Complaints - A burden or opportunity to excel?

Posted: 18th March 2016

First published by Thomson Reuters in March 2016

The way the financial services industry engages with its customers is a common topic for broadsheets and tabloids alike, with the banking industry receiving the lion’s share of coverage. With the banks’ reporting season underway, attention will once again turn to one of the industry’s most reported on topics: complaints – volumes, upholds and remediation costs. With it, the threat of reputational risk will be brought to the fore.   

Across the UK, one in five people have had an issue with their bank. Almost one in ten experienced a problem that they deemed worthy of a formal complaint. Statistics like this are often used to paint a negative picture, but should complaints always be seen as a black mark for firms? New research suggests that, more than ever before, the answer depends entirely on how they are handled.

Our in-depth study into complaints – involving 5,000 consumers and 45 heads of complaints at UK financial services firms (representing 80% of complaints made about the sector) – reveals that a great deal is at stake in how firms respond to complaints.

For the regulator, complaints are one of the most direct ways of determining how well firms are fulfilling their customer obligations. Under Principle 6, all regulated firms must “pay due regard to the interests of [their] customers and treat them fairly.” Then on a more granular level, firms are also expected to align themselves with the complaint handling rules detailed in DISP. In doing so, they must have effective and transparent procedures to recognise, promptly respond to, and fairly resolve all eligible complaints they may receive.

But this only tells half the story, because the risk isn’t purely a regulatory one. Four fifths (81%) of complainants say that the experience of complaining ultimately changed their overall impression of their bank, for better or for worse. 

The research clearly demonstrates that effective complaints handling has a direct positive impact on bottom line performance, customer retention, cross-selling and even new business. Conversely, the risks of ineffective responses have multiplied in recent years, even above and beyond the ramping up of regulatory oversight. Increasingly empowered consumers and the amplifying voice of social media have extended the concept of reputational risk into new and unfamiliar territory.

From apathy to advocacy

Our study found that much is to be gained from more proactive listening – finding a way to respond to both the complaints firms get to hear and the ones they don’t. Close to two thirds (60%) of banking customers who recently had an issue with their provider did not then make a direct complaint. And yet, 90% of these non-complainants still took some form of action, whether mentioning their grievance to family and friends, sharing their story online, or simply, and perhaps most worryingly for firms, quietly using their bank’s services less and less.

Expectations among consumers are rising. Indeed, the majority (86%) say that they expect more in terms of customer service than they would have five years ago, and why wouldn’t they? Consumers have ever more choice from retailers and technology giants as well as fintech startups. Many of these challengers operate in less regulated environments, and are able to leverage their multiple touch-points and consumer brand credentials, providing an experience that banks have traditionally struggled to match.

Bank customers are also John Lewis, Amazon and Apple’s customers, so as service improves across the board, the industry must adapt to keep pace. Of course banks are changing fast to respond to this disruption, but complaints processes need to be a fundamental part of this evolution. The good news is that it is entirely possible to use the complaints process to revive customer relations. Our research found as many as a quarter (24%) of bank complainants came away with a better impression of the firm than they previously held. However, the large proportion that went the opposite way are a sharp reminder of how much work is to be done, not just to improve processes, but to re-establish trust that these processes work and encourage more customers to speak up.

Beyond compliance

Firms should be looking beyond just complying with the DISP rules and basic TCF principles in order to set themselves apart from their competition, whether that competition is within the industry or outside it.

Every one of the 45 firms involved in this study claim that the shift from complainant to advocate is achievable en mass, yet only 13% currently rate their own complaints process as anything more than compliant. Who will step forward and lead the industry?

The many departments that need to work together to create exceptional complaints handling have a tough job on their hands. Legacy systems and legacy issues such as PPI mean that finding the time to focus on customer-based improvements in business as usual mode is a challenge. With changing regulations and further back-book exercises already firmly on the agenda, the regulatory pressure isn’t going away either.

Despite all these demands, opportunities to work to a higher standard are plentiful, and to do so will not only set firms apart from the competition, but, in many cases, leapfrog future compliance challenges. A simple example is found in the time it takes to handle a complaint. The FCA state that “the respondent must, by the end of eight weeks after receipt of the complaint, send the complainant a final response” (DISP 1.6.2). Our research, on the other hand, shows that 82% of consumers expect complaints to be dealt with inside one week – in fact, less than 2% think that eight weeks is an acceptable time frame. This is one of many examples proving that merely being compliant is often insufficient.

Lessons for tomorrow’s industry leaders

Overall, the lessons from this research may be summarised as back-book preservation, root cause analysis (RCA) and board-level buy-in.

From the customer’s perspective, doing a great job of handling a complaint will encourage them to stick around, use a firm for more products in future and generally increase their loyalty. For customers who have a poor experience, our research found two in five (40%) would avoid using their bank for a mortgage, over a third (37%) would steer clear for their next credit card or insurance product and almost half (47%) would look elsewhere for a new savings account. In short, sub-standard complaints handling is one of the most effective ways for banks to strip value from their back-books.

From a firm’s perspective, building a loyal and valuable customer base is great, but doesn’t necessarily help bring in new customers or make the firm more marketable. This is where RCA, and rectification of those root causes, is essential. In the highly regulated complaints arena the regulator sends a clear message to the industry: “We will step in if a firm is not acting fairly on root causes or not accurately assessing risks” (PS 10/12 (2.18)). Highly effective complaint handling means not only happy customers, but the ability to cost-effectively and accurately troubleshoot otherwise invisible problems in the bank’s existing systems and processes, whether this stems from faulty programming, a training oversight or something more ominous. Ongoing troubleshooting makes for cost reductions, reputational gains and a compelling net promoter score, not to mention fewer complaints.

Finally, and perhaps most importantly of all, this research illustrates the importance of securing board-level support for the forward-looking initiatives that many complaints leaders across the sector already aspire to. The value of industry-leading complaints handling as a source of revenue and cost reductions is initially difficult to quantify, and the opportunity cost of not taking the best practice approach is often too easy to overlook. Some firms will strive ahead and reap the rewards, others may hesitate and fall behind, but the challenge facing complaints teams now is to create a compelling call to action for those who hold the purse strings, and demonstrate that ‘compliant’ isn’t good enough - achieving complaints excellence should be the aim.