Competition from banks vying for SME custom is about to get more fierce. This summer has seen the launch of Metro Bank, Britain’s first new retail bank in 200 years, which claims it will gun for 50 per cent commercial custom. And before 2010 is out, high street giant Santander will have fully absorbed and rebranded Alliance & Leicester Commercial Bank (ALCB) as part of its takeover of the entire Alliance & Leicester (A&L) brand. It will be looking to build on ALCB’s reputation as a heavyweight challenger brand in the business banking sector.
Against a backdrop of recession, government spending cuts, bank closures and a massively diminished confidence in the banking sector all round, the moves by Metro Bank and Santander might be considered at best bold, and at worst foolhardy. Is now really the right time to be launching new propositions in a harassed sector that relies on the custom of an equally stressed out customer base?
News of Metro Bank’s arrival has been positively received so far – despite the fact that it will be some years before the bank operates on any major scale (it will initially launch with two branches in London), it is a step towards what many say is some much needed competition for the big high street banks. But some industry experts question whether its timing, as far as hoping to gain a significant SME customer base, is right for the bank itself.
According to Professor Merlin Stone, a marketing consultant working alongside banks on their customer proposition strategies, a major hurdle for any new entrant or challenger brand will be how they go about attracting a customer base at a time of economic fragility.
“The timing is awful because many small businesses are suffering [from the effects of the recent credit crunch] acutely”, he warns. “The big issue for any bank at the moment is to attract the right switchers who can actually shift their business over, without the problem of what I call ‘adverse selection’. If you make it too easy to switch, you inevitably end up with duff customers; but on the other hand if you make it too hard, you don’t end up with any customers at all.” Stone adds, “only a quarter of small businesses, and probably less, are with a bank whose solvency has ever been questioned.” All of which makes it sound as if any new proposers in the sector could be fishing in a rather small pond.
However, others argue that there is a good opportunity for new entrants to seize custom, as despite the majority of banks remaining solvent, many business customers feel they were ‘landed in it’ when at the height of the recession, funding and overdrafts were pulled, in some cases, virtually overnight. Greig McCallum, strategic managing partner at Balloon Dog, who is currently working on a new campaign for Barclays believes that in the main, most banks are working on customer retention. He adds, however, that there is a ‘selective new business approach’ from companies that feel their current banking provider abandoned them when times were tough.
Back to basics
Playing on the strengths of initially being a two-branch bank (two further branches in the M25 area will open shortly after launch), one of Metro Bank’s key marketing hooks will be based around promoting highly personalised customer service. “We know that nine out of 10 consumers are driven to open an account by service and convenience rather than rate and we know that similarly in the business community, service and convenience are absolutely more important than rate,” says Metro Bank’s vice chairman, Anthony Thomson. “The rate has got to be reasonable but it is not the key determinate.”
Metro Bank will open seven days a week and from 8am to 8pm Monday to Friday – meaning that small business owners can pop in outside of normal trading hours, says Thomson, and will have local lenders making local decisions. “It will be like going back to old-fashioned banking,” he says, “our commercial teams will be out building relationships with local communities – there will be no third-party activity, no dealing with contact centres.”
In terms of Metro Bank’s marketing model, Thomson will say this. “Our model is different to that of other banks. [With the big banks] their marketing starts at head office and cascades down. We start from bank of South Kensington – until those little universes start to overlap, and then we become the bank of London.” Metro Bank says it aims to have over 200 branches operating within the M25 area within a decade. Thomson adds, “Far too many people use direct mail or [other] advertising as a proxy for actually going out and building relationships with people.”
Some industry experts agree that Metro Bank’s focus on relationship building is the right note to hit, especially in a still unnerving climate. “I think new entrants are going to have an impact – if you look at SMEs and what they say about their banks the level of dissatisfaction is so high that if anybody came in with a better offer, could prove it and get their marketing right, then they could absolutely be successful,” says Hugh Bishop, chairman at integrated marketing agency Meteorite.
“From my observation, playing up to the role of relationship manager is something customers hold in high esteem – being face-to-face and able to look somebody in the eye is very important to businesses, as much as it is consumers,” agrees Andy Deeks, managing consultant at financial services group Navigant Consulting. The key, he believes, to successful customer acquisition is based around ‘locality’ rather than centrality.
“We know that banks, and even building societies, are considering how to serve their local communities more and they will be starting to up their marketing efforts in this area. But I also think the switching rates for transactional banking are actually pretty low,” he warns, adding that the number of businesses looking to switch banks as a result of eroding confidence has probably now peaked. Instead, Deeks believes that most businesses switching banks are now more driven to look for better value.
One to watch
One bank that plans to push the ‘value’ line this year is Santander. This is one to watch in the business banking space, since it has ambitious plans to use its acquisition of A&L’s commercial banking arm to become a major challenger to the main UK clearing banks. Both banks already push the ‘free banking’ line and this, says Sue Hayes, MD of business banking at Santander, is something that Santander will continue to do when it fully absorbs the ALCB brand this year (rebranding will take place in Q4 2010).
“From that point of view, the acquisition is an easy fit,” says Hayes, who explains how Santander plans to extract the best out of each of the businesses in order to become a bigger market player. “We’ve been expanding further into the ‘e’ area of marketing based on what ALCB did well. The key thing is that we want to use any channel we possibly can – that includes affinity and introducer schemes, the Internet and press activity, which we’ve been using more of again recently, as well as and branch presence so that we have the full marketing mix.”
As part of the takeover, Santander also plans to keep intact ALCB’s current relationship with the Post Office, which allows businesses to lodge cash at a nominated Post Office branch – another nod towards the importance business banks now place on ‘keeping it local’. Does it also plan to retain the focus ALCB had on targeting small, cash focused businesses? “We’re continually looking at the businesses we are targeting, but I think the key message when you are a challenger brand, which at the moment we are, is to look at all segments,” says Hayes.
One man who understands a thing or two about challenger brand strategy is Neil Fox, strategy partner at TDA, who worked on the ALCB account before the Santander takeover. Back in 2003, TDA helped define A&L’s business offering with a rebranding exercise. “We did some research that showed that whilst the A&L retail brand was very strong, people just didn’t know they were also a business bank.”
TDA ran a campaign that saw the word ‘challenge’ interwoven with the ‘A’ and ‘L’ already present in the brand logo. “The campaign was designed to say ‘look, we’re a small bank, so we understand who you are because we’re a bit like you’. It was about creating a balancing act between being credible and being dynamic and responsive. If Santander can capture some of that element of dynamism and energy that ALCB was so good at, then I think it is big enough to really shake up a very lethargic market.”
Business banking shake-ups
There are other rumoured shake-ups within the existing business banking market too. Virgin appears to be accelerating its attempts to move into the B2B banking space (see box, right), while back in May news broke of yet another potential new entrant in New Century Bank. But aside from new offerings, what part will the high street stalwarts play in the future of the landscape? According to research by strategy and marketing consultants Simon Kucher & Partners, the key is to “add value, add customers”, by increasing the perceived value of products and services, offering needs-based ‘all inclusive’ packages and rewarding customer loyalty. And of course being able to communicate these effectively. The report cites examples from some US-based banks. Wells Fargo it says, has an ‘impressive’ portfolio for SMEs that includes different industry-specific packages tailored to different business segments, and offers start-up guidance to ethnic segments. Meanwhile Bank of America has an online community that brings entrepreneurs together that utilises “the value of online interactive media for itself and its customers.” Services include industry newsletters, on-site seminars and online workshops.
Social media sparse in business banking
Some are a bit sceptical as to the use of social media by banks. “The problem is that you’ve got a massive variety of businesses from one-man bands to multi-million pound companies, so the challenge is in segmenting your customer base. Also, because some people won’t have access to the Internet, or won’t be allowed on to social media sites [because of company Internet policies], it’s actually very difficult to make social media work,” says Deeks. “I don’t know of anybody using social media in business banking.
“But,” he adds, “if you look at, for example, Natwest and its iPhone applications for consumers, there’s no reason why that couldn’t be accessible to business customers too. The key is to keep in mind the element of value add, and not just to market in a kind of faddish way.”
An uncertain horizon
There is a definite sense of uncertainty when it comes to the future of business banking – from whether or not social media should play a role in relationship building to how public spending cuts and other changes outlined in the emergency budget will effect the SME landscape. “Everybody is holding their breath and waiting to see what the Government is going to do next. It’s still a grey area,” says Tracy Ewen, MD at financial solutions provider IGF.
“We are, however, beginning to see more supportive banks looking to expand into the SME market,” adds Paul Zimmerman, corporate finance partner at Deloitte. “The ongoing issue at the moment is the banks having the capital to lend. Essentially, if a bank is open for business, borrowers will find them.”
