Perceptions of the Financial Services Industry - Revisited

Keeping you connected to today’s UK financial services market

Welcome to the fifth edition ofviewpoint, Harris Interactive’s UKfinancial services newsletter.

In this edition of viewpoint, werevisit ‘Consumer Perceptions of theIndustry’. We uncover who theynow blame for the currenteconomic crisis, how we make themfeel, as well as the concerns wecould help them address.

We also take a look into the future,assessing the potential impact ofthe Virgin Money acquisition ofNorthern Rock.

Just over two years ago anti-capitalist protestors ravagedthe streets of London protestingagainst the practices of the financial services sector. Theyprotested about the size of bankbonuses, bailouts and blamed thesector for the financial crisis.

Since then, we have survived therecession but if the experts are tobe believed we are teetering onthe edge of a severe depression.

Instead of the anti-capitalistsravaging the streets of London wehave had them camping outside ofSt Paul’s, and occupying buildingsprotesting against the same issuesthey had two years ago.

But in the minds of the everydayconsumer, what has changed?How do we make consumers feeltoday? And what can the industrydo to create a brighter future?

Perceptions are still overwhelmingly negative

Across the industry as a whole, theconsensus amongst the generalpublic is still overwhelmingly negative. Over a third still blamethe sector outright for the currenteconomic climate, but it’s not justwhat people think that is the challenge, it’s how we makepeople feel.

Although over the past two yearsfeelings of disappointment andannoyance have started to dissipate, feelings of scepticism,powerlessness and frustrationhave proved more difficult to shift.

There is no doubt, given some ofthese deeply entrenchedemotions, these figures not willchange until we do.

For more information on our financial services research practice visit:| www.harrisinteractive.co.uk PAGE 1

ISSUE 5 - December 2011

viewpoint

Jan 10 - FSA publishes new rules to combat mortgage debt

- Will Santander challenge the big banks

Feb 10 - RBS faces FSA complaints inquiry, as financial complaints rise again

- ‘Printing error’ exposes Skipton account details of customers

Mar 10 - UK budget - aims to boost UK business

- Moneymadeclear launched- Metro Bank gets official go-ahead- Mortgage approvals drop sharply

Apr 10 - UK economic growth slows to 0.2%

- Brown admits mistake over banks- Former Northern Rock bosses fined

- UK savings ‘lowest in 40 years’

Which of the following words would you use to describe how financial institutions (banks,building societies, insurance companies, credit card providers etc) make you feel?

What’s happened 2010-2011

How Financial Institutions Make People Feel

Negative Positive2011 Net 76%

2009 Net 83%

2011 Net 13%

2009 Net 10%

39%37%37%35%35%28%

27%27%25%17%16%

43%40%48%44%38%34%

32%35%27%21%20%

5%5%

3%

3%

3%

2%2%2%1%1%1%

2%3%

1%

2%

3%

2%1%1%1%1%1%

Disappointment

Powerless

Annoyed

Frustrated

Angry

Disgusted

Worried

Resentful

Bitter

Hostile

SecureScepticalSatisfied

Confident

Reassured

Optimistic

Grateful

Valued

HappyAppreciated

ProudSympathetic

This edition was researched and written byPhilip Brooks, Senior Associate Director,

Financial Services Research [email protected]

Issue 5 | December 2011

For more information on our financial services research practice visit: www.harrisinteractive.co.uk | PAGE 2

viewpointContinued from page 1...

The drive for shareholder value,greater efficiencies and profit hascome at a significant cost. We havedistanced ourselves from ourcustomers for years, because itseemed mutually beneficial:

• Consumers wanted quicker accessto products and services as well asthe ability to self serve at a time convenient to them and remote access provided this

• We wanted to cut costs and drive up margins and sales, to be fair, we delivered.

And whilst customer satisfactionwith the transactional aspects ofbanking has increased, the lack ofconnection between the industryand its customers has led toconsumers feeling sceptical, powerless and disappointed.

The financial services industry sellsdreams of better futures, and in asignificant number of cases all wehave provided are nightmares withstories of malpractice and lost lifesavings.

Nor should we kid ourselves thatthis is a recent phenomenon. Fordecades there have been stories ofmalpractice and incidences where

we have not treated customersfairly, from the pension mis-sellingand endowment mortgages in thelate 80’s to, more recently, the irresponsible lending, ATM charges,overdraft charges and PPI claims.

Just take a look at the timeline onthe left hand side to see the amountof negativity that has been in thepress for the last two years. Is it asuprise we are still in the positionwe are in?

We have to remember that for anyorganisation to succeed they needto offer products and services thatare mutually beneficial to boththemselves and their customers. Fortoo long I believe our industry haslost sight of that.

Even in the last two weeks therehave been stories of how consumershave got themselves into trouble by borrowing from payday loan companies.

It is great to see the OFT is launchingan investigation to see whethercompanies are adequately checkingwhether customers could afford torepay these debts or that they haveexplained the terms of the loansclearly.

May 10 - Northern Rock 100% savings protection guarantee ends

- PPI heads complaints to thefinancial ombudsman

- Prudential provides details of £14.5bn rights issue to buy AIA

Jun 10 - EU agrees bank bonuses limit deal- JP Morgan in record FSA fine for risking clients’ money

- Drunk trader banned for buying seven million barrels of oil

- Osborne gives Bank of England top regulatory role

Jul 10 - FSA tightens bankers’ pay rules- Metro bank opens- Cable looks to boost lending by banks

- Seven EU banks fail stress tests

Aug 10 - Co-op confident on future growthas profits rise

- Payday loans ‘are very expensive’ deem Consumer Focus

- Bank of Ireland reports £1bn loss- Northern Rock returns to profit

Sep 10 - Virgin Money to base new HQ in Edinburgh

- UK banking sector grows at fastest rate since 2007

- Global bankers agree new capital reserve rules

Oct 10 - UK Budget - new levy on banks to rise to £2.5bn

- Banks take on FSA over ‘illegal’ PPIrules

- CBI says bank bonuses ‘toxic’ amid government jobs cull

Nov 10 - FSA to act on warranty sales- FSA claim mis-selling costs customers £500m a year

- PPI heads complaints league- AIG loses £2.4bn in quarter

Dec 10 - Snow delays Osborne meeting with banks over bonuses

Who do you think is most responsible for the currenteconomic outlook in the UK?

Financial institutionsPrevious governmentEverybodyCurrent governmentThe general publicNone of the above




But it’s not all doom and gloomHowever, solace can be taken fromthe fact that the public do not solelyblame the financial sector for ourcurrent woes. The previous government also has to take responsibility (Ed Miliband takenote), alongside everybody else.

An overoptimistic interpretationcould actually be that just under halfdo not see the financial servicessector as the principle architect atall. As the European crisis deepensit will be interesting to see how thischanges!

We can also take comfort from thefact that confidence, in part, hasreturned. There is still significantwork to be done, but the greenshoots of recovery can definitely beseen. Looking at the six monthlyconfidence data (available onrequest), the industry has stabilised.Consumers also have significantlymore confidence in the institutionsthey deal with, as 82% stated theyhave confidence in their own bank.

Unfortunately, the same cannot besaid for the current government.After an initial rise following theelection, confidence has been insteady decline since Nov’10.

We need to be open and honest,treating customers fairlySo how can we speed up the rate ofchange and improve perceptions ofthe finance industry?

Ultimately we need to act honestlyand in a transparent manner. HSBCshould be applauded for the waythey have handled the NHFA fiasco.

Over time reforms such as the RDRand the pension reform should help,but where every financial institutioncan help is by ensuring they treatcustomers fairly and treat them withrespect. In our survey, less than halfof the consumers agreed that thefinancial companies they deal withtreat them with respect.

We also have to find ways of rewarding customers for what they

viewpoint

Q: How much confidence doyou have personally in each of

the following? A great deal,Quite a lot, Some or Very little?

Continued on page 4...

- The FSA Chief Executive, Hector Sants blamed bosses for thefinancial crisis

Jan 10 - Banker pay data called for by Treasury Committee

- Banks challenge PPI compensation rules in High Court

- UK CPI inflation rate rises to 3.7%

- Prudential pulls out of AIA deal

Feb 11 - Complaints to ombudsman rise by 15%

- Lloyds returns to profit to make £2.21bn

- Lehman Brothers’ $11bn case against Barclays fails

- PPI complaints still rising

Mar 11 - Revenues at Co-operativeFinancial Services rise by almost 25%

- UK inflation rate rises to 4.4% inFebruary

Apr 11 - UK banks lose PPI challenge- Gordon Brown admits ‘big mistake’ over financial crisis

- The Money Advice Service launched

- Retail banks not competitive, says Treasury Committee

May 11 - Hector Sants unveils banking regulations

- Post Office mutualisation plans move closer

- Banking industry gives up on PPI mis-selling battle

- Lloyds to pay £3.2bn for mis-selling PPI policies

Jun 11 - Straw says eurozone ‘will collapse’

- HSBC given extra time to deal with PPI complaints

- Money Advice Service launches Health Check

Bank ofEngland

High StreetBanks

InsuranceCompanies

FSA IFA’s Credit Cards

TheGovernment

0

10

20

30

40

50

60

70

80

90Nov-11 Apr-09 Nov-08 Feb-06

7167

79

64

55

7679

6056

60 6359

50

63

55

4954 56

50 4852

58

48

38

49

n/a n/a n/a


Net

: %So

me

Conf

iden

ce



Continued on page 5...

viewpointconsider to be their loyalty. 65% ofconsumers disagreed that the financial companies they deal withrewarded them for their loyalty.

Consumers generally perceive loyaltyas longevity of the relationship and ifwe manage to find a way to rewardcustomers for the length of theirrelationship, we may actually start tosee gains in the average number ofproducts held and customer value.

We also need to help address consumer concerns, interacting withthem in a caring and empathic way,demonstrating that we have theirinterests at heart. When reviewingthe top ten concerns, what is clearlyevident is the need for sound financial advice which in turn willalso help to instil sound financialdiscipline.

Currently 30% of the UK populationare finding it a constant stuggle tokeep up with their bills and otherrepayments.

Given the nature of the products andservices we offer, we do have a socialresponsibility and a role to play inincreasing financial capability.

Innovation will also help people getmore engaged with the industry,which can only be a good thing.

However, whilst innovations such asmobile payments may significantlychange the way we pay for goods, Ido not think it will fundamentallychange what consumers think of theindustry. Did chip and pin?

We need to get smarter in the waywe communicate, making the tonemore inviting, less formal (as muchas regulations allow) and uselanguage the everyday consumerunderstands. We also need toensure the direct mail we send isrelevant and make much better useof social media.

IFAs and providers are going to havea particularly tricky time trying toconvey the benefits for the RDR.Upfront fees are going to be a significant mind shift for the majorityof consumers. It will be interesting tosee how they live up to the challenge.

It is not just our communicationsthat need an overhaul. The look andfeel of bank branches also needs tochange.

I totally agree with Brett King’s viewthat branches need to become education centres, but to do thatthey need to become places whereconsumers want to go.

Continued from page 3...

Jul 11 - Santander profits hit by PPI mis-selling costs

- Financial sector sees fastest job growth since 2007

Aug 11 - PPI mis-selling payouts hit £215m in first half of 2011

- UK CPI inflation rate rises to 4.4% in July

- Rise in bankers entering financial industry

Sept 11 - NBNK confirms bid to buy LloydsTSB branches

- Barclays heads UK complaints listamong banking brands as complaints surge

- UBS ‘rogue trader’: Loss estimate raised to $2.3bn

Oct 11 - Packaged bank accounts face FSA action

- Credit Suisse fined £6m by FSA for advice failings

- PPI complaints to Ombudsman see sharp fall

Nov 11 - Bank levy to rise as revenue fallsshort

- Northern Rock sold to Virgin- Private bank Coutts fined £6.3m by FSA

Dec 11 - Bank break up law by 2015- Lloyds names Co-op as preferredbuyer of bank branches

- FSA ‘admits to bank failings’ over RBS

- HSBC bank fined for mis-selling to elderly

- New mortgage lending rules set out by FSA

- Payday lenders face OFT penalties

- Complaints regarding Payday loan companies double

News items compiled from BBC News:http://www.bbc.co.uk/news/

Consumer Concerns %

Inflation

Paying household bills

Value of pension

Interest rates on savings

Value of savings/investments

Job security

Property prices going down

Safety/security of money / depositsheld by banks/ building societies

The cost of borrowing

Meeting repayments (loans mortgage and credit cards)

53

42

31

31

29

26

18

16

14

19



viewpoint

In fairness this has already started,and with the acquisition of NorthernRock by Virgin Money I hope this canact as a catalyst for change across theboard. The Virgin Money Lounge is anew and fresh approach, withcustomers being able to pop in for acoffee, use ipads and there is even achildren’s play area. Whether it willbe successful or not I am unsure butit will be interesting to see how theyrefurbish the 70 branches theyacquired from Northern Rock.

Hopefully the acquisition will also bring other benefits to the financialsector. Over a third of consumers feelthe acquisition was a positive thingfor the sector with 30% saying neither positive nor negative and a quarter unsure. Less than 1:10thought it would be a bad thing.

Consumers tended to see bothRichard Branson and Virgin as beingreputable, trustworthy and reliable.They also saw benefits such asincreased competition, better service, bringing stability to NorthernRock and returning the organisationback to the private sector.

They also appear to be waiting inanticipation to see what Virgin haveto offer. Over a third of the population would be interested inswitching a product to Virgin Money,the most interesting of which is the13% who would consider switchingtheir current account (three times thecurrent annual switching rate).

There were also a number of negativeperceptions, in particular 13% ofthose aware of the acquisitionperceived that Northern Rock wassold too cheaply, some accusingBranson of ‘ripping off’ the taxpayer.He is also accused of cherry pickingthe best bits of the bank and leavingthe public with the rotten partsalongside those who thought theBranson empire was becoming toobig, a monopoly.

Overall though, it is clear to see, evenbefore the marketing madness startsthat consumers are looking forwardto seeing something different and theVirgin brand provides that – an

ethical, consumer centric organisation.

With the Lloyds branches being soldto the Co-operative, despite the manychallenges they will face, alongsideVirgin Money’s acquisition of Northern Rock could this now be thenew day and the new dawn thatfinancial services has been waiting for?

A colleague of mine once wrote ‘Loveyour bank- you cannot be serious’. Inpart, I have to say I agree. Althoughthis does not mean we should stoptrying to at least gain their affection.It’s that mentality that led us to thissituation in the first place.

I do wonder how many marketeersworking in London’s financial districthave gone and talked to the protestors outside St Pauls andlistened to what they have had to say,admittedly some of it may be naivebut you never know, we all might justlearn something.

Which of the following products/services, if any

would you consider switching to Virgin Money?


Consider switchingany product to

Virgin 35%

Home Insurance

15% Saving15%

MotorInsurance

14%

CurrentBank

Account 13%

Credit card12%

Mortgage8%

Investments6%

Loans 5%

LifeAssurance

5%

HealthInsurance

2%

viewpointIssue 5 | December 2011

For further information related to this article, such as the background data, or to suggest new topics for inclusion please email [email protected] or call +44 (0)161 242 1360

It will bring a fresh approach tohigh street banking that is likelyto make the Big 5 nervous.

The purchase, backed by theBranson name and reputationwill give the high street anothersound banking experience.

Branson is likely to do something interesting withoutripping off the customers. Thepublic considers the sector bankrupt.

Richard Branson is more ethicalthan most business owners andI think he'll turn company'sfortunes around and instil confidence in the consumer.

More competition is needed onthe high street, more emphasisneeded on customer needsrather than the needs of bigorganisations.

Virgin money at least offers analternative to the high street thatisn't currently there and they'vedone so well in other sectors. Iwould hope they do the same inbanking.

Richard Branson generallyimproves or innovates serviceswith his companies. I lookforward to hearing what heplans to do with Northern Rock.

Much as I admire him as an individual, I feel that RichardBranson's empire is turning into amonopoly of lots of differentindustries. I am tired of these rich men who

want to own everything at theexpense of the tax payers who areout of jobs, and are being thrownout of their homes.

The more profitable sector hasbeen sold for a little over half ofwhat we paid for the wholething, leaving the taxpayer asthe "owner' of the toxic-debtridden remainder.

Because I believe it is wrong forthe Government to have soldthe company at a great losswithout our consent.

Tax payers have been ‘done outof money’ and Richard Bransonis just going to make it anothercash cow for him.

He did not pay the right amountfor it so the public has lost out andbad because the Virgin train service is terrible so I don't havehigh hopes.

Because they are only buying the"productive" parts of the bank,and leaving the taxpayer out ofpocket, and lumbered with therotten parts.

Branson is a sound businessman, whatever onemight think of him.

Because a public "asset"was sold at a knockdownprice to a rapacious entrepreneur.

Positive andnegative views ofUK consumersreacting to thenews that Virginare opening ahigh street bank. +VE

-VE

Source:Verbatim commentsfrom Researchconducted November2011 online via theHarris Poll Omnibus.

Economy & Finance

Perceptions of the Financial Services Industry - Revisited