’s obviously changed.’
Westpac’s Devine agrees: ‘The fees and charges issue is one that people don’t understand, because they don’t understand the value proposition. To combat that we use education, explaining fees to people, and making it a real value-for-money proposition. If something costs less, customers are charged less for it, for exampleinternet banking. As behavior patterns of customers change, and more people use online services, that will make a difference.’
Rahoul Chowdry, the leader of the banking and capital markets divisions at PricewaterhouseCoopers, agrees with Brown that part of the problem is historical. Banks missed the chance to smooth the way to charge higher fees by not educating the public when it was happening.
‘In the old days, the cost of banking was masked by the cross subsidization that took place,’ Chowdry says. ‘With increased online banking and outside competition, margins shrank, and banks unbundled their offering.’ So of course fees went up. According to Chowdry, banks failed to allay peoples’ suspicions that they were suddenly being ‘charged like wounded bulls.’
‘The reality is that banking costs no more, or even less, than it did ten to twelve years ago. Customers don’t always understand that,’ Chowdry says.
So the banks are now effectively playing catch up in terms of consumer sentiment. Adds Chowdry, ‘Banks have now cottoned on to the fact that they are missing out on revenue opportunities – because they haven’t secured customer loyalty across the board.’ He says the opportunity for banks to cross-sell to existing customers is vital to enhancing their financial performance and increasing shareholder value.
Clean hands
Some newer, smaller players, such as St George Bank, are playing on the notion that they haven’t been around as long as the big four so their hands are cleaner. ‘A few of those fringe players, without as much baggage, have been able to get the perception across that satisfaction is higher,’ concedes Westpac’s Devine.
St George, generally acknowledged as the ‘fifth major’ in Australian banking, is milking its status as a relative newcomer, having started life as a traditionally more benevolent building society. It only became a bank in 1992.
Their print ads run with the tag line: What you’re looking for in a bank. A current TV ad campaign shows a group of friends at a barbecue. When the inevitable ‘So, what do you do?’ question comes up, one brave soul admits that he works for a bank. Shocked silence ensues. Even the dog stops chasing its tail and gives him a look. ‘I’m with St George,’ he explains, and everyone, relieved, starts breathing again.
Adam Cooke, St George’s general manager of corporate relations, and Sean O’Sullivan, investor relations manager, also identify the biggest issues for customers as bank fees and branch closures, but stress that these are problems for ‘other banks’.
‘Branch closures remain an issue, especially in regional and outlying areas,’ says O’Sullivan. ‘This is possibly linked to profit – larger banks in particular make profit announcements, and people look at that on the one hand, then look at fees and branch closure programs and the like, and they see the broadening gap between the two.’
St George’s background as a building society means its customers also make up a large proportion – 40 percent – of its shareholder base. As a result, their IR efforts are focused on maintaining this link between customers and shareholders, as well as on the development of good long-term relationships with both groups.
‘St George is in a different space,’ Cooke comments. ‘Customer satisfaction levels are demonstrably higher than at other banks. We monitor that on an extremely close basis to ensure it remains high. We know that as long as we can maintain that, we can remain in a better position.’
In fact, Australia’s banks no longer have to just squabble among themselves for customers – competition from overseas players is growing. Most recently, ING and HSBC have come into the fray with aggressive marketing campaigns aimed at capturing a slice of the savings and loan market in Australia, with some success.
‘Competition in Australia is intense,’ acknowledges Devine, but Westpac is not panicking yet, holding to the opinion that the success of competitors has been sporadic. ‘ING came in as a mono-line player with deposit accounts and they have been successful at the edges. Most of those from outside have struggled to make a big impression on the Australian market. It takes a lot for Australians to change their whole banking relationship to another bank.’
Even so, in the past six months the online finance market share of the four majors has dropped from 78 percent to 71 percent. Dr Simon Longstaff, executive director of the St James Ethics Center, says part of the challenge is that stakeholders – customers, shareholders and the community at large – simply expect more from institutions and are willing to push for it. The danger, however, is not necessarily that customers will change suppliers, but that the environment for banks will be more closely monitored.
‘As a community becomes more affected by the climate of uncertainty, to the extent that trust in institutions decreases, they look for greater certainty by being supportive of regulation,’ Longstaff says. ‘But regulation deadens rather than enhances ethical sense. Regulation is bad for society and not too good for business.’
That puts the responsibility back on to banks to deal with issues themselves so that they don’t find themselves regulated. ‘Nobody is buying the message that they are doing things for the customer,’ says Longstaff. ‘They see that they are doing it for shareholders. But there is a myth that shareholders want to have a higher dividend at the cost of the customer.’
Brown agrees the growing political influence of consumers is a key factor in the banks’ desire to mollify them. ‘The banks are segmenting service levels, for example in the introduction of premier banking, to successfully insulate bigger customers from the general banking interface, which is the mass market sort of stuff,’ he says. ‘If you use the 80-20 rule [which says that 20 percent of your customers generate 80 percent of revenue], then that’s the priority. The trouble is that the other 80 percent have got quite a bit of political clout,’ Brown expands. ‘The Reserve Bank of Australia (RBA) and the Australian Competition & Consumer Commission (ACCC) are responsive to consumer complaints. Banks can’t afford to neglect the political consequences, particularly in rural areas. They are keen to minimize negative publicity.’
Westpac chairman Leon Davis says there’s more to it than that, however. ‘This is not just a matter of being better liked by our customers or appeasing negative public sentiment,’ he says. ‘We genuinely believe a fresh approach makes good business sense. We’re confident that by cutting through the prejudice and resentment surrounding banks and by demonstrating an affinity with all our stakeholders, especially customers, we will be able to achieve even better results in the future.’
