Imagine a world of banking that tears up the old rules and starts all over again. That’s exactly what Paul Pester, the CEO of TSB, is aiming to do as he tries to rebuild the trust of a sceptical public. Impossible? Speaking at the recent Cambridge Trust in Banking conference, Paul Pester told an audience of finance professionals that rebuilding trust was not just possible, it was essential.
In fact, as Pester explained, when the EC ruled a condition of the government bailout of the Lloyds Banking Group was to create a competitive alternative, it produced an opportunity to take an entirely different approach – to build not only a brand but a whole new banking model, principally through the divestment of the new TSB group to include former branches of Lloyds TSB and Cheltenham & Gloucester.
It’s a challenge he has embraced, with a radical modus operandi that prioritises consumer satisfaction over everything else – even the bottom line. Pester has already ditched traditional bonuses, sales targets, inter-branch league tables – all practices perceived to have served the bankers better than their customers. Nor does Pester stop there, calling for banks to become transparent by issuing customer bills detailing the hidden costs of “free” banking and – arguably most radically – empowering customers to transfer overdrafts.
“We’re here to bring more competition to UK banking, and ultimately make banking better for UK consumers,” he told Cambridge Judge Business School’s recent Trust In Banking conference. “That’s the mantra. That’s why we get up in the morning. It’s not to make money. If you do this well, then you make money.”
Pester’s first move as CEO was to consult 1,000 colleagues, including all of TSB’s branch managers, to formulate a brand new culture based around trust, transparency, collaboration and innovation.
They worked fast. Their first step jettisoned any notion of banking’s traditional, publicly despised bonus system. Unable to find a satisfactory alternative within the sector, Pester looked to retail and created a John Lewis-type “partnership” which rewards every employee from cashier to CEO identically for collective, not individual, successes.
“It’s about us all having the mind-set of being a custodian of a business that we want to be thriving in 200 years time,” says Pester. “At Lloyds I could earn three-and-a-half times my base salary – but I’m now the same percentage salary bonus as the rest of our Partners – this year 12.5 per cent. And what is that bonus paid on? Customer service scores.”
Another Pester strategy to increase trust was to ditch sales targets and league tables which in many banks pitted staff and branches against each other so aggressively that it arguably gave us the PPI scandal. “The great idea was the more ‘points’ you attracted as a salesperson (for selling particular products), the more value you created for the bank,” says Pester. “PPI had tons of points because the income came in on Day One. And competition between internet and branch-based banking meant if you entered a branch as a customer you never got their best product, you got the one they sold you in branch. So now we have no league tables. We don’t think a branch manager needs to know daily or weekly how much they’re selling – but they do need to know the level of service they’re delivering. Now we measure everything on customer feedback.”
Pester says rivals need to follow TSB from a supply-led to a demand-led model. “It’s up to us to create an overarching appeal to the organisation and make customers want to come to us. When they do, the focus is on giving them a great experience.”
And the key motivator to providing that experience is competition, says Pester, because only by expanding the market can banking become more transparent. “Five banks control 85% of a market which is stacked against consumers. There’s a complete lack of transparency.
“For instance, what is this crazy concept of banking being free in the UK? Banks make between £7bn and £8bn a year out of current accounts – while telling customers: ‘Current accounts are free.’ We think banks should be made to send a bill explaining to customers how much their current account has cost them. Yes, a statement tells you how much your overdraft cost or that you incurred fees – but what about the money you left in your account that you didn’t get interest on? That’s a cost. Adding these costs up in a standard format would help consumers understand what they’re paying for.”
Customers would also be served better, says Pester, by increased competition that would stem from arguably his most radical idea of all: let overdrawn customers switch banks – and take their debts with them. “Who are the most valuable customers for banks? Typically, those with overdrafts. We’re calling for a credit passport which enables you to open an overdraft with your new bank on the same day you switch your current account. That would enable the most valuable customers to move.”
But the vast majority of consumers do not even realise they can switch, says Pester – adding that this, too, must change. “About 16% of customers know about the current account switching service,” he says. “The big banks should promote it to customers every month on the bill they’ll be sending – two birds with one stone.”
So how to rebuild trust? Competition, says Pester, is everything. “It’s only when senior executives start seeing big swathes of their customers voting with their feet that we’ll see real culture change,” he adds. “It’s only by bringing real competition to our market that we will fix the culture. And it’s only by fixing the culture that we’ll fix trust.”