NCSI-UK Commentary Third Quarter 2009
NCSI-UK Results for Retail Banks, Mortgage Lenders, Credit Cards, and Home and Motor Insurance
Customer Satisfaction with Financial Services Drops
Abbey, Aviva Strengthen Customer Relationships amid Overall Decline in the Financial Services Sector
RBS Group Drops Across Banking, Mortgage and Credit Card Services; Nationwide Also Struggles
November 24, 2009
The National Customer Satisfaction Index (NCSI-UK) drops slightly for a second straight quarter. For the third quarter of 2009, NCSI-UK falls 0.1% to 72.8 on a 100 point scale. The decline is the result of eroding customer satisfaction with companies that provide a range of financial services to consumers. Retail banking, mortgage lending and credit card services all show weakened customer satisfaction, while home and motor insurance remains steady. Even though each quarterly drop at the national level is quite small, the trend is not encouraging for an overall recovery of the UK economy.
NCSI-UK is a sister initiative of the prominent American Customer Satisfaction Index (ACSI) developed by University of Michigan Professor Claes Fornell. Overall, customer satisfaction lags somewhat behind the ACSI, which stands at 76.0 as of the third quarter after a similar 0.1% decline. Growth in UK Gross Domestic Product (GDP) remains negative in the third quarter. Even though the degree of economic contraction has lessened throughout 2009, the 0.4% drop in the third quarter marks the sixth straight negative quarter, consistent with the slow but steady decline in satisfaction with UK goods and services. By contrast, US GDP grew by 3.5% for the third quarter reflecting what has been a generally upward trend in customer satisfaction over the past year.
The fifteen industries measured in NCSI represent nearly half of total UK consumer spending. Of the four categories measured in the third quarter of 2009, only home and motor insurance surpasses the national average, while banking, mortgages and credit cards fall well below the average. Among the individual companies, decliners outnumber gainers: 32% have better NCSI scores than last year, 50% decline and another 18% are unchanged, consistent with the slight downturn in satisfaction overall.
Banks: HSBC Holds Slim Lead as RBS Group Falls
Customer satisfaction with retail banking, comprised of chequing, savings, and personal loan accounts, falls 1.4% to an NCSI score of 70. In the fourth quarter of 2008, satisfaction with US retail banking fell much more sharply, by 3.8%, Still, American consumers are considerable more satisfied with retail banks than their UK counterparts. The ACSI score of 75 is considerably higher than the UK score of 70 for retail banks. The aggregate of smaller banks remains by far the most satisfying, as has historically been the case in the ACSI. Despite a drop of 4%, the NCSI score of 76 for “all other banks” stands well ahead of the nearest measured large bank, industry leader HSBC at 70. Smaller banks know that they often can’t compete with their larger competitors on price and as a result typically focus on offering a better customer service experience with more personalized attention. In this context, the recent announcement that banking giants RBS Group and Lloyds are being forced to sell off hundreds of branches to smaller competitors could prove to be good news for consumers. A more fragmented market could mean greater competition to keep customers satisfied.
Among the large banks, HSBC, which includes First Direct, is on top for a second straight year, even though customer satisfaction drops slightly, down 1% to 70. Other competitors are clustered closely behind HSBC, including RBS Group (-3%), Lloyds TSB (-1%), and Barclays (+1%), all at 69, followed by Lloyds subsidiary HBOS and its many brands such as Halifax and Bank of Scotland, up 1% to 68. As in the previous year, Abbey trails all other competitors by a wide margin, down this year 2% to an industry low of 63. Of all the banking institutions, the troubled RBS Group has seen the largest loss of customer satisfaction. Share price is down 70% over the past twelve months at a time when the stock market as a whole has improved by 5%.
Mortgages: Nationwide Slides but Still on Top; Abbey Rises from the Bottom
Like retail banking, satisfaction with mortgage lending also declines, falling 1.4% to a score 69, the lowest level of the four financial services industries. Despite a modest revival in mortgage lending over the past quarter, it will be a long road back to the levels of 2007 and earlier. Net lending remains down almost 80% compared with a year ago. Still, low mortgage rates are propping up customers’ evaluation of value for money and keeping satisfaction with mortgage lending higher than it might otherwise be. In contrast to other forms of banking, bigger appears to be better in the world of mortgage lending - smaller lenders lag behind the industry as a whole, falling 4% to an NCSI score of 67.
Among mortgage lenders, Nationwide remains the leader despite dropping 4% to an NCSI score of 74. A first-ever £99 non-refundable up-front booking fee on all its mortgage deals has contributed to a sharp drop in value for money. Barclays, measured as a mortgage lender for the first time this year, follows closely at 73. RBS Group falls 3% to 70, mirroring its drop in retail banking, tying the bank with Abbey. Abbey is the only mortgage lender to improve from a year ago, rising sharply by 8%. Lloyds rounds out the industry with Lloyds TSB falling 3% to 69 and its subsidiary HBOS falling 3% to 66.
Abbey has had success bucking the downward trend among mortgage lenders by creating better value for money among existing customers, recently launching a new fee-free four-year fixed rate mortgage deal available only to current customers who have had an account for a least one year. Abbey now accounts for almost 20% of all home loans in the UK, and profits are up 37% to date in 2009.
Credit Cards: HSBC Leads, While Lloyds and RBS Fade
Customer satisfaction with credit cards slips 1% to 72, driven by growing displeasure with major card issuers RSB and Lloyds TSB. Consumers judge the quality of credit card services to be relatively high compared to retail banking and mortgage lending, but value for money has taken a beating over the past year - the result of rising interest rates and charges as banks and other credit card businesses seek ways to shore up sagging financials. Consumers have reacted by scaling back their credit card charges and in some instances even canceling their cards – borrowing on credit cards is down 3% and the number of cards in circulation has fallen 8% compared with a year ago. Still, the number of households with bad debts has reached record highs. With more consumers facing mounting credit card debt, the government is attempting to rein in the industry, and considering how to offer protection to consumers against sudden rate hikes.
Smaller credit card issuers have the highest level of customer satisfaction - the aggregate of “all other” credit card companies scores a 76, unchanged from a year ago. The smaller companies have been hit hard on the value front just like their bigger competitors, but they have managed to counteract the effects of higher consumer costs somewhat by offering a superior service experience. HSBC leads by a strong margin with a score of 73, unchanged from 2008. HBOS follows at 70, also unchanged, while Barclays improves slightly by 1% to 69. The big banks Lloyds and RBS fall, with Lloyds down 3% to 69 and RBS dropping 4% to the bottom of the credit card category to a score of 68.
Home and Motor Insurance: Aviva Brings up the Rear despite Big Gain
Consumer satisfaction with home and motor insurance is the only bright spot among financial services, remaining unchanged with a score of 77, far better than the other financial service categories and the national NCSI score of 72.8. This is consistent with the US experience as well, where the property and casualty insurance category has an ACSI score of 81, well above the national ACSI average of 76.0. The quality of motor and home insurance services is high and declining premiums have created a better perception of value for money than other types of financial services.
Churchill Insurance leads the category, up 1% to an NCSI score of 79, proving to be the one bright star in RBS Group’s universe of financial services. Churchill is followed closely by Zurich Financial, down 1% to 78. The aggregate of smaller home and motor insurance carriers falls 4% to the industry average of 77, while Direct Line (unchanged at 76) and RSA, the second largest general insurer in the UK (+1% to 75), are slightly below average.
The biggest improvement in the insurance industry is made by Aviva, formerly Norwich Union, which rises 6% to 73 – only Abbey’s improvement in mortgage lending this quarter was larger. Still, while the big gain closes the gap between the UK’s largest insurer and the industry average, Aviva remains last among major home and motor insurers. The company has struggled in other insurance lines, seeing its sales of life and pension products fall 25% compared to the previous third quarter.