UK Banking Services, Challenges, Opportunities and Market Strategies for Growth and Future Expansion – HSBC Bank.
Banking is currently the major financial service sector in Britain. The banking industry in the UK is the third largest in the world after Japan and the US in terms of the returns on capital, dynamism and overall efficiency. The city of London is one of the world’s largest financial centers. Britain currently has five major Banks and financial companies that controls its entire financial market sector. These are JPMorgan Chase and company with a market capitalization of 191.01 Billion British pounds, followed by HSBC Holdings plc with 136.55B, Lloyds Banking Group plc with 48.21B, Banco Santander, S.A., 42.75B and finally Barclays PLC with 37.88B.
Taking HSBC as the Bench mark company for comparison purposes as concerns the performance, challenges and the opportunities of the banking industry in the UK financial and the Banking sector. HSBC is derived from the initials of Hong Kong and Shanghai banking Corporation which founded HSBC in the year 1865 in Hong Kong and later changed its headquarters to London in 1991. It’s the second largest listed company in the London Stock Exchange after the Royal Dutch Shell trading company. It’s also listed in various other stock exchanges across the world including New York Stock Exchange. (Berger, 2010).
The major challenge of the entire banking sector stems from malpractices in management and the economic conditions that lead to massive and unprecedented financial meltdown mostly due to over lending, excessive borrowing and poor regulation. The current system of financial regulation is either entirely flawed or grossly inefficient to control such incidents from occurring. (Drucker, 1999)
In the year 2008, the British government used 500 Billion British pounds to bail out banks that were about to collapse in UK due to the effect of the global financial crisis. Had it been allowed to go on without the intervention of the UK government then it would certainly have had a catastrophic effect on the UK economy. A year later, the UK government added another 50 billion dollars to the banking industry to stabilize its financial position. The effect of the financial crisis led to massive drops in the banking industry’s income. HSBC operating income dropped by a massive 26% in the year 2008 and later by another 65% in the year 2009. Customer confidence in the banking industry was at its lowest as the banking profits took a nose dive for the worst. http://banking.about.com/od/businessbanking/a/centralbank.htm%
The major advantage or strength of the banking sector in the UK economy is that it touches every sphere of the economy and also on every kind of business or trading activity. The failure of the Banking system in the UK would have led to a near collapse of the entire UK economy where thousands of jobs and economic life line of many British people would have been lost or grossly affected.
HSBC is a multinational bank with over 7200 offices in more than 85 countries worldwide and over 89 million customers. It currently enjoys a 24.6% annual revenue growth rate and 13.95% annual long term growth rate. www.yahoo,finance HSBC has offices in almost every financial capital in most parts of the world. Its strength in the banking sector cannot be ignored especially in the UK. With this kind of strength, HSBC has a lot of opportunity to develop new markets and expand its services in other regions and also to consolidate its position on the UK market. (Brealey, Myers and Allen, 2006)
The major weakness in the banking sector is the shortage of talent. Top quality and well trained personnel are becoming more valuable, difficult to source and even more to train. The existing link between target performance and remuneration are critical issues in senior staff recruitment. The banking sector needs new strategies to attract, create incentives and retain highly qualified professionals.(Khan, 1993)
HSBC strategic marketing would involve a strategy that will substantially broaden and expand the scope of all its profitable units or portfolios in terms of customer grouping and functions together with alternative innovations in technologies to improve the general performance. HSBC should taking advantage of any opportunity or advantage of any gap in the market, identifying and making use of competitive advantage against their competitors and increasing its market share. (Porter, 1990)
The major differences among the top four banks in the United Kingdom, i.e. Barclays, Lloyds TSB, NatWest, Royal bank of Scotland, Santander, and HSBC are mostly based on customer service products. Barclays offers free overdraft up to 3000 British pounds, for the first three years and 1000 pounds for three years. It later charges an interest rate of 14.9% for additional overdraft facility. Lloyds bank has similar terms only the interest rate charged on additional overdraft is higher than Barclays i.e. it charges 16.77%. NatWest Bank offers free overdraft up to 2000 pounds for a year and 500 for three years later it charges interest at 17.81% for any additional overdraft. Santander also charges overdrafts the same as NatWest only that it charges no interest on delayed overdrafts. Royal Bank of Scotland also offers free overdraft up to 2000 pounds for a year and 1000 pounds for three years later it charges interest at 9.9% for any additional overdraft. HSBC offers free overdraft up to 1500 pounds for a year only and charges 19.9% interest rate for any additional overdraft. http://www.which.co.uk/money/bank-accounts/reviews-ns/student-bank-accounts/graduate-accounts/
Barclays Bank has adopted a different line of product to attract more clients and also to expand globally. It has promoted a concept of personalized banking services for different clients i.e. businessmen, students and also for small and medium traders an idea that was initially created by HSBC bank but was incorporated into the main stream banking products and services to promote its sales. Hsbc introduced different languages to attract many customers and also to expand globally.
The common strategies adopted involve internet banking and other personal banking services. The top Banks in the UK strive to maintain their brands as a way of marketing strategy. The banks struggle to maintain their customer’s loyalty by painting a picture of reliability for instance, Barclays bank official website. The bank is also responsive to customers’ needs and this promotes their brands as reliable and responsive to needs of their customers. (Gronroos, 1990)
Almost all the banks use E-Newsletters to reach out to more customers and also market their new and latest products in the market. For instance, the online banking services, their procedures, set up systems and their codes.
SERVQUAL Gap Model
Gap 1: (The knowledge gap)
The nationwide consumer index shows a decrease in consumer confidence. This is a clear indicator that consumer trust and therefore perception of the industry is lower than previous decade.
HSBC needs to consolidate all its efforts in rebranding itself following the near collapse of the banking industry in the UK. HSBC needs to reassure its customers about the stability of the bank. In fact, HSBC was never bailed out by the UK government during the 2008 – 2009 global financial crises; it funded its own recovery in the UK with monies from other branches worldwide which totaled to 750 million British pounds. It needs to communicate its business position i.e. its economy strength to its consumers and educate them in its unique position as a UK high street bank. More advertising will be needed to express its freedom from public funding.(Payne, 1993)
Gap 2: (The Policy Gap)
I have checked some HSBC consumer Forum and found out that most customers receive cards via postal service. The facts show there is likely to be an important gap between bank and consumer perception
HSBC must make use of the modern ways of communication. If the cards are valuable like the Automated Teller Machine Cards then care should be taken to avoid instances where the cards may fall in the wrong hands. They may use a more reliable postal service, rather than the royal mail. Also, more reliable channels must be established and possible internal breakdowns identified. Alternatively, the bank may send the cards to the nearest branch where the client can pick the card on their own directly from the bank.
In conclusion, the banking sector in Britain is critical to the proper functioning of the UK economy. For the future survival of UK banking sector a lot of restructuring needs to take place so as to avoid future need of government intervention in terms of financial bailout. The adopted strategy should emphasize cost reduction in relation to competitors, sales and cost of sales, and the operating income.
Porter, M. (1990). The competitive advantage of nations, New York. Free Press
Berger A. (2010). To What Extent Will the Banking Industry be Globalized? A Study of Bank Nationality and Reach in 20 European Nations
Payne, A (1993) The essence of Services marketing, Prentice Hall, Englewood Cliffs, NJ.
Gronroos, C. (1990) Services Management and marketing. Lexinton Books, Lexinton, MA.
Drucker, F. (1999) Management Challenges of the 21st Century. New York: Harper Business,
Khan, M. (1993). Theory & Problems in Financial Management. Boston: McGraw Hill Higher Education.
Brealey, A., Myers, S and Allen, F (2006) Principles of Corporate Finance, 8th Edition. McGraw-Hill/Irwin.