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The Packaged Account Conundrum 

Packaged accounts are currently attracting a lot of press attention in the UK and are being mooted as the source of the next mis-selling scandal. The FSA is bearing down on the banks and their packaged account offerings. It is time to start considering the implications and carefully thinking through the right solutions both from a business and revenue angle, but more importantly from a customer satisfaction perspective.

It is estimated that 10 million customers in the UK have packaged accounts, representing about 1 in 5 in the UK adult population. Defaqto has suggested that in the last five years the number of packaged accounts available has grown from 33 to 69 with costs ranging from £6.50 to £40 per month. The FSA is now rapidly bearing down on packaged accounts, one of the most lucrative product offerings in retail banking.

In October 2011 the FSA issued a consultation paper regarding insurance-based incentives which are bundled together as part of these packages. The FSA has concluded that there will be a place in the market for packaged accounts but has indicated that it believes the way the features are bundled together potentially makes it difficult for customers to choose the right product for them. As such, the FSA has inferred that the complexity of these products limits switching behavior and consequently puts up barriers to competition.

The FSA is focused on three specific areas or action for retail:

  • Checking whether the customer is eligible to claim the benefits under the insurance policies, telling the customer if they are ineligible to claim under any of the policies and keeping records for three years
  • Providing an annual eligibility statement about the insurances and recommending that customers reviews their eligibility
  • Establishing the customer’s demand and needs where a packaged account is sold on an advised basis - the provider must tell the customer if any of these are not met and explain the reasons for any recommendation.

In addition, the FSA has stated that banks can and should be more transparent in their pricing strategies – “what features does my packaged account have and how am I paying for each of them?”

So what does this mean for our retail banks?

Looking at the business P&L impacts, the FSA expects that by tackling the above issues, barriers to switching will fall, length of sales process will increase, and operating costs will rise. All in all, it is not a great story for the banks.

The impact on the customer experience may also be significant.

In practice, there will undoubtedly be significant change required across both product design, ensuring that these products meet the needs of customer and deliver a satisfactory customer experience. Breaking down the FSA’s areas of focus and thinking about how its ideas may be practically applied raises some obvious issues.

Take a scenario in which a bank must check eligibility to claim. Imagine putting this in practice in a branch environment given the fact that many of these insurance services are provided by third parties. The branch agent will have to stop the sales process so the customer can speak to an insurance advisor to prove eligibility. And how will banks be able to check the eligibility of customers applying online? It will take careful design to make this process efficient while still appearing seamless to the customer. Those customers who genuinely want these products and are eligible to claim all of the benefits may now face the task of navigating a very cumbersome sales process.

For the banks, customer satisfaction is likely to reduce and sales conversions could start to fall. Quite how severe the impacts will be will not be clear until the FSA publishes its policy statement. Only then will we get a true sense of the scale of change required by banks across both product design and customer experience.

Yvonne Byrne, Manager, Business Effective, KPMG in the UK

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