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Getting a Handel on sustainable growth in retail banking

Handelsbanken was put on FND credit watch earlier this month, which was a rare piece of bad news for the organisation. In fact, the Swedish retail bank has been as close to an unqualified success in retail banking as any other company in Europe over the last 20 years or so. Largely untouched by the financial crisis and with a management strategy totally at odds with that of almost every other listed retail bank in Europe, its stock is currently the best performing of any of its peers.


Perhaps of most interest to those seeking to emulate some part of its success is its approach to training and staffing in its branches. As a bank to which prospective customers must apply, and are often refused, the loyalty of those customers who are accepted is of paramount importance, and a highly personalised approach to customer service is necessary to achieve this.  Also, decision making is completely localised, with all lending and credit assessments taken by in-branch staff. That means that the bank relies entirely on the knowledge and judgement of its highly-skilled staff, who are numerous and spread over a very large geographic area.  Given that they carry the ultimate responsibility for the bank’s success or failure, the development and maintenance of their skills must be a priority for the leaders of the bank. This is in stark contrast to most publicly-listed retail banks, where decisions are often taken centrally and in-branch staff are basically salespeople.


Despite this, there are aspects of Handelsbanken’s strategy that high street banks can take note of to improve customer satisfaction and service. For example, with the right technology organisations can collect and analyse feedback from customers on staff in-branch, which also helps identify any relevant training needs. To support this, there should also be a comprehensive performance management programme in place, so that staff can develop their careers with adequate coaching and training. But – this requires time and investment to have the right impact on the customer satisfaction levels.


While they do sell products, the employees at this bank also differ further from their colleagues elsewhere in the industry in that they do not receive bonuses for what they sell. Handelsbanken’s leadership team, rightly or wrongly, decided many years ago that awarding bonuses would result in a short-term attitude to lending, with staff selling in such a manner as to inflate their own bonuses, rather than with the long-term stability of the company finances in mind. Now, it is much too easy to point to the financial crisis and say “all banks should run like Handelsbanken”. Anyone with any experience in the finance industry, however, will know that this model could not work outside of the rarefied pool of customers in which Handelsbanken operates. Those in the business of banking for the rest of the population do not have the luxury of picking their customers as carefully as Handelsbanken does and, after all, market share is as reliable a route to profit as margins are.


However, that is not to say that Handelsbanken should be seen as a freakish anomaly whose methods are only relevant in the upper reaches of the banking market. The whole business model might not be relevant for the wider market place, but there is much that other banks can learn from how they do business. While there might be a limit on the number of appropriately skilled people in the industry prepared to work without a bonus, there is a great deal to be said for structuring bonus awards over a longer-term basis (indeed, in the UK, this has been recommend by the Parliamentary Commission on Banking Standards). Similarly, it may be easier to devolve decision making to the branch level with 160 establishments, rather than 1500, but training designed to build the financial and business acumen of in-branch staff means that less administration must be sent to the centrally-located back-office, and transactions may be processed quicker. With the right systems in place to monitor efficiency and effectiveness, these principles can be applied to any bank, whatever its size and commercial objectives.


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