Marketers will shape new face of high street banking

Earlier this year, I noted that Reckitt Benckiser had embarked on an unusual, if overdue, corporate rebranding exercise (Blog, 14 July).

Unusual because RB had set itself up as a cheerleader for FMCG talent. Capitalising on the implosion in financial services marketing after the credit crunch, it has been trying to persuade young marketers that their future lies not in being the overpaid chief of “flower-arrangement” at some retail bank, but in packaged goods, the motherland of marketing.

It’s a good story, credibly told by a company that practises what it preaches in an exemplary way. But I now wonder whether the premise is actually true. What I mean is that financial services, far from being the career cul-de-sac it appeared to be a few months ago, is in need of marketers as never before. Indeed, in a reshaped financial landscape, it is precisely marketing that may give a new set of players the edge.

Here’s why. Although the political class in the US and Britain have shown no real appetite for radically re-engineering the global financial system, some “unbundling” is definitely on the way. Bancassurance – the unswerving belief that bigger is best and that retail, commercial and investment banks should be allied wherever possible to the insurance business – has met its Waterloo. Or, in the case of the UK, had its RBS moment.

The question is, what to do about these wounded leviathans that litter the financial landscape. The US response to troublesome “too big to fail” institutions, such as Citigroup and Bank of America, seems to be fixated on “fail-safe” remedies for the future, rather than break-up now.

It’s a policy aptly summed up by one well-known financier as providing the Titanic with extra lifeboats. Gordon Brown and Alistair Darling are all for tinkering with the relatively inexpensive Titanic refit model, but it’s not that easy. Ranged against them is a defiant and irremovable governor of the Bank of England, who has openly called for utility (retail banking, low-level commercial lending) operations to be split off from the “casino” (investment banking) end of the business. More importantly, Mervyn King’s judgement seems to be backed by the powers that be in Brussels.

Only last week Neelie Kroes, the European Union’s competition commissioner, ruled that ING Group, a classic bancassurance model, was to be broken into its component parts and the US direct savings arm hived off. Societé Générale may, in due course, find itself swallowing the same medicine. This week, however, Kroes has been turning her attention to the likes of RBS and Lloyds Banking Group, which have received a huge amount of taxpayers’ money to float them through the crisis. At stake is not whether but how much these financial entities will be forced to divest. Not unrelated is Darling’s pre-emptive decision to split the wholly nationalised mortgage and savings bank, Northern Rock, into a “good” and “bad” bank, prior to the “good” (non-toxic) part being returned to private ownership.

The net effect of Brussels’ intervention is expected to be the creation of three new banks, accounting for about 15% of the UK’s banking market, from which the five big boys, including HSBC, Barclays and Santander, will be excluded.

It would be pointless, at this stage, to speculate who will become the owner of Lloyds’ spun-off TSB bank brand; or what will happen to internet bank Intelligent Finance; or RBS’ Williams & Glyn’s, Direct Line Insurance and Churchill brands. Still less whether Virgin Money will, after all, lay successful claim to Northern Rock. What can be predicted with a fair degree of certainty is that the face of UK retail banking is about to change, with the arrival of significant new entrants to the market. Self-evidently, this suggests a bean-feast for corporate identity specialists – who have been on a starvation diet these last two years. But there are also strategic issues to which thoughtful marketing may hold the key.

The first concerns the competitive environment over the next five years. There will have to be more focus on the consumer. It’s not that bankers have been on the Road to Damascus and seen the error of their ways. Far from it, I suspect. But a multiplicity of entrants, shorn of the support of a bancassurance structure – which gave “universal” banks like RBS carte blanche to gamble retail funds they did not own – suggests that it will be more difficult to play the cartel game. And to the extent that retail banks can no longer tap into wholesale money markets and complex financial derivatives, they will have to fight harder to acquire their capital in the old-fashioned way – from the customer.

This customer is no longer as clueless as he or she used to be. There was a time when we changed banks even less frequently than newspapers. No longer. In part this is due to the advent of internet banking, which has made transference of funds much easier. And in part to the credit crunch itself, which has made customers more wary of bank security and more willing to act on their fears, suspicion and – dare I say it – disillusionment. Witness the run on Northern Rock and the Icelandic banks.

The astute new entrant will realise it can no longer rely on inertia. It will need more agility, and imagination, in managing the spread between what it offers to savers and what it demands from homeowners taking out a mortgage. Nor will it be so easy to bamboozle the customer with confusion marketing: an unending blitz of sophisticated but often unintelligible, products. Trust and transparency are the basis of a successful new contract with customers. My money is on Tesco Bank to lead the way.

Pie in the sky? We’ll see.