Account switching has become a core retail growth
strategy for the UK’s Co-operative Bank. Amid the ongoing financial
crisis engulfing many of its bigger rivals, the bank’s current
account manager, Darren Prescott, tells Douglas Blakey that his
bank is emerging as one of the winners.
Few banks have enjoyed a competitive advantage during the
current economic crisis, but UK mutual The Co-operative Bank
(Co-op) looks set to emerge comparatively stronger in its domestic
market, boosted by a refreshed product line-up and growing customer
dissatisfaction with a number of the country’s major retail
players.
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The bank, which has 140 branches in the UK as well as the
Smile.co.uk online brand, describes itself as the UK’s largest
ethical bank and is run on strict ethical guidelines.
Full-year 2008 figures will not be published until April; in its
interim 2008 figures published last year, profit before tax was
£46.2 million ($67.2 million), up 1.1 percent year-on-year. (The
ratio of customer deposits to customer loans was strong at 105
percent while its capital ratio was 11.5 percent with a Tier 1
ratio of 8.5 percent)
.
In particular, the bank, part of The Co-operative Group – the
UK’s largest consumer co-operative – has reported spectacular
success in the current account sector, overcoming traditional
sluggishness surrounding account switching with a 65 percent
increase in customers transferring their account to the Co-op.
The figures relate to the four-month period to November last
year, compared to the first four months of the year.
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By GlobalDataAnd while the Co-op currently has only a 1.5 percent current
account market share, that figure is set to rise, with
Santander-owned Alliance & Leicester, Royal Bank of Scotland
and Halifax among the main losers.
Abbey and Nationwide Building Society – which have escaped the
worst of the adverse publicity affecting the sector – have given up
the fewest customers.
“Although the market is flat and stagnant, we are picking up
business from some of the big players. People have been moving away
from rate-driven incentives and switching to an organisation that
they trust and that is an ideal fit for the Co-op,” said the bank’s
current account manager, Darren Prescott.
“Business is possibly coming our way because of what is
happening in the market,” he added.
Since Lehman…
Prescott dates the start of the massive jump in account
switching numbers to the 15 September collapse of US investment
bank Lehman Brothers.
“In 2006 and in 2007, current account numbers switching in to us
were more or less identical but since Lehman, customers shifted out
of the big UK banks to us in very unusual numbers,” he
explains.
“Such shifts of this nature in the current account market are
very unusual unless there is something at play or unless you throw
huge amounts of money at it in marketing – and we did not do
that.”
Nor did the Co-op tempt customers with cash-centric
account-switching incentives, a common feature in recent years in
the UK banking sector.
Alliance & Leicester, Royal Bank of Scotland and Halifax
Bank of Scotland have all offered £100 cash bonuses to current
account switchers, for instance.
Further evidence of consumer confidence in the Co-op brand is
provided by its success in growing deposits, suggesting a flight to
safety from nervous customers of commercial banks.
For the 12 month period to the end of October 2008, the bank’s
total retail deposits increased by 40 percent from £2.7 billion to
£3.8 billion, backing up its claim to maintain the trust of clients
in the current climate.
Feverish interest in packaged accounts
One of the big trends in the UK market over the past two years
has been feverish interest from banking groups in packaged
accounts. The Co-op itself is pushing its own, recently rejuvenated
products, and in September it launched a customisable product range
enabling customers to tailor benefits (see RBI 600).
Claiming to be the first of its kind in the UK, account holders are
able to choose from three add-on packages: Gadget offers insurance
for electronic equipment worth up to £179.98; Safeguard offers
cover against ID theft; and Traveller provides air travel benefits
as well as a passport and luggage recovery service worth up to
£129.50.
A number of extras were bolted on to the packages such as 20
percent off Co-op home insurance and a savings rate tracker for
linked savings accounts.
The UK bundled account market is estimated to comprise more than
10 million customers each paying on average around £120 per year in
fees, making the sector worth an annual £1.2 billion, according to
RBI estimates (see RBI 601).
And while the market is becoming ever more competitive following
recent product launches by Abbey and National Australia Bank’s
UK-based Clydesdale and Yorkshire brands, it is an arena in which
the Co-op has an enviable track record.
Around one in four Co-op current account customers have elected
to take a packaged account, comparing favourably with the UK
industry average of around one in seven current accounts.
The bank has also found that customer attrition rates of its
bundled account holders are considerably less than its standard
current account customers.
Prescott added: “People with packaged accounts are more loyal.
We lose very few and they definitely value the benefits as they are
staying with us.”
Customer satisfaction high
The bank continues to enjoy market-leading customer satisfaction
rates, with 77.7 percent of customers claiming to be ‘extremely’ or
‘very satisfied’ with the products and service provided in July
2008, compared to 62.5 percent in December 2007.
External survey success in the past year has included the bank
receiving recognition from a BBC consumer study as well as
finishing second in a customer satisfaction survey of UK financial
services providers by the UK’s leading consumer affairs
organisation Which?.
This year, 2009, may also witness the Co-op renew merger talks
with the UK’s second-largest building society, Britannia. Both
Britannia and the Co-op, which discussed a possible tie-up in
October, have been at pains to stress that talks had not taken
place as a result of the current turmoil in the sector. And both
parties sought to distance themselves from government-brokered
takeovers such as Santander’s acquisition of Bradford & Bingley
and Lloyds TSB deal with HBOS, stressing the companies do not need
to merge.
The merger talks considered a range of possibilities from
commercial partnering across core product areas to a possible
future merger of the two businesses.
According to both the Co-op and Britannia, there are enough
similarities between the bank and Britannia for both parties to
benefit from a merger, but until the UK Parliament enacts
legislation permitting a co-operative to merge with a mutual, no
deal would result.
However, recent reports suggest necessary legislation may come
before the UK Parliament as early as late January.
Without mentioning the Britannia deal and while also
acknowledging the bank was not immune from the current market
crisis, Prescott concluded “the timing is good right now for the
Co-op to be in the market place.”
REGULATION
UK account switching inertia set for boost
While the Co-operative Bank has managed to attract significant
numbers of customers, inertia in the UK current account market has
been a prominent feature of the industry for decades.
The UK’s Office of Fair Trading (OFT) reported last year that a
mere 6 percent of customers switched current account provider in
the year to July 2008.
Figures from Alliance & Leicester said that 58 percent of
people surveyed for the bank had never switched current accounts,
while 17 percent had held their account with the same provider for
over 30 years.
The New Year could be a momentous one for the UK current account
sector, with a decision expected in the lengthy court case
involving the OFT and the country’s major banks concerning
unauthorised overdraft charges.
Current account switching in 2009 may also be enlivened as a
result of the publication last December of the European Banking
Industry Committee report on bank account switching. The code of
conduct, requested and accepted by the European Commission, has
been developed in response to an invitation from the Commission
announced in the Single Market for 21st Century Europe package.
The code will apply in each EU state from 1 November 2009, with
banks then having one year to implement the service everywhere in
the EU.
According to the new rules, if a consumer wishes to change
banks, the new bank will act as the primary contact point and offer
its assistance throughout the switching process.
It will deal with the old bank, ensuring that the transfer of
the consumer’s recurrent payments, such as direct debits and
standing orders, is done smoothly and rapidly.
In particular, the code sets clear deadlines for the old and new
bank. The old bank has to provide all the available information
about the consumer’s recurrent payments within seven banking days
upon receiving the request either from the new bank or from the
consumer.
SECURITY
Co-op follows UK trend of handheld card
readers
The Co-operative Bank’s internet customers are set to receive a
security boost this year in an effort to limit online crime, with
the issue of handheld card security and customer authentication
devices supplied by French technology vendor Xiring.
The machines provide a one-time code that has to be entered,
based on the payment EMV chip and PIN card.
Once the code has been authenticated, the reader displays a
dynamic password generated by the card’s chip.
This eight-digit password is valid once only when accessing
banking services via the web portal. The bank has placed an order
for 300,000 card readers from Xiring, in preference to competing
technology offerings which depend on USB devices or mobile phone
text codes.
According to Xiring, it has already supplied around 5 million
handheld devices, more than 4 million of which were to customers of
12 separate UK bank brands, including Nationwide and Royal Bank of
Scotland (see RBI 572).
“Xiring has been the perfect partner to support our programme
and enable the fast deployment we were looking for,” said Tony
Britten, director of financial crime management at Co-operative
Financial Services.
