NCSI-UK Commentary Third Quarter 2012
National Customer Satisfaction Index Results for Retail Banks, Mortgage Lenders, Credit Cards and Home & Motor Insurance
November 28, 2012
The National Customer Satisfaction Index (NCSI-UK) rises 0.7% to 75.3 on the 0-100 index scale for the third quarter of 2012, which covers financial services. This is the third consecutive increase in the national level of customer satisfaction and the largest gain of the year. Retail banks, mortgage lenders and credit cards improve, while customer satisfaction with home & motor insurance stalls. Results for individual companies in these industries are predominantly positive: 77% show some improvement, 14% register no change, and only 9% decline.
The Index applies the methodology of the American Customer Satisfaction Index (ACSI) and demonstrates a similar relationship to economic growth. According to research from the University of Michigan, customer satisfaction – as measured by the NCSI and ACSI – is also a predictor of stock price. Companies with high scores on the ACSI and the NCSI generally produce higher stock returns than firms with weak customer satisfaction results, and consistently outperform the broad market indices.
The 15 industries covered by NCSI represent nearly half of total UK consumer spending. NCSI growth was weak in the first half of the year while GDP growth was negative, but recent gains suggest that the economy may be on a path to recovery. For the third quarter of 2012, NCSI is up by 0.7% and GDP by 1%.
The largest four banks still hold 85% of all current accounts, but the industry is facing sweeping reforms that could potentially alter the competitive landscape of banking. New legislation to make it easier for consumers to switch accounts will come into force next year, and further regulatory changes are expected to help new banks enter the market. The threat of competition from more customer-focused banks has already prompted some large banks to improve the service and value they provide to their customers.
Overall customer satisfaction with banks rises by 3% to an NCSI score of 74. This marks the third straight year of improvement and a five-year high for retail banking. Heeding calls for change, some major banks are turning away from a sales-oriented culture in favour of a more customer-centric approach.
However, smaller banks are improving at more than twice the rate of the industry. Customers have always been happier with smaller banks, but now the average customer satisfaction score for small banks, building societies, and supermarket banks climbs 7% to 81 – a record high for financial services covered by the NCSI.
HSBC – which includes First Direct – continues to have the highest customer satisfaction (75) of the major high street banks, and gains 1% from a year ago. HSBC customers also have the highest expectations among all bank customers. These expectations continue to rise as a result of consistently strong customer service. However, results suggest that competition is rising to the task and will soon present a challenge to HSBC.
Lloyds Banking Group – which includes HBOS – is up 1% to an NCSI score of 74. In addition to branch refurbishments and extended opening hours, Lloyds has enhanced its online and mobile banking capabilities, and its customers are now among the most likely to use online banking.
Barclays also makes improvements across the board, rising 1% to a score of 73. According to customers, Barclays provides the best “value for money” among the big five banks.
While not far behind, RBS Group and Santander remain at the bottom of the industry. RBS is the only bank not to improve customer satisfaction this year. Despite the unsuccessful attempt to migrate systems to Santander, after which the sale fell through, RBS maintains a customer satisfaction score of 72. However, customers complain about slipping service quality. RBS and Santander are also the only major banks with mounting service problems. Despite a slight improvement, Santander remains the lowest scoring bank at 70.
Banks have also been under pressure from the Financial Ombudsman to reduce customer complaints. Although complaints have not dropped overall, NCSI data show that banks are doing a better job of handling them; complaint handling has improved by 14% on average.
As mortgage rates continue to edge downwards, customer satisfaction with mortgage lenders makes its largest gain in three years, up 3% to an NCSI score of 74. Demand for mortgage finance is also rising at the fastest rate in three years.
According to consumers, service quality has improved, but the industry-wide rise in satisfaction is due in large part to lower rates. The government’s Funding for Lending (FLS) scheme, launched in August, is likely to further improve customer satisfaction if banks pass on lower borrowing costs to customers.
Among the major mortgage lenders, Nationwide holds the top spot for the fifth year in a row, and continues to steadily improve customer satisfaction. With a score of 78, Nationwide sets a new record-high for the mortgage lending industry.
As with banks, smaller mortgage lenders are often able to provide better, more personalised service. The average NCSI score for smaller lenders increases 6% to 75.
Barclays and Lloyds Banking Group both improve 1%, matching the industry average at 74.
RBS Group and Santander remain at the low end of the category, well below the average. Santander rises 4% to 71, knocking RBS Group into last place. With a 3% decline to 68, RBS Group is the only mortgage lender to see customer satisfaction erode in 2012.
For the third quarter of 2012, customer satisfaction with credit cards gains 1% to 76, a five-year high for the industry, while September saw the largest monthly rise in consumer credit since 2008. Borrowers are taking advantage of a price war in the credit card market, including lower transfer fees, interest-free terms and rewards, all of which has resulted in higher customer satisfaction – but also lower customer loyalty.
Smaller credit card issuers keep customer satisfaction stable at 79, well ahead of the industry average.
Among the largest banks, RBS Group gains 1% to tie HSBC for the lead at 74. After a fault in the payment system earlier this year left customers briefly unable to use their cards, HSBC slips 3% (74).
Barclays shows the largest improvement in credit card customer satisfaction, advancing 4% to tie Lloyds Banking Group (including HBOS) at 73.
Home & Motor Insurance
Customer satisfaction with home and motor insurers is static at an NCSI score of 76 for 2012. As car insurance costs went down, home insurance premiums rose, bringing customer satisfaction with the industry overall to a standstill. With the rising popularity of price comparison websites, the insurance market has become increasingly price competitive, leading some companies to cut premiums in order to attract customers.
Smaller home and motor insurers held a healthy lead in customer satisfaction last year, but their average NCSI score is now stagnant at 77. RSA Group (including More Th>n) leaps 5% to join the top of the ranks and takes the lead among the largest insurers.
Last year’s leader Churchill Group keeps customer satisfaction steady at 76 for the third consecutive year, but a 4% improvement for Direct Line places the two in a draw for second place. Aviva and Zurich follow closely behind as each improve 3% to tie at 75.