Banks boost customer service in fierce market

After years of bad publicity, fines for misselling products and unrest over charges, Britain's banks have opened up an unlikely new battleground: customer service. The reasons are varied and include the need to restore their battered reputations, the renewed importance of retail depositors, increased transparency over customer complaints and competition.

Barclays, Royal Bank of Scotland, Santander and Lloyds Banking Group have all pledged to improve service and reduce customer complaints. At last week's annual general meeting, Barclays' bosses admitted the bank's record on service was poor after the bank came off worst in the Financial Services Authority's customer complaint league tables.

Marcus Agius, Barclays' chairman, told a shareholder: "Of course we take it to heart. It will not be tolerated going forward and it must improve." Anthony Jenkins, Barclays' head of global retail banking, points to reduced times for replacing ATM cards, hundreds of refurbished branches and investment in new technology as examples of the efforts Barclays is making.

"We believe there is a great opportunity for a bank that can truly deliver better service. We think it works not just for our customers but for our shareholders," Mr Jenkins said.

The most recent CBI/PwC financial services survey showed banks planning to invest in customer service even though they are cutting costs elsewhere because they need to find new ways to generate income. As well as the fallout from the credit crunch and setbacks on overdrafts and selling payment protection insurance, the banks face competition from PayPal, Tesco, Metro Bank and other new entrants. They also need to keep hold of retail deposits to fund their businesses because they cannot rely on the wholesale markets any more.

Stephen Whitehouse of PwC said: "It has been very difficult for the banks to drive significant revenue. They are investing in their customers so that when the market picks up it creates stickiness to drive greater share of wallet and mind."

The Financial Services Authority last year published banks' customer complaint figures for the first time in a push to get them to improve service. Lloyds Banking Group came off worst in absolute terms because of its sheer size but Santander had the most complaints per customer and was the slowest to deal with problems.

Santander reacted by hiring 1,000 extra staff. When the most recent figures were published, its standing had improved, leaving Barclays with the worst record. Ana Botin, Santander's new UK chief executive, last week pledged to examine the "root cause" of customer complaints. Her predecessor, Antonio Horta-Osorio, is now in charge at Lloyds and will need to build a better record for service than he had at Santander with the Independent Commission on Banking looming.

RBS has been the most explicit in targeting customer service. The state-controlled bank adopted a customer charter last year that promised measures such as more convenient opening hours, reduced waiting times, and quicker replacement of ATM cards.

Brian Hartzer, RBS's head of retail banking, said: "I joined the bank about a year and a half ago when the way the industry was going about its business was unsustainable. For a retail bank to be successful it has to have a balance between customers, shareholders, communities and employees. The industry and RBS had become so focused on profit that it pursued policies that damaged all four of those stakeholder groups."