The competition for savings and mortgages is intense. The Halifax is banking on service and quality to keep the customers, says Jim Birrell.
More people save or have a mortgage with the Halifax than with any other bank or building society. Yet competition is intense. There are 90 building societies and several banks wooing the customer. Service quality is vital to winning and keeping customers.
Competition has raised standards of service in the financial sector. Service quality, product range, branch facilities, and opening hours have all improved. Keeping ahead of the competition is an intensely demanding task.
Take a simple, but key service priority for customers - queue lengths and waiting times. The first task is to treat all customers fairly. Organised queuing - peeling off customers from a single queue - is now standard. But still more has to be done. Solutions include better matching of cashiers' working hours with customer flow and diverting customers who require simple, routine transactions from the branch counter to the automated teller machines - of which more later.
Dedication to customer service is reflected in the Halifax's High Street presence. The new "Branch 2000" style of operation is now in place in almost every UK town and city. The rationale for Branch 2000 was the simple one that the customer's needs were paramount, rather than administration's. The typical 1960s branch office - still seen all too frequently in the banking world - gives about two thirds of the ground floor space to the staff and one third to the customers, and builds an impenetrable barrier between the two.
Whatever customer-friendly image the organisation tries to convey through its advertising, the branch office can give a much more powerful signal that the customer is a mere nuisance. Hence the strong emphasis not only on a spacious, warm, friendly atmosphere, but on an open-plan approach. The customer must be made to feel welcome and the new branches must provide the right combination of a quick, efficient cash service for those in a hurry and a confidential consultancy service for those wanting advice or information.
However efficient the distribution network might be, there can still be a problem because of the sheer volume of customer activity. At one time the solution to more customer activity was a simple one - open more branch offices. In a regulated market, margins could be set to cover the costs. With the intense competition of the past decade this is no longer possible: networks must be profitable.
Most other suppliers accept the notion of customer value and customer segmentation. Each group of customers is targeted to generate a profit for the company. But in the banking and building society world we have seen the development of cross-subsidisation on a very substantial scale. To give an example, 60% of Halifax savings accounts contribute only 2% of savings balances.
Cross-subsidisation on this scale is fine as long as there is little industry competition. But some customers must be of higher value to the supplier than others. As competition develops - either on price or service - the best customers are obviously at risk of being won over by specialist or niche operators. There are two main ways in which this problem can be tackled.
First, by giving the most valuable customers the best price deal: this is done in many ways, for example, by offering better investors' rates for larger lump sums and lower mortgage rates for substantial but low-risk borrowers. Beyond this the society seeks to identify "high net worth" customers and retain them through a combination of service quality and a stream of information on complementary products and services.
The second main way of tackling the problem of cross-subsidisation is more difficult and demanding. The original form of building society, back in the last century, was a mutual organisation dedicated to encouraging thrift, regular, committed saving - and home ownership.
Subscribers were expected to make regular savings (indeed they were fined if they failed) with withdrawals seen as a highly exceptional one-off occurrence. Over time many savers came to use building society passbook accounts for everyday money management.
Many of these low balance accounts are unprofitable even with a zero interest rate - the cost to the Halifax of a cash withdrawal at a branch counter is £1.20. So we have accordingly taken the significant step of imposing charges for cash withdrawals at the counter although not for withdrawals via an automated service.
This will deter the active use of low balance savings accounts as bank accounts. Even the most strongly customer-oriented business sometimes has to take action to change customer behaviour. Benefits will include more efficient use of branch counters for those who need cashier service, shorter queues, lower costs and hence scope for better interest rates for serious savers, and an efficient automated service for those who want a money management account.
The Halifax has the largest active customer base of any financial institution. It is convinced that it can serve most of them efficiently and cost effectively, but in a competitive world it must recognise differing customer values and match prices and service levels accordingly. Changing customer behaviour can take a decade, or in some cases even a generation.
The Halifax has taken the first steps.