Efma European credit risk survey shows alternative credit and switching banks gaining in popularity

17 July 2013

The eighth ‘European Credit Risk Survey’ run by Efma and Fico, which gauges the outlook for credit delinquencies and the availability of credit, says that over half of the 80 risk managers questioned at retail banks from 26 different countries think customers are now more likely to use alternative sources of credit.

The finding from the ‘European Credit Risk Survey’ are not that surprising in the teeth of the eurozone crisis and the general economic stagnation in Europe which is causing individuals and small businesses alike to turn to pay day loan companies, online crowd sourcing funding websites like Zopa and to explore other avenues of credit as retail bank loans dry up.

Over half of the 80 credit risk professionals surveyed in May and June of this year (54%) said their customers are also more likely than before to complain to a regulator. In the UK this has certainly been the case following the payment protection insurance (PPI) mis-selling scandal which was supposed to pay out in the event retail bank customers lost their jobs but rarely did, costing UK banks billions in subsequent compensation.

Over 40% of the retail bank risk managers in Europe surveyed also said customers were more likely to switch their savings and current accounts to a different bank. Again, strictly in the UK, this is not surprisingly after the PPI scam and is likely to receive a further boost when the country’s official shared account switching platform comes on stream this autumn in a bid to increase the amount of customer churn and competition in the sector. The finding reflects a generalised dissatisfaction with traditional banks that newcomers such as Metro Bank are trying to capitalise on.

Just 14% of respondents said their customers were likely to open a new account with their current bank, with only 18% believing a customer would recommend the bank they use to a friend.

“Unsatisfied customers are more likely to take their business elsewhere,” said Daniel Melo, senior director of solution consulting for the survey sponsors Fico in Europe, Middle East and Africa (EMEA). “This is why so many European banks are now focused on measures such as the Net Promoter Score (NPS), so they can understand the severity of customer dissatisfaction and address it. Banks clearly can no longer view their customers as complacent [and stable].”

According to Manuel Marcet Alcaraz, director of risk policy and infrastructure at CaixaBank in Spain the group has developed an internal quality indicator, the Personal Service Index (ISP), which is used to understand the needs of customers via the sales network “The NPS tool has helped us monitor trends and service levels, and implement actions to improve our services. Innovation and technology are key priorities to deliver on customer expectations. For example, our customer transactions through mobile banking are already the second largest channel, after internet banking.”

Key Survey Findings
The ‘European Credit Risk Survey’ found that the forecast ‘credit gap’ for small businesses has risen, after falling in the previous 2012 survey. While 46% of the surveyed bankers believe the amount of credit requested by small-to-medium sized enterprises (SMEs) will rise, only 35% think the credit supply will increase. For consumers, the gap is still smaller - 39% foresee a demand increase, only 33% of bankers foresee a supply increase.

The forecast for delinquencies is lower overall than in previous surveys, but still elevated. More than 40% of respondents foresee higher levels of delinquencies for European mortgages and overdrafts, and for SME loans the figure climbs to 52%.

“These forecasts vary by market, but we expect them to remain high until we see a recovery for the eurozone,” concluded Patrick Desmarès, secretary general of Efma. “Both credit supply and demand are at low levels for many European countries.”

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