The appearance of Liz Truss at the 2023 Conservative party conference and, at a bookshop near you, served to remind us that her legacy is far reaching. For mortgage intermediaries, she may be gone, but the impact of the mini Budget has yet to be forgotten.
Intermediaries taking part in our quarterly Project Mercury survey currently report little, if any, difference in confidence in the wider mortgage industry than in the final quarter of 2022, just after former Chancellor Kwarteng stood up behind the dispatch box to trigger the growth in interest rates which has only now started to moderate.
The hope now is that mortgage rates will start to come down from some of the dramatic highs which are making their presence felt in both the owned and rented markets. Concerns are growing amongst intermediaries about the health of the market and the impact on their clients as deals expire and there is a lack of low-cost options to replace them, leading to tense conversations and stressed negotiations.
We have found that product transfers are becoming the main source of business, as clients have few options available when, for example, they are coming to the end of a cheaper fix, but one they have only just managed to afford with Cost-of-Living issues. The lender retains the client, but, possibly without even realising, has a higher risk client on a rate that is now close to being unaffordable.
Some intermediaries have also forecast that in the medium-term stretched customers may be looking at borrowing for debt consolidation, and at that point they may find they have to re-mortgage.
The FCA’s Consumer Duty rules, which came in at the end of July, have caused added stress at a difficult time across intermediaries, adding to paperwork and to the feeling that they are being portrayed as scoundrels. There is very much a mood of shooting the messenger, which is unfortunate, but understandable.
What we have seen is that, while the bureaucracy of the new regime is painful, it does protect the intermediary if there is a complaint from a client or some other kind of dispute. Anything which helps to define best practice can only be helpful for the sector and added regulation increases barriers to entry, which helps to set intermediaries above others in the property market.
While we wait for the mortgage market to improve, there are some signs of hope in the mood of consumers. In our Moments of Truth study we found that currently 36% of consumers now expect their financial situation to be better in the next six months, against 22% who thought it would be worse. This is a significant improvement on October’22 when only 19% expected it to be better and 53% expected it to be worse.
While the topline mood is positive, the detail reveals the usual devils. One in five consumers are earning less than their expenses and another two in five currently meet their expenses but have no savings, putting around 60% in the position of being vulnerable to a shock.
Efforts are being made to conserve cash: half say they will cut back on energy usage and restaurants with a third cutting back on holidays and entertainment and a quarter planning to use their car less and dip into their savings.
Looking ahead, two in five expected to have less savings in 12 months time, a similar proportion will have about the same as now and just over one in five expect to have more savings.
A striking point for mortgage intermediaries was that very few said that they would discuss their financial situation with their bank. This presents an opportunity for the intermediaries to bring their specialist knowledge to bear, but also makes it more likely that, by the time a mortgage deal is up for renewal, the consumer’s finances may be in a more parlous state than they might have been with earlier help and intervention.
With 1.5 million mortgages renewed or renewing in 2023, we will continue to navigate the ongoing turbulence and watch inflation figures for signs that pressure can be lifted. Brokers’ expert knowledge will be needed more than ever as people try to hold onto their homes.
This might seem like a radical idea, but I’d like to propose that Customer Experience (CX) be put on the Corporate Social Responsibility agenda. But first, let’s start with defining what Corporate Social Responsibility is. According to the Australian Human Rights Commission, “The concept of Corporate Social Responsibility (CSR) is generally understood to mean that corporations have a degree of responsibility not only for the economic consequences of their activities but also for the social and environmental implications. This is sometimes referred to as a ‘triple bottom line’ approach that considers the economic, social and environmental aspects of corporate activity.” The four pillars considered the mainstay of CSR are environmental, ethical, philanthropic and financial.
I’m here to make the case that CX sits firmly amongst a company’s social responsibilities. Now this isn’t to say that it should be the only element of CSR, just that it should have a seat on the table or, if you like, a place on the KPI dashboard.
Why? Because brands can have a significant impact on people’s day-to-day lives. In fact, interactions with brands have the power to make or break a person’s day. Consider the impact of these events on a customer’s sentiment towards a brand measured by the NPS* taken from our Australian Moments of Truth Quarterly Benchmarking Study in Retail Banking based on defined pathways.
*NPS = Net Promoter Score, a rating of how likely a customer is to recommend a brand, therefore a measure of emotional sentiment. The NPS score is comprised of the % of Promoters (rated 9-10) less the % of Detractors (rated 0-6) on a scale of 0-10).
In our latest research, we asked banking customers what particularly positive and negative moments they recall having with a brand. We’ve called these ‘Magic’ and ‘Tragic’ moments. Magic Moments are those which have the power to influence someone’s day positively. Below is an example of how a negative interaction with a brand can be partially overcome with a positive emotional interaction. Operationalising emotions can provide a buffer against suboptimal operational outcomes.
In both examples, there were a series of straightforward rational events. A call was either going well or poorly based on a series of rational actions, which all impacted the customers’ mood and sentiment towards the brand. But the endpoint had a totally different emotional outcome based on their perceptions of the call centre rep’s demeanour, e.g., did they seem friendly and supportive or uncertain and dismissive?
In Australian Banking, our data shows that, fortunately, there are more Magic (30%) than Tragic (13%) experiences, but we’d like to see that gap widen. We can do better as an industry! From a net positive impact point of view, CBA is the best-performing Big4 Bank. Newcomer UP stands out for performing well on both Magic and Tragic. Macquarie has a relatively low Tragic footprint but offers the lowest amount of Magic.
It’s easy to get blasé towards numbers but remember that behind the numbers are people and that the numbers reflect how those people felt about their interactions with the brand. Here are two specific examples of Magic and tragic experiences in banking:
TRAGIC “ANZ were unable to resolve a simple credit card problem I had with my current limit – The branch staff were hostile, unfriendly, unwilling to assist and virtually useless. The problem was not resolved, and I left the branch feeling an overwhelming sense of anger, grief, dissatisfaction and depression.”
ANZ NPS 1
MAGIC “It was about 16 years ago when the bank repossessed my home as I couldn’t sell it. I was SO distraught and SO upset. I remember going into the bank branch, Blackheath. The staff treating me the same [as everyone else] was a tonic I desperately needed and made a HUGE difference to me. I have NEVER felt looked down on over the years and that’s part of the reason that I love the bank so much!”
CBA NPS 10
We analysed 2000+ of these stories and were struck by the strength of the emotion in these examples, “an overwhelming sense of anger, grief, dissatisfaction and depression”! But why does this make it a CSR agenda item? Because there is countless research demonstrating that emotions can impact our overall mental and physical wellbeing. Just think about when you’re stressed; you feel it in your body. It affects your mood. But these emotional experiences also impact the people around us. We all know how our emotions can drive us. If we have a bad day, we share it. Our mood can influence the people around us positively and negatively. If we’ve had someone be rude to us, how does that impact how we treat the next person? And it’s the same with positivity, we share it. When we experience the emotional highs and lows in life, it’s a butterfly effect on the world around us.
I’m certainly not suggesting that companies shouldn’t also look to do good in the world in the other areas of CSR. Still, the conversation about making a positive impact on the world should also include the day-to-day impact on a brand’s own customers. Let’s face it, most of us would rather work for and buy from a brand known for doing the right thing by customers and sparking joy rather than a brand that triggers anxiety and grief in its day-to-day interactions.
The good news is that the emotional impact on customers can be operationalised by any brand and measured and tracked. In our analysis of 2000+ Magic and Tragic moments, we were struck by how often they existed in the everyday. And we were struck by how simple some Magic moments could be to operationalise. Small things like being offered a cup of coffee while waiting in the branch had a huge emotional impact. We’ve captured thousands of points of feedback on CX, and it still surprises me how often comments like “didn’t feel valued” and “was rude” sit amongst that feedback. It would be ambitious for brands to totally eliminate all the Tragic moments, but certainly, it should be a goal to reduce them and eliminate rude behaviour towards customers.
Recent times have seen economic news hit the front page with daily regularity. While oscillating market conditions have dominated the headlines, consumers have seen letters on their doormats from their mortgage providers and energy companies with bad news. A trip to the shops offers little respite.
And consumers are responding accordingly. Our Moments of Truth study tells us that two in three consumers cut household energy usage. A third plan to leave the car at home, with some of that (1 in 7) taken up by public transport.
The OBR anticipates household incomes falling cumulatively 5.7% over ’22 and ‘23, in part due to tax rises, cuts in energy subsidies and guaranteed rises in fixed-rate mortgages for 2m households (costing each mortgaged household £3,000 extra in 2023). The 9.7% increase in the minimum wage and 10.1% rise in welfare benefits and pensions in April 2023 will however soften the blow somewhat for lower-income households.
Meanwhile, the Resolution Foundation for lower-middle-income households describes 2023 as a Groundhog Year – repeating 2022, with another ration of pain on the way.
There is light: according to data from Consensus Economics, aided by falling energy prices and better than anticipated business and consumer sentiment, the UK economic outlook for this year has improved from its most recent darkest days.
But that move towards a brighter outlook has yet to be fully felt in the present. Moments of Truth results show that 75% of consumers felt, either through choice or necessity, the need to be cautious, with discretionary spending largely affected.
Consumer spending on restaurants (51%), entertainment (37%) and holidays (33%) are all being hit, (although the sight of packed bars and restaurants in many towns and cities might give you the opposite impression).
Beyond spending cuts, 25% of consumers expect to dip into their savings this year to tide them over and over one in five have already used their overdraft at least once in the past 12 months.
Regardless of whether these dire predictions pan out as forecast or the economy continues to fluctuate, giving us glimpses of recovery and calming waters, banks simply must invest time and energy into proactively forging strong relationships with their consumers. Moments of Truth tells us that if the attention is given now, they’re in with a good chance of building a lifetime of loyalty.
There is work to do. To date, only 10% of those who claim to be ‘struggling’, expect to discuss their financial situation with their bank in the next three months. If the relationship was sound, we’d expect the trust that comes with it to drive conversations about short- and long-term solutions.
Which banks are getting it right?
first direct is one to watch. According to customer ratings in the Moments of Truth benchmarks, it offers by far the best overdraft customer experience.
first direct also held an impressive lead over its peers for telephone contact throughout 2022. 50% of people contacting the bank got through to a person in just one minute, which is significantly better than the industry average of 20%. On top of that, queries are dealt with swiftly and effectively, without the typical sources of friction or stress. The same cannot be said for some other providers assessed by the study.
Elsewhere, Newcastle Building Society, Coventry Building Society and Monzo offer clear demonstrations of best practice across various offline and online experiences – be that through minimising branch queues, efficient product applications or game-changing app features.
Ultimately, a brand has the power to make or break someone’s day. Operational success or failure can have a huge emotional impact on the end customer, and the shockwaves can be far-reaching when it comes to money – especially if that person is already feeling under pressure.
It is vital that customers enjoy a close relationship with their bank, so that any issues can be resolved before they become crises. Banks and building societies need to be accessible and approachable – just as we are seeing with the top performers in the Moments of Truth results. Recent market volatility placed extra emphasis on the importance of this and we are pleased to see banks and building societies working to create outstanding customer experiences.
The leading players are proof that when customers feel like they have less, they can still experience more.
About the research
Moments of Truth assesses consumer banking experiences through 30,000 online interviews annually, across 80 providers and 16 key customer journeys. Learn more.
Traditionally, banks have acted as the facilitators of finance and transactions, resting on a solid footing of traditional values, trust, and history. These values were built at brick-and-mortar stores through personal relationships and brand loyalty that started when we were children. Fast forward to today, the digitalisation of retail banking means that customers can switch to a more appealing offer more efficiently than ever.
In the digital age, banks are striving to foster customer loyalty by creating value that can replace the in-person elements of banks’ value proposition of years passed. Part of this shift involves streamlining and unlocking data that can create engagement. Engagement is typically conceptualised as having two components: the extent of usage (e.g., frequency, duration) and the subjective experience (e.g., interest, appeal, and attention). When deployed effectively, behavioural science can help increase the stickiness of digital banking tools by strengthening consumers’ habitual use.
Here are four behavioural science principles that are proven to improve customer engagement with digital products.
Hyper personalisation and contextual banking
Successful digital banking products of the future will provide a contextualised banking experience tailored to individual users based on a variety of information like location, time of day, personal preferences, money habits, and behavioural patterns. Contextual banking is based on the behavioural science principle of Just-In-Time-Adaptive-Intervention (JITAI). It delivers pertinent information to customers where and when they need it based on data analytics and intelligent algorithms. For example, an app might send a notification based on the user’s location or the time of day based on their previous behaviours in those contexts.
Goal setting and behavioural monitoring
These are two of the most effective behaviour change techniques (BCTs) for digital tool creators. While it’s common for banks to include some elements of goal setting and behavioural monitoring within Personal Financial Management Tools, this will become increasingly common and sophisticated as part of the new world value that banks create for their customers. Goal setting is strongly linked to increasing motivation but also usage engagement by encouraging users to log in and continually check their progress. In the future, these BCTs will become far more personalised and targeted using open data frameworks. Banks are not yet ready to utilise all the data that is available to them, but many are testing and trying new things.
Refers to the inclusion of game-like elements like point scoring, rewards, and rules in non-game contexts, to promote user engagement with products. In Australia, the CX-focused and digital-only brand Up leans heavily on gamification to encourage a positive emotional connection with customers. Their ‘Save Up 1000 Challenge’ combines gamification, goal setting, and behavioural self-monitoring in a robust and engaging offer.
Key trends in digital banking tend to support customers to self-manage their wealth and money. Therefore, retail banks will grow as agents of empowerment, helping individuals set financial goals (BCT: goal setting), track their progress towards them, and develop positive money habits and financial literacy. This will become a central element of banks’ offers, with new value created for the customer.
How to get started
The first step towards designing a behaviourally informed solution or feature is to define your behavioural challenge. We recommend that clients start with an understanding of the user’s job to be done (JTBD). This involves studying what customers are trying to accomplish rather than what they are saying they want, especially in areas with insufficient solutions, as these often make for great opportunities for innovation that gets to the heart of the job to be done.
“If I had asked people what they wanted, they would have said faster horses.” Henry Ford
JTBD is best reduced to its simplest parts while taking a zoomed-out view. Consider using a sentence framework that considers customers’ JTBD in terms of its verb, object, and context. The job to be done should focus on the end goal, not the task at hand.
“Save $60,000 for a house deposit in a rates driven market” rather than “open a new high interest saving account”
Prioritise opportunities to tackle those JTBD. While many opportunities can be available, it is essential to identify the highest value ones for your brand. What aligns most with your values and current product strengths?
There’s no doubt that COVID-19 accelerated consumer expectations around seamless digital experiences, which has driven banks to invest in furthering their digital capabilities. This is an obvious way forward for both customers and brands. Brands can lower the cost of service, and customers can avoid the annoying telephone and branch queues. While many things can be done online using self-serve, we still gravitate towards human intervention and assistance from time to time. “Chat” is a logical way of bridging these two worlds, and our research shows a growing use of this channel.
But whilst Chat is growing, our Moments of Truth study in Australian Retail Banking has shown that, as yet, there has not been a noticeable drop off in the use of other channels. Our results also show that for those that use it, chat is usually the first port of call to resolve the query and most report that they are likely to continue using it. Customers are using chat almost equally across channels: online banking, the company’s public website, and from within a mobile app, which shows that it’s an appealing way of engaging with brands across a range of situational contexts. Our research shows that at this stage, the customer ‘job to be done’ that drives usage of the chat function over other channels is a general inquiry or problem resolution rather than product research.
Our results tracking the performance of Chat across Australian Retail banking reveal four important operational breakpoints for brands to understand and monitor.
These industry breakpoints are consistent with the types of guardrails we see for interactions in other channels. They consider customers’ expectations around how long it takes to get a response, length of chat, and resolution rates.
Customers expect a response within 5 minutes, and NPS drops off markedly if the chat duration exceeds 10 minutes. These figures also outline that knowledge is power. Customers are more likely to recommend the channel when an organisation can quickly and effectively answer questions.
A key measure that is also highly important is how easy they were to deal with, which is going to be in part influenced by these operational outcomes, but is also a marker for the quality of the interaction on the chat itself. And that’s where brands are still struggling with the purely digital part of chat. Across the industry (and, of course, it varies by brands), the mix of chat conversations across humans (live chat), AI chatbots and both is roughly equal. And whilst the AI chatbot-only conversations outperform on efficiency measures, response time and chat duration, they carry lower resolution rates and lower customer satisfaction with “easy”.
If we equalise the operational elements of the experience across these different use cases, we can see that the Human obtains an overall better score for the SAME outcome than the other two delivery methods. In the hypothetical scenario below, where a chat enquiry is answered in under 5 mins, completed in under 10 mins, and resolved by the end, we can see the difference in NPS across different chat agents.
What does this mean for brands?
To increase perceived humanness, many systems with conversational user interfaces (e.g., AI chatbots) use response delays to simulate the time it would take humans to respond to a message. However, as we can see from the breakpoints above, delayed responses can negatively impact user satisfaction, particularly in situations where fast response times are expected, such as in customer service. Brands who engage in delayed responses to Chat interactions, even if only a few seconds, could be missing the point of this channel! They also look to use Natural Language Processing but have a way to go.
The disparity in NPS results across digital and human poses challenges for brands looking to remove humans from the equation altogether and still maintain positive customer sentiment towards the channel and ultimately, the brand. There is a fine line between technology and human interaction due to the empathy and sense of value a human can provide. These experiences need to be seamlessly connected. At this stage, the technology is not yet able to provide a seamless experience as well as high-resolution rates, so humans still have to get involved. But one thing that Chat does do is remove some of the communication issues that can arise in telephone conversations. This, in part, maybe a way to get around some of the implicit human biases that customers have with offshore call centres that are more formulaic and use more standardised responses.
It’s not so surprising, then, that at this stage of the game, the brands which are performing the best in Chat are the ones that have a higher use of humans in the interaction. Newcomer UP has the highest % of human vs AI chatbot interactions, followed by ING. But UP’s lead amongst the competitive set is also fuelled by market-leading resolution rates; 97% of its Chat interactions are resolved by the end, vs only 75% to 80% of those amongst the big4 banks. Westpac stands out for exceptional response times, with 64% answered within 5 minutes and 87% dealt with in under 10 minutes which far exceeds CBA, ANZ and NAB. But this lineup is ever-changing, and it’s important to keep your finger on the pulse and monitor whether you are within the critical operational guardrails that underpin good performance outcomes.
Digital adoption is not an aged-based play!
Naturally, any conversation involving the digital vs human debate sees our clients speculating that it’s really just older people who hold onto human interactions! Whilst as a general trend, this is partly true, digital has been more readily adopted by younger cohorts; we would be missing a trick if we ignored the wider cohort of customers. Our research shows that across brands 32% of customers aged 50 to 74 think they will use Chat a little, if not a lot more, in the future. At this point, I like to share the experience I have with my 80-year-old mother, who whips out her mobile to check the menus via the QR codes the moment we sit down in a café, vs me a young at heart and I like to think forward-thinking 50 year old, who prefers to go up to the counter and get the real thing. Age is not the only factor and many other contextual and psychosocial drivers of digital adoption play a role.
If brands truly want to drive digital adoption, it’s not a great strategy to sit around and wait for a new generation of customers! Here are three behavioural interventions you can use to help reframe preferences for a real human, highlight the benefits of digital, and drive greater use of your Chat function. These are drawn from BVA Nudge Consulting‘s proprietary Drivers of Influence, summarising 200+ human biases into 21 Drivers of Influence©. We’ve made it simple so you can apply it!
Our Australian Moments of Truth Study in Retail banking benchmarks both the behavioural and operational aspects of Chat experiences and allows brands to set themselves apart from the rest, increase efficiency and, most importantly, customer satisfaction. MOT complements your internal perspective giving a competitive lens and powerful insight into industry breakpoints and acceptable service thresholds for operational performance. Context is king! The market is always moving, and you can guarantee that your competitors are also investing in digital capability.