What is wrong with the Financial Services industry?

One of the puzzles of contemporary life is why some companies seem to find providing good customer service straightforward, while other companies and indeed whole industries seem totally incapable of it.

Good customer service is neither difficult to design nor hard to deliver.  Recently I bought a new bed.  It was a total pleasure – the shop was adequately staffed so I did not need to wait long, the woman serving me was knowledgeable, helpful and gave every sign of enjoying her work, the company kept me fully informed of their delivery schedule, the bed arrived exactly when they said it would and the delivery men assembled it efficiently and neatly.  Every step of the process showed signs that those designing it had put themselves in the customer’s shoes and had thought about what the customer would want.

Why then do some industries find good customer service so hard?  Every single manager of every single service company is also a customer of other companies;  they all know what good service is and they all know when they don’t get it in their own personal lives.  Why then when designing something for their own company’s customer service, do they create such terrible procedures, which half the time even their own staff seem unable to understand?

We will all have our own views on which companies and which industries collectively fail to give good service.  But opinion poll after opinion poll shows that the industry which most consistently gets it wrong, the companies that we really dislike having to engage with and the sector which generates the most complaints is the financial services industry.

This appears to be true across the board.  Few people do not have tales of obstructive insurance companies trying hard to evade their obligations to meet legitimate claims, or needless bureaucracy from pension administrators, or endless and unnecessarily complex forms from almost all parts of the industry.  But within this dystopia, most people will reserve a special dislike for the commercial banks.

It needs to be stressed that commercial banking (whether for individuals or companies) is inherently not a complex industry.  And in the old days, when banks employed branch managers and trusted them, and branch managers knew and worked alongside their staff, and their staff knew their customers – really knew them, not just ticking a box to show they had gone through a computer form – most banks did indeed find it relatively easy to provide entirely adequate service, and moreover usually did so in person and even with a smile.

But those days have long gone.  Those running the counters apart, most customer-facing staff have retreated from the branches into the ubiquitous call centres, and bank managers have retreated even further:  they are no longer available for the public to interact with at all and frequently quite difficult even for their own staff to reach.

The result is an industry which is quite simply dysfunctional.  We will all have our stories of terrible service from the banks, like the time my father’s bank lost the form giving me access to his account as his executor no less than three times (and each time demanded that it was me who put things right by starting the process again), like the bank who wrote to my daughter and started the letter “Dear Miss Nugée, we are sorry to hear you have died, and we have therefore closed your account” (as it happened they hadn’t, so the computer-generated letter was not even accurate), or like the bank that when conducting a KYC on me (despite me being a client for over 20 years), got me confused with one of my brothers and accused me of lying when the answers I gave them did not match what they expected.

And all the time what service one does get is delivered with a lack of charm or courtesy that is extraordinary.  The language is peremptory (“You must …”, “We require …”, “You cannot …”), the attitude is arrogant, the approach would not be out of place for the Spanish Inquisition (“Don’t ask questions, do as we tell you”).  In all the cases above the idea that the bank might have made an error did not seem to cross their mind, the idea that they might apologise to me was a complete non-starter.

And now the lockdown seems to have completely destroyed what little effort the banks were making towards providing good service.  From their actions on overdrafts, where to mark the record low Bank of England base rate of 0.1% they have all, uniformly, imposed a record high general overdraft rate of 39.9% (it staggers me that the FCA and the Competition and Markets Authority have just accepted this and see no sign of collusion), to their reduced opening hours for the branches that remain open (acceptable in April as they worked out how to operate in lockdown, ridiculous in August and resulting in the only queues of bemasked customers in my high street, all dutifully 2 metres apart, being those outside the banks), to the long long holding times waiting for their telephone services (where the concept of employing more staff, even temporarily, appears to have completely passed them by), this is an industry in which serving the customer quite clearly comes last on the list of priorities.

And every so often one hears a story that makes even the banks’ run-of-the-mill arrogance and incompetence pale into insignificance.  A friend of mine runs a small company;  it is profitable, growing and should be a pleasure to provide banking services to.  But it was badly hit at the start of the lockdown as a large part of their revenue stream disappeared.  So they applied to their bank – a bank that they have banked with for many years – for one of the government’s business support loans.

This resulted in a demand that they fill in a long and bureaucratic form, which the bank first of all took an age to process, and then gave a response which showed that they did not understand the first thing about my friend’s business, despite being their banker for years, or even common accounting principles like goodwill, depreciation and cash flow.  But it did produce a loan – smaller than asked for, but a formal and confirmed offer.

Which the bank then promptly withdrew a few days later and replaced with a yet smaller offer, because the government changed the scheme from “80% cover for loans up to £250,000” to “100% cover for smaller loans”, and the bank wished to avoid even a 20% exposure to their long-standing client.

Naturally my friend appealed, on the grounds both that a formal offer of funds should not just be withdrawn for no good reason, and that the calculations behind the original loan offer were wrong anyway – and over two months later he is still waiting for the appeal to be concluded or even any news of its progress.  (In the meantime he has sourced, applied for and already had confirmed funding from another (non-bank) source).

I repeat the question I posed in the title to this essay:  What is wrong with the financial services industry?

Part of the issue must be the state of financial regulation.  The financial sector has a poor record of working with the spirit of legislation – too often it seems more intent on finding loopholes in the regulations rather than working with the grain – and this has resulted in a downward spiral of ever more complex and intrusive legislation to try and ensure compliance, and ever more grudging adherence to the letter of the law while seeking to get round its restrictions.

On top of this, compliance with regulations becomes purely a cost centre, and so delegated to the most junior and low-paid ranks.  No ambitious banker aims to make their career in compliance, or sees it as a route to riches and senior status.  It is in most banks the Cinderella department, starved of both money and bright high-flyers.

Nor have the authorities helped, with their well-meant but badly designed approach of personal liability at board level for compliance.  Again, the downward spiral:  because bank boards did not willingly work within the spirit of legislation, the authorities tried to force them to do so by making senior officials personally liable for transgressions.  And entirely predictably, bank boards responded by removing what little autonomy was left to those below them:  no director wants to be at risk of a jail sentence for something one of his or her subordinates decided to do, so the answer was to deny subordinates any decision-making authority at all.

Commercial banking is at heart a relatively straightforward utility, a basic need of society which should not be difficult to deliver simply, efficiently and with reasonable (and courteous) service.  Instead it has become a byword for an inefficient, over-bearing and (at senior levels) overpaid behemoth, satisfying neither the regulators, nor their customers, nor their front line staff – and right now, nor even their shareholders as dividends are suspended.   The standing of the industry has seldom been lower;  yet it seems as if, like the hooligan football fans in the 1980s, the banks merely respond with “Nobody likes us, we don’t care”.

This circle of intrusive and over-rigid legislation, heavy-handed and arrogant banks, and over‑bureaucratic and unsatisfactory service for customers is a depressing picture, and with the economy at the moment needing all the financial help it can get it is also potentially an extremely damaging one.  Is there any way to break it?  Where is the carrot which might encourage banks to put providing a better service higher on their list of priorities?

I do not usually like to end my essays with a question I have no answer to.  But on this one, alas I do not see the silver bullet.