When JP Banking placed a candidate from the capital goods industry into banking sales his former colleagues asked him how it would feel to be in sales when there wasn’t a “product”. He did fine and topped the sales figures that year but it raises a question. How to differentiate one bank from another when it all comes down to numbers?
UK commercial and corporate banking is in a post credit-crunch phase where the larger banks are being broken up and new players are coming into the industry. Metro Bank was the UK’s first new high street bank for over 100 years and other new entrants include Shawbrook, Aldermore and Virgin Money who have picked up some of the Northern Rock network. Project Verde saw Lloyd’s Banking Group divesting 632 branches to Co-Operative Bank giving it a more imposing profile too.
Strategists suggest that to grow in a market a company must either have the lowest operating costs, a widely appreciated differentiation or a serviceable niche. To grab share in an industry it is better to be a “market maker” than a “market follower”. Companies who have achieved market maker status include Apple whose iPod changed the way people bought music, Dyson who [created and] solved the problem of insufficient suction in vacuum cleaners and SouthWest Airlines who created no frills air travel by focusing on the core benefit of transport. This of course spawned copycats like Ryanair and EasyJet.
In recent memory the most “market making” developments in banking were probably when Egg (Prudential now Barclaycard) created a virtual banking model featuring no branches which was emulated by Smile[i] (Co-Op), Cahoot (Santander) and Mint (RBS) amongst others. Then there was First Direct (HSBC) this is also a virtual model with slick online services and responsive UK call centres. In the credit boom the likes of Egg and Cahoot battled on simplicity and current account interest rates. First Direct continues to lead on service differentiation but does not compete on price.
So how do the new banks position against existing players? The new banks referred to in this blog are not owned by larger concerns[ii] which is a slight differentiation in itself. Shawbrook is applying the no frills approach to savings and loan whilst taking a niche focus to SME lending. Metro Bank are adding value by focusing on service and community with a schools programme and branches that are open more often, for longer hours and that welcome children and dogs. Aldermore claim to be a “breath of fresh air” which seems to reiterate that they are not one of the big banks and so are not encumbered by debt. Virgin Money, the largest of the four, explain that they are a “better kind of bank” who are less sales focused, do good in the world and charge only fair profits.
Is any of this genuinely market making? No frills is essentially what the big banks offer. The other three banks considered here are service focused and all claim to offer “traditional” banking. That means online and telephone performance need to outperform First Direct and Smile in the virtual world and any branch experience needs to reflect a greater emphasis on service rather than sales compared to existing players. In all probability the battle will be to win on marketing communications, including social media, and the message that “we are different, we want to make it better, we weren’t the ones who messed it up”.
How readily UK consumers respond to that will depend how much they value service and convenience when compared to price and how quickly each of the new players can establish a brand which engenders trust with the general public both in terms of safety and they way in which customers are treated.
From a management perspective there are many new disciplines to master and a lot of new teams to create. JP Banking Solutions believe that a financial industry that includes new banks, which are customer and service led and staffed by excellent professionals, would be a healthy model. To achieve this it may once again to be prudent to recruit from other sectors.