This morning the details surrounding the Co-Operative Bank’s takeover of 632 Lloyds Banking Group branches became a little clearer.
The deal sees Co-Op acquiring the branches at a knock-down price, with Lloyds almost paying them to buy – as well as providing management, back office systems and a £1.5bn covenant. On the face of it this is tough for Lloyds (who seem to have the raw end of the deal), but it also poses challenges for the Co-Op.
Obviously tripling in size will give them the sort of clout and ability to disrupt the marketplace that has long been missing from new challengers in the UK banking landscape, but that doesn’t mean its all going to be plain sailing.
At present the high street banking market looks set to hot up – banks need to improve their reputations, and a sure way to do that is through improved customer service. The cries of the Co-Op may be lost within the general noise of the big players – all shouting about how they have changed, and how they are putting their customers front and centre. The challenge for Co-Op is to explain why and how they are different, so that the public don’t just decide to give their current providers yet another chance.
Obviously, Co-Op does have a genuinely differentiating (and genuine) ethical business positioning, but it’s still going to need the right products, positioned in the right way and supported by the right service package – otherwise even the customers which it has inherited from Lloyds are going to walk right out of the door.
The other point is around the terms of the deal itself. Robert Peston on the Today Programme this morning made the point that the deal is so advantageous to the Co-Op that it is likely Lloyds would never have agreed to it if they weren’t being leaned on so heavily by the government (through their state and EU financial support). This is a blessing and a potential curse for the Co-Op. On the one hand they’ve got a whole new branch network and set of customers to serve at a very attractive price, on the other, people might start to question whether the deal provides an adequate return to the taxpayer (given how much government money has been pumped into LBG).
Co-Op needs to be sensitive to this and aggressively point out why this is a good deal for its customers, and a more general good thing for the high street banking market.
If it can overcome these hurdles, then we might be at the dawn of a new era for retail bank competition – and one in which the customer truly does benefit.