Future of banks’ profits are in saving customers money

Banks’ future profits are in saving their customers money by using customer data to identify cheaper energy deals, transport costs and broadband packages says Citizens Advice.

Writing in the Daily Telegraph today (Tuesday 21 May 2013) Citizens Advice Chief Executive Gillian Guy, who also chairs the British Bankers’ Association’s Consumer Panel said ‘the race is on’ between banks to realise that there is profit in saving their customers money instead of relying on excessive overdraft fees and up-selling to generate revenue.

Arguing that banks provide an essential public service, Guy says that by using ‘data-cash back,’ whereby banks analyse the behaviour of their customers and suggests savings – taking a small cut of the money saved – banks would help to boost household savings, while also making profits themselves.

She highlights that supermarkets are already ahead of the game with Sainsbury’s saying it will use data from Nectar Card to tailor its banking services to customers.

Citizens Advice Chief Executive Gillian Guy said:

“Every 10 years or so, in every industry, an idea comes along that changes it all. This takes the form of a simple but profound insight: we thought our business was one thing, but it is something else entirely. Take the iPhone. Telecoms businesses thought they were making phones. Then Apple decided to make a hand-held device for which third-party developers could make programs (now called apps), and which could also make calls. A simple but game-changing shift in thinking.

“At Citizens Advice, we are convinced that the banking industry is teetering on the edge of a brilliant idea; it just needs a good, firm shove.

“With all eyes focused on banks’ risky investment arms, their retail responsibilities have been woefully neglected. British retail banking makes up just 21 per cent of Barclays’ profit. But providing bank accounts is an essential public service and a business model that desperately needs updating.

“For more than a decade, conventional wisdom has been that the only way to make money in retail banking is through interest on loans and debt, excessive overdraft charges, or up-selling additional products: mortgages, insurance, Payment Protection Insurance. This is a formula that is neither good for customers nor banks, which are footing a £14 billion bill for mis-sold PPI after a super-complaint made by Citizens Advice.

“Banks urgently need to broker a new deal which shows that, like the bank managers of decades past, today’s global giants still use their expertise to help save their customers money in every way possible.

“New regulations making it easier for customers to switch their bank come in later this year. People unhappy with the service they’ve received will now be able to leave in search of a better offer without fear of direct debits going astray or being stuck without easy access to their money. This will urgently force banks to sharpen their competitive game and to focus their efforts on giving customers more of what they want. What’s more, newcomers like Tesco Bank and Virgin Money will add some much-needed dynamism to the industry.

“The first chief executive to realise that the future of banking is in helping people use money effectively – and the profound practical implications of this – will transform the profitability of their business, the lives of millions of consumers and the competitiveness of our economy.

“Your bank has access to an incredible amount of information about you: where you live, what you buy, where you shop, what bills you pay, how old you are. It knows who your energy supplier is and how much your last 15 bills were. And it knows comparable information about millions of other people too. So what does it do with this information? Almost nothing. It has been too scared to ask you for permission to use the data, even to help you.

“But it is in the value of this information that modern banking’s breakthrough lies: offer customers accounts that do everything a utility switching site does – and more. Make money out of saving customers money.

“Start with energy bills. Banks should use the data they have to tell customers when they are paying more than other people. Find them the cheapest tariff. Offer them a choice: stay where you are, or click this button and we’ll switch you automatically. (We’ll take a small cut from the money you save, if that’s ok). This is effortless saving for consumers and would subject energy companies to competition that they have yet to feel.

“Banks could do the same with travel costs, flagging where frequent journeys would be cheaper with a season ticket, or your television or broadband contract, alerting you when new cheap offers come up. For a little extra information, such as the number of people in your household, the type of car you have or where you tend to shop, banks could go even further to find better ways for you to spend and save your money – a kind of data cash-back.

“With the support of suppliers, mobile phone bills and petrol prices could also be thrown into the mix. Companies with competitive rates should be happy to hand over that data and customers would draw their own conclusions from those that decided not to.

“To encourage positive behaviour and increase their deposits, banks could nudge their customers into building “savings from savings” by putting the money gained from switching energy or broadband suppliers into a separate account with a good interest rate.

“Supermarket banks have already signalled a move in this direction. Customer loyalty cards provide a colossal amount of data about their customers and Sainsbury’s has already announced its intention to use the personal information it collects through the Nectar Card scheme to better tailor its banking services: corporate gain driven by customer saving.

“This idea is simple but fundamental: banks stop making money from encouraging customers to spend theirs on things they might not need, and start profiting from helping them to save money on the things they really do. It sounds obvious. It could be the future of banking. The race is on.”

Notes to editors:

1. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
2. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
3. To find your local bureau in England and Wales, visit citizensadvice.org.uk. You can also get advice online at adviceguide.org.uk
4. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers
5. Citizens Advice Bureaux in England and Wales advised 2.3 million clients on 5.4 million problems from October 2013 to September 2014. For full 2013/2014  service statistics see our quarterly publication Advice trends
6. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 3,000 service outlets across England and Wales.