NCSI-UK Commentary Third Quarter 2010
Retail Banks, Credit Card Providers and Mortgage Lenders Improve; Home and Motor Insurance Companies Fall
Strong Gains for HSBC and Santander in Banking, Lloyds TSB and HBOS in Mortgages, and Lloyds TSB and RBS Group in Credit Cards; Home & Motor Insurers Struggle as Churchill Group and Zurich Drop
November 23, 2010
The National Customer Satisfaction Index (NCSI-UK) increases for a fourth straight quarter, up 0.1% to 73.8 on the 0-100 Index scale. Following stronger gains of 0.5% in the previous quarters, the pace of improvement has slowed. The increase is due in large part to higher customer satisfaction with banks, credit cards and mortgages. Home and motor insurance customers are less satisfied than last year.
The Index, which applies the technology of the American Customer Satisfaction Index (ACSI), demonstrates a strong relationship to economic growth. Just as the NCSI showed a significant upswing in satisfaction followed by a smaller gain over the last two quarters, GDP has followed a similar pattern of slowing growth, increasing 0.8% in the third quarter after a 1.2% growth the previous quarter.
The 16 industries included in the NCSI represent nearly half of total UK consumer spending. Two of the four industries measured in the third quarter of 2010 perform better than the national average. Home and motor insurance and credit cards are slightly above average, with NCSI scores of 75 and 74, respectively. Despite small improvements for retail banking (+1% to 71) and mortgage lending (+1% to 70), these two categories of financial services continue to fall short of the national average. Of the 22 companies measured this quarter, 27% improve while only 14% decline.
Retail Banks: HSBC Leads
Customer satisfaction with retail banking rises 1.4% to 71. Smaller banks (reported as ‘All Others’) decline slightly (down 1% to 75) but continue to outperform the industry average. For the past two years, HSBC (including First Direct) has had the highest customer satisfaction among the large banks. This year, HSBC surges 11% to a score of 78. The bank has also doubled its profit in the first half of the year. HSBC has upgraded its direct banking services and has imported customer service practices from its subsidiary telephone/internet bank First Direct, which has a history of strong customer service and has been at the forefront of integrating social media into banking.
Both Barclays and Lloyds TSB improve 1% to tie for second-place at 70, although Barclays does slightly better in terms of value for money. Customer Satisfaction with RBS Group drops slightly (-1%) to 68, while HBOS (Halifax and Bank of Scotland) falls 3% to the bottom of the industry at 66. A year ago, Santander (formerly Abbey) scored well below the other banks, but an 8% improvement to 68 moves it out of last place, although the bank still remains slightly below the industry average.
Mortgages: Nationwide on Top and Lloyds/HBOS Gaining Ground
Customer satisfaction with mortgage lending follows the same pattern as retail banking, recovering from a small decline in 2009. Despite a 1.4% improvement to 70, mortgage lending continues to have lower customer satisfaction than any other financial service. Low interest rates and a smaller customer base are behind the improvement – the cost of a tracker loan fell to an all-time low of 3.5% in October, and mortgage lending was at the lowest level of the decade.
Nationwide has the highest level of customer satisfaction (+ 3% to 76), but Lloyds and its subsidiary HBOS make the largest gains. Lloyds jumps 7% to the second place at 74, while HBOS gains 6% from the bottom of the category to tie the average at 70.
Barclays follows closely behind Lloyds, down 1% to 72, while both RBS (-3% to 68) and Santander (-4% to 67) fall below industry average. Santander made significant strides a year ago, rising 8% from last place to just above the industry average, but this year’s decline nearly wipes out the gain and Santander again occupies the bottom spot.
Credit Cards: Little Differentiation among Large Providers
Customer satisfaction with credit cards is up 2.8% to 74, a record score for the industry. Nearly all providers show improvement, as does the aggregate of smaller issuers. Various incentives designed to spur greater spending on credit cards as the holiday shopping season approaches have helped – zero interest rate on new purchases for a certain number of months and zero interest on balance transfers are making credit cards more attractive. The number of cards issued continues to decline as households reduce the number of accounts, but customers are not likely to switch between providers, and loyalty to credit card providers is stronger than in any other financial service category.
Smaller credit card issuers continue to have the highest level of customer satisfaction by far, up 3% to an NCSI score of 78. These providers include smaller banks but also retailers’ credit cards, many of which offer zero interest, cash back and other incentives. The largest banks, by contrast, score much lower and are grouped very tightly in the range of 70 to 72. HSBC has led in the past by a strong margin, but slips 1% to 72 and is now tied with Lloyds, which gains 4%. RBS (+4%) and Barclays (+3%) follow closely at 71, while HBOS remains unchanged at 70.
Home and Motor Insurance: Only Aviva Improves
Home and motor insurance is the only financial services category to decline, falling 2.6% to an NCSI score of 75. Despite the drop, due in part to higher premiums, home and motor insurance remains the financial service with the highest customer satisfaction.
Only Aviva improves from a year ago. Churchill Insurance still leads the category, but is down 4% to 76, tying the aggregate of smaller insurance carriers, which also falls 1%. Direct Line (-1%) and RSA (unchanged) are next at 75, followed by Aviva, up 1% to 74, the second straight year of improvement for the former Norwich Union. Zurich Financial faces the steepest decline, falling 6% to last place with a score of 73.