The Game Changer

Lloyds Banking Group’s Stephen Smith is spearheading a revolution in banking – the redirection service, which will allow customers to seamlessly switch their current account provider. Rowan Morrison finds out more.
When was the last time you changed your bank account? If you are in the majority of the UK population, the answer is probably ‘never’.
Two recent Which? surveys highlight a strange dichotomy in consumer behaviour when it comes to banking; the first shows all major high street banks scoring well below average when it comes to customer satisfaction; the second reveals that, despite this, 55% have never changed their bank account. That’s never. Not once have they changed their provider since opening their first bank account as a teenager. Clearly – and following the financial crisis this is becoming a well-worn sentiment – something needs to change.
As long ago as 1998, ten years before the economy imploded, one of the first things Gordon Brown did as Chancellor was to commission Sir Donald Cruickshank to examine competition in retail banking. Among other issues, the report looked at banking services for personal retail customers and SMEs and, in 2000, Sir Donald  came back and said things weren’t good enough. He was particularly concerned about lack of competition and innovation in payments, with the banks using their control over the system to discourage any competition. In 2005, he was reported as saying that he believed nothing had changed since his review, and that the banks were still operating in a complex monopoly. Well, we all know what happened next.
Since the financial crisis, the situation for high street banks has become very different. They have never before been so motivated to make things better for customers, whether officially, under pressure from a more robust regulator, or commercially, faced with an increasingly demanding public. Stephen Smith, Director Retail Competition and Regulatory Strategy at Lloyds Banking Group, firmly believes that a truly competitive industry begins with making it easy for customers to switch personal current account (PCA) provider. He is heading up the most game-changing and competition enhancing initiative the industry has seen in a generation – the Redirection Service (RDS).
As Steve points out: “One of the major problems in banking is that changing a personal account is not easy. The industry has tried over a number of years to improve the process but, even today, if you switch your bank account, when things go wrong it can cause absolute mayhem in your life. It can take hours sitting on the phone trying to sort things out.
“We came to the conclusion that we would never get people to believe that competition was effective unless it was simple for customers to change their bank accounts. This new service will be one of the best in the world.”
What the RDS means from a customer’s perspective is that, from September 2013, if you want to change your bank account, you will be given a guarantee by both your existing bank and your new bank that the transfer will be completed, with no errors occurring in the process, seven days later. It’s a very big promise and one which has only been made possible by the existence of the Faster Payments system, as Steve explains: “The RDS is essentially similar to when you have your mail rerouted by the Post Office, but seamless and completely invisible to the customer. Since the initiative was first proposed, it has taken two years to get it to implementation stage.
“We’ve built a process into the central payments system which acknowledges when an account has been switched, allowing us to identify that the RDS needs to happen, so we can make the necessary changes. The banks have also had to add the appropriate technology into their systems. The thing which has enabled all of this is Faster Payments – giving us the ability to reroute transactions between banks in real time,” he adds.
Steve is a living example of the new commitment of financial services organisations to access thinking outside of their own industry and is ideally placed to take up the mantle of increasing competition in banking. Spending 20 years of his career in the energy business, he came to Lloyds two years ago from Ofgem, the energy regulator.
“For the last few years I was an Executive Member of the Board of Ofgem, undertaking a range of roles looking at wholesale markets, retail markets and the networks. I also had a couple of stints in the private sector, working at a consultancy firm for five years.
“I’ve seen things from both sides of the fence, but the majority of my time has been spent worrying about whether the energy markets were competitive and if they weren’t what I should do about it,” he says.
Steve is passionate about what increasing competition means to the future of the banking industry. “Obviously, getting this right really matters. Everybody needs access to good, value for money, financial services. I was persuaded that Lloyds Banking Group takes this seriously and recognises there are problems.
“They know that, following the banking crisis, the banks must do things differently. I am convinced that working here, with a supportive senior management team who are equally determined to make the market work more effectively, is the best place to be,” he adds. “To move into this role, all I needed to hear was that the bank was going to approach what I wanted to do with an open mind, giving me space to bring my insight and experience to bear and help them navigate the challenges ahead.”
Yet the leap from the energy sector to banking hasn’t been as huge as expected – give or take a few acronyms.
“The thing which has surprised me most,” Steve says, “is how many similarities there are between the two sectors. If you strip away some of the acronyms and industry-specific aspects – many of the things which drive politicians, consumer groups and consumer concerns in retail energy are very similar, in terms of the underlying economics. Obviously there has been a lot to learn, but I found the transition much smoother than I expected.”
If you think through the work and input required to get the RDS up and running, it seems incredible that Steve has managed to negotiate the hurdles in his path and get the banks working together for a common aim. Collaboration is not something for which the banks have been previously known. He admits he has been pleasantly surprised by the lack of resistance: “You go through these processes and there’s always a little bit of you which worries if it will actually work. But with my help, Lloyds has developed the RDS and sold it to the industry – as probably the biggest and most significant change which has been made in this sector for a number of years. Overall, I’ve been pleased with how much people have understood the need to change and their willingness to commit money, people, time and resources to thinking through these problems and helping to solve them.”
The true implications for the banks once the RDS begins to roll out are as yet unknown. Will consumers rush to change their bank, or continue to sit tight with their current provider? “That’s the thing about competition,” Steve agrees, “anything could happen!” But at the very least customers’ eyes will be opened to their options in a way it seems they have not been before.
“People consistently survey the banking market and, in broad terms, 80% of customers profess to be happy with their existing bank. Of the 20% who say they are not, the reasons given are predominantly around poor service, or concerns about charges for things like overdrafts,” Steve points out.
“We hope the launch of the RDS means all the banks raise their game in terms of service and that if certain elements of the packages they are offering are too expensive, customers will start voting with their feet. The other thing this initiative does is give a big fillip to new entrants to the market – Marks and Spencer, Tesco, Virgin Money, and so on – which are in the perfect position to provide an alternative – with better service, price and so on.”
He adds: “I’d be surprised if it didn’t have any impact on switching, but where the levels switching end up will depend on how quickly those banks which do have issues with their service or pricing react and how smart both existing players and new entrants are at developing better and more innovative propositions.
“All the consumer research we’ve conducted suggests that what people feel the RDS will do is make their existing bank work harder to retain their loyalty.”
Customers will hear about the Redirection Service via a substantial and ongoing national marketing campaign, run by the Payments Council, paid for by the banks. “It will contain messaging designed to resonate with customers, to get across that if you think switching your bank account is a hassle, the game’s changed – it’s now simple,” Steve states. “This will not be a one off. We need to run this message consistently and reinforce the positives so, as consumers do begin to use the new service, print media and social media is underlining the fact that it actually works, it wasn’t just an empty promise.”
This message will not be coming from the banks themselves: “The research we conducted showed that consumers wouldn’t believe it if it was bank led,” Steve says.
The path ahead might be tricky to negotiate but the ultimate destination will make the journey very worthwhile. As Steve concludes: “We can see the enormous opportunity and the risk involved but that’s what this initiative is designed to do – keep us all on our toes, feeling we need to innovate more and work harder for our customers.
“The only agenda here is making it easy for the customer to switch bank accounts, and we want it to work, giving them the power in the relationship.”