Location: New York
Author: Shahin Shojai
Date: Wednesday, February 21, 2007
These days the U.K. press is inundated with commentaries about how the banking industry is abusing its powerful position to overcharge the U.K. citizens. And, it seems that the banking industry is very good at helping ensure bad news stays in the public domain, through trickling of announcements about new charges.
It is astonishing just how bad our industry is at marketing itself and managing how announcements are managed. Very few banking institutions take time to think about how their actions might be perceived in the marketplace and work to ensure that their message gets across effectively to the public at large.
The real problem started when credit card companies, mostly part of the major banking institutions, were accused of charging very hefty fees for late payments, something they should have been able to defend had they taken the time to prepare an adequate response.
Instead, they waited until they were attacked by the regulators and were subsequently forced to reduce their fees. The perception in the market was that they knew they were overcharging their customers but just waited till the last minute before they reduced them.
As a result of the cut in penalty fees, the banking institutions started treating their retail customers just like many of their U.S. peers used to treat their corporate customers subsequent to the departure of the Japanese banks from the U.S. markets.
The way the U.S. corporate bankers dealt with their customers was to suggest a basis point figure that they needed to be covered in order to deal with a company, for example 90 to 100 basis points was one that I had heard a lot while advising major U.S. corporations. Of course, bigger corporations were able to reduce this figure, but their negotiating positions were weakened by the shrinking number of banks they could deal with, especially if they wished to bank with two or three banks on a global basis.
The retail banks are now behaving the same way. They are telling their retail clients that they have set themselves a target for profitability growth, and judging by today’s announcement by Barclays Plc it seems to be huge, and that it is their responsibility to help the banks achieve it.
If they cannot cover this target by the penalty charges for late payments or unapproved overdraft charges then they have to pay for basic banking services, such as having a current account. Now, the fact that most other European banks charge for basic banking services should mean that such a decision would not cause too much negative publicity.
But the way this has been managed has placed the banks in a very awkward position. They wish to do something to make up for the shortfall in penalty fees but they just do not know how to, so instead of taking an industry wide initiative to ensure that any announcements are taken in tandem, each bank announces a different kind of fee each week.
The fact is that as far as the customers are concerned they do not differentiate between which banks are introducing which fees, what they hear is that with each announcement a member of the banking community is introducing new charges, including a recent announcement by a card company that they wish to charge £10 for credit balances.
I believe that the banking community needs to wake up and realize that they are now a much more integral part of the retail world than they think they are. They are members of the retail community as far as most of their clients are concerned, and not just the backbone of the process through which their customers make payments for goods and services.
It is time that the banking industry realizes there is a reason that the value of their brands is so low. Looking at the Interbrand ranking of the top 100 world brands in 2006, which I must admit I am not so sure about their methodology, one finds that no financial institution is in the top 10 and that the combined value of the brands of the 9 banks that make it into the top 100 is less than the combined value of the top two global brands (Coca Cola and Microsoft).
In fact, if you remove the names of the world’s leading investments banks – namely, JP Morgan (although Chase is the owner, JP Morgan is more associated with the name of the investment bank than the retail bank), Goldman Sachs, Morgan Stanley, and Merrill Lynch – the 5 remaining banks have a brand market capitalization which is less than Coca Cola.
There is no doubt that the world’s leading banking institutions need to do a lot more to increase the value of their brands. They need to realize that they need to spend as much time as their retail peers in increasing their exposures and how they manage the messages that come out of their marketing departments. Weekly announcements of new charges in such a competitive environment is just not the way to go about building a reputation for a bank.