Counting the cost of Brexit: How should Financial Services adapt to post-referendum Britain?

Paul Stamper, head of Financial Services, Ipsos, analyses our recent polling on consumer confidence after the Brexit vote and looks at what financial institutions can do to weather the post-referendum storm.

It is just over a month since the UK’s vote to leave the European Union sent shockwaves through the financial services sector.

Huge uncertainty and a barely supressed sense of pessimism have informed the discussion and debate over the last few weeks. And while shares in the UK’s banks have recovered some of the value they lost in the immediate aftermath of the vote, most have yet to regain their pre-referendum levels.

Despite the encouraging news that GDP grew by 0.6% in the first quarter and announcements of major investments in other sectors, growth forecasts from ratings agencies and economists have been revised downwards.

In the banking sector it has been hard to find good news stories. In the immediate wake of the vote, RBS indicated that the result was likely to delay its re-privatisation. The group has also been laying the groundwork for the possibility of charging business customers for making deposits. This is clearly something that RBS and its competitors will try to avoid but the Bank of England’s cut to base rates, announced yesterday, has turned up the pressure on bank revenues and they will need to find ways to offset this.

We have also had the news from Lloyds Banking Group that it intends to cut more jobs and branches, even as it announced reasonably strong half-year results. Santander has revealed a drop in profits, heavily impacted by the exchange rate effects of the pound’s performance post-referendum. Some of the challenger brands are reporting better news. Metro Bank’s figures show it is moving towards profitability and Virgin Money’s half year results were positive. However, it is clear that the sector will have to work hard to deliver strong results in the current climate.

For financial service providers, the key to this will be how customers respond to this new environment. Our recent polling paints a mixed picture:

  • Overall people do not seem to be more concerned about their personal financial situations, with the majority (57%) not expecting their situation to change in the next six months. However more (26%) think their situation will get worse, than think it will get better (18%).
  • When it comes to big purchases, 26% had been planning a big spending commitment in the next six months (such as a holiday, car or house move). In the light of the referendum result, nearly two in five of those planning a big purchase have either delayed the spend (5%) or decided not to go ahead at all (5%).
  • Half (50%) of the public have no plans to change the amount of their income they put into savings over the next six months – and as many plan to increase the amount they’re saving (16%) as reduce it (13%).
  • When it comes to attitudes to the economy as a whole. Ipsos’s most recent Economic Optimism Index, published earlier this month, found that economic optimism has fallen to its lowest level since January 2012. Nearly six in ten of those surveyed said Britain’s general economic condition will get worse over the next 12 months (57%).

In such an uncertain environment it can be tempting for the banks to adopt a cautious approach, reducing high risk or high cost activity. Whilst controlling costs should be a key element of any businesses response to economic and market conditions of this sort, there are two areas where our experience suggests focus should be maintained or even stepped up:

  1. If customers are feeling uneasy and are considering cutting back, the importance of providing the very best customer experience and service becomes even greater. With fewer opportunities to make an impact or sell a product it is vital that each interaction is the very best it can be, for every customer.
  2. Although the effects of any economic downturn will be felt throughout the industry it is unlikely that the level of innovation within the banking sector will show much sign of slowing. If financial institutions don’t continue to invest in new digital solutions, they will quickly find themselves lagging further behind and losing customers to their more agile and creative competitors.
Reviewing, refining and improving customer service and investing in customer-centric products and services need to remain at the heart of what any financial services provider does if it is to weather the tough times ahead.

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