National Australia Bank has revamped its UK holdings, Clydesdale and Yorkshire banks, as local financial centres with an in-house manager style reminiscent of the 1970s. Stephen Timewell reports.
How do medium-sized banks provide a differentiated strategy and compete effectively beyond price in highly competitive markets? Not an easy issue, but the National Australia Bank Group (NAB) has taken a long look at its under-performing UK banking businesses, Clydesdale Bank and Yorkshire Bank, and developed a new strategy that looks set to revitalise its UK banking operations.
Besides cutting 1200 jobs, the key to the new approach is the UK-wide network of recently launched financial solutions centres (FSCs), which offer a return to the style of a 1970s bank manager with decisions taken locally.
Clydesdale and Yorkshire banks have their long-established roots in Scotland and northern England, respectively, but had virtually no presence in the affluent south-east of England. John Stewart, the Scottish-born chief executive of NAB, believes the UK is big enough for smaller banks to compete profitably in niche markets. He has focused his UK strategy on an accelerated drive into the south of England.
South eastern focus
The distribution network, NAB UK, has selected to enter the south-east of England through FSCs, which offer business and premium banking services to small and medium-sized business customers.
Glenn King, general manager, customer strategy and delivery, at NAB UK, explains: “The core of the UK expansion drive is built around a new model whose key target market is small and medium enterprises (SMEs) and the mass affluent sector.
“We recognised that no-one serves the integrated needs of these customers. Our FSCs were developed with the view to offer businesses and their owners a unique approach to business banking, by enabling local personnel to make on-the-spot decisions regarding issues such as credit or finance without referring customers to other departments – an approach not taken by any of the other leading banks.”
There are more than 80 FSCs: 54 under the Clydesdale brand, including 36 in the south of England, and 15 in Scotland. They act like the professional practices of a firm of lawyers or accountants, rather than a bank branch. They are headed by managing partners, who have real autonomy from head office to make lending decisions on the spot. Each centre has a dedicated team of professionals, who have true local discretion to react quickly to clients’ needs.
Bespoke service
This bespoke banking offering, which harks back to an era when the local bank manager was highly autonomous and a pillar of local society, provides benefits for both bankers and clients. “The guys running each local centre are running a business; the success or failure is up to them,” says Mike Williams, general manager integrated financial solutions at NAB UK. “This is attractive to bankers who want to build on their local relationships and provide the type of personalised service that bank managers once did some years ago.”
The managing partners and their colleagues run their own budgets, do their own local marketing and act effectively as a franchise with related performance incentives. This is also seen as attractive to clients, who are referred to as members, who can feel they are dealing with like-minded people with an entrepreneurial spirit.
While the style may be reminiscent of a 1970s manager, the facilities are more state of the art. Clients or members can book and use top quality meeting rooms, lounges and modern facilities in any of the centres across the country. Each centre operates as a hub for community networking and most centres have a local, independent chairman who is well-respected in the community and acts as a mentor to the managing partner, adding another layer of localised decision-making and networking capability.
Business niche
The centres target the lending needs of SMEs and also try to cross-sell private banking products and other services to these clients. The focus on business lending – generally on loans of more than £100,000 (€145,000) and associated private banking services, including home finance – allows the Clydesdale and the Yorkshire to deal with a range of clients that are often poorly served by many of the bigger banks.
How well are these specialised financial centres working? Started only in 2004, the centres now account for more than half of NAB UK’s balance sheet and nearly 50% of earnings. Clydesdale’s Edinburgh-based centre, for example, is reported to have boosted profits by 34% and increased staff by 25% during the past year. Overall, the 80-plus new centres achieved lending balances of £12.3bn, up 13.7%, in the six months to March 31, and significant deposit and mortgage growth.
The Clydesdale’s and the Yorkshire’s combined 350-plus retail branch network is also undergoing a transformation. But the new centres and the new professional practice concept have reinvigorated the banks’ operations, and created an attractive and profitable new market niche.
