Handelsbanken—headquartered in Stockholm, Sweden, but with more than 800 branches in its six home markets—makes it very clear that customer satisfaction is its guiding principle. Handelsbanken has a long history. Established in 1871, it has undergone many changes since its inception, yet it has kept hold of the fundamental importance of maintaining a local presence, as other banks have closed branches and replaced them with automation. By emphasizing customer satisfaction and cost-cutting, Handelsbanken has been successful in fulfilling its business strategy of being more profitable than its competitors. For both its personal and corporate customers, Handelsbanken’s promise to meet their “requirements for financial services—with the highest possible level of satisfaction” remains as true today as it was a century ago.
International Banker is delighted to be joined by Anders Bouvin, president and group chief executive officer of Handelsbanken, to discuss the bank’s continued profitability, growth in its home markets and newest technological advances.
Mr. Bouvin, welcome….
Handelsbanken seems to be enjoying healthy growth in profitability recently, with return on equity (RoE) rising to 13.8 percent in the January–June 2018 period, from 12.6 percent in the same period of last year. To what do you mainly attribute this growth?
Our profitability continues to be underpinned by a broad-based business growth across all of our home markets. This has been supported most notably by strong growth in our savings business. In Sweden alone, we attracted 35 percent of new mutual-fund savings in the first nine months of 2018, against an overall market share of 11 percent.
The results reflect further increases in customer satisfaction, as well as early returns on our digital investments.
Do you still see your strong local presence as being something that gives Handelsbanken a competitive edge over other banks? What barriers, if any, currently prevent your peers from acquiring such local expertise and possibly eroding your dominance in this area?
Having a strong local presence is one part of a much bigger idea of how we should run our bank. This idea is shaped by our business strategy and our core values, which we have shown to be timelessly relevant.
Our business strategy is straightforward enough. We aim to be more profitable than our competitors—in terms of RoE—by having more satisfied customers and lower costs. But the key to success is to ensure that the whole organisation maintains this clear focus, on customers and costs. And I believe that our core values make it possible for us to align ourselves in this way.
First of all, we fundamentally trust people throughout the bank to want to, and to be able to, do a great job. We follow the consequences of this belief by giving each employee real power in their area of responsibility. This enables us to be a strongly decentralised organisation, where each branch operates essentially as its own local bank, though always within Handelsbanken’s framework of values and policies. The local team makes all the decisions that matter to their customers, free from head office orders or interference. And in this way, they’re able to build lasting, personal relationships with highly satisfied customers.
This is why, for us and for our customers, a Handelsbanken branch has nothing to do with bricks and mortar. It’s about personal relationships. These give us our competitive edge, and our strategic investments in new technologies are focused on making much more of this edge.
What, in your opinion, can chiefly explain the outstanding growth that Handelsbanken has experienced in recent times in its newest home markets—the United Kingdom and the Netherlands?
The simple reason for our strong growth in both the UK and the Netherlands is our different style of banking, and the warm welcome we have received from customers in both of these markets. We don’t do advertising or sales campaigns, since we prefer to grow customer by customer through recommendation. And we have grown our core banking business organically in these markets, rather than by buying other banks.
Today, we have well over 200 branches all over Great Britain, having been able to fund this significant expansion through local customer business. Now, after nearly two decades as a home market, my UK colleagues are busy laying the foundations for the next phase of growth by setting up a UK subsidiary. This involves further decentralisation of responsibility and control. All very Handelsbanken, you might say.
It’s only been five years since we designated the Netherlands as our sixth home market, and already we have established 29 branches across the country, with the cost of this expansion also covered by the local business.
In both markets, we had been present and doing our homework long before deciding to set up a domestic bank there. So we were able to establish, through our networks and with our own eyes, that there was nothing like our offering in the marketplace—and that there was considerable pent-up demand for it. Customers want to be treated as individuals. They want first-class digital services, and they want to deal with people they know and trust—not one or the other. As other banks close branches, retreat from relationships and go all-in for customer automation, our approach is becoming even more distinct, and the demand for it only seems to be growing.
What, in your opinion, is the single most significant way in which Handelsbanken’s digital strategy can boost its overall customer service?
Digitalisation is a huge opportunity for a bank like us. We’re already known for having the highest customer-satisfaction scores across all our home markets, year after year. Our customers particularly value having a personal relationship with their bank. And by using new technologies, our branches can provide more of this local service, through more channels, while offering better advice and support than ever.
Already, digital tools are perceived as a standard offering in banking. So, of course, we need to offer the range and quality our customers expect—this is essential; but we don’t expect any lasting competitive advantage from these alone. Instead, we can play our distinct advantage best by closely integrating our digital solutions with the local, personal service we’re renowned for.
We are convinced that this digitalisation approach will only make our difference clearer, leading to deeper, stronger customer relationships and therefore to profitable business.
Do you expect that the digitalisation strategy, in addition to boosting customer experience, will deliver significant cost savings to the bank? If so, in what specific areas will these savings transpire?
We calculate that the portfolio of digital projects we’re already taking forward will, over the next four years, create efficiencies and cost savings corresponding to 1,600 “man-years”. But this is only part of the story. Our digital investments will also support our branches and customers to do more and better business.
One example is the investment-advice system we introduced recently for our Swedish private customers. We automated the routine re-checking of documentation using AI (artificial intelligence), while at the same time streamlining and digitalising the advisory process. This immediately led to more time for customer investment meetings, and the results speak for themselves. Year to date, we have held 70 percent more of these customer meetings, compared to the same period last year—with no increase in advisory headcount or reduction in other business activity. This increase in customer meetings has generated substantial business growth for the bank, with six out of ten customers increasing their mutual-fund savings within a month of their advisory meetings. But just as importantly, it has helped stretch Handelsbanken’s customer satisfaction lead over our banking competitors to its widest in many years.
We’re progressing in similar digital projects across our personal- and business-banking product range—for instance, mortgage processing and pensions advice. We forecast that these, too, will create considerable efficiencies. But as you can see, our sharpest focus is on creating the time and tools to do more business with our customers, and to provide them with a better Handelsbanken experience.
From the outline of Handelsbanken’s digitalisation strategy, it seems that new technologies such as AI are being implemented to complement the skills of the existing workforce, rather than replace them. Would you agree with this viewpoint?
We’re using new technologies such as AI and robots to automate our administration and routine work and to make our processes more efficient. These are not activities that on their own create value for the customer or the bank. Instead, this value is created when we meet and advise our customers. We’re creating more time for our branch teams to do this, while providing them with new digital work-tools and skills to be more efficient, productive and knowledgeable in these customer meetings. You could call this augmented intelligence, another side of AI.
In parallel, we’re developing new interfaces for customers to be able to meet their advisers wherever they choose to as they move around our digital and physical meeting places. And we’re providing customers with the digital tools and insights they expect from us, so that they can serve themselves wherever they prefer to and be better informed when making decisions together with their advisers. Sometimes we develop these alone and other times in collaboration with third parties.
We have profound confidence in our colleagues’ desire and ability to develop new skills as customer needs change. After all, this is one way in which our branch teams have created such strong bonds of trust with their customers over the years. And this is where exceptional value is created in our business.
Already over 90 percent of customer interactions with the bank take place without human contact. But still, from time to time, a customer needs, or simply prefers, to meet the local team they know and trust. This could be for advice, support or perhaps a little reassurance of their own thinking. Just because the frequency of these meetings goes down, their importance to the customer does not.
If I’m not mistaken, you are personally engaged with the bank’s many initiatives that focus on children’s rights, such as those designed to combat exploitation of children around the world through the financial system. Is there any specific reason that the bank/you chose to get involved with this particular issue? And can you highlight any positive results that directly stem from Handelsbanken’s participation in such initiatives?
We believe in playing an active and responsible role in the many communities we serve. This has been part of the bank’s culture over many decades. One example of this thinking is our focus on children’s rights, which runs right through the bank, from the local community to the corporate level.
As a group, we engage actively in the Global Child Forum, the Childhood Foundation, ECPAT (End Child Prostitution and Trafficking) and a number of other initiatives to combat exploitation of children around the world through the financial system. And naturally, wherever I can, through my own involvement, I help to throw a focus on these organisations’ work—internally or externally.
At the same time, we support a number of children’s financial-education initiatives. And at the local level, many of our branches invest time, knowledge and energy into educational initiatives in schools and universities. Some focus on developing children’s financial capability, while others act as coaches and mentors, providing training in business skills and leadership. We have branches active in local integration initiatives, recognising that such work can bring the most benefit for children affected by resettlement. Throughout the bank we share this priority, but we are free to find many locally distinct ways of pursuing it.
Among Handelsbanken’s most important sustainable development goals appears to be gender equality. Having established this issue as a goal, what will change internally at the bank from previously, if anything?
Gender equality is one of six United Nations’ sustainable development goals that we have chosen to focus on over the next few years. It begins at the fundamental level of respect for the individual and belief in their potential—values that drive our whole devolved, cooperative way of working. It is quite simply right, as well as making overwhelming business sense, to treat, support and reward people in the same way for the contributions they make.
In our own operations here in Sweden, currently 52 percent of our employees and 48 percent of our managers are women. Although we have further to go in various aspects of equality, this provides an encouraging guide for our active work throughout the group.
Do you see the bulk of Handelsbanken’s growth opportunities over the next few years originating in its newest markets, such as the UK and the Netherlands? Or do you still expect a strong showing from your more mature markets of Denmark, Finland, Norway and –of course- Sweden?
Thanks to our distinctive model, the bank is able to grow organically in all our home markets, which we’re doing. This is particularly the case in our newest home markets—the UK and Netherlands—where our local relationship-banking offering sharply differentiates us in the marketplace, and where customer demand is developing strongly. We’re investing now in order to exploit this growth potential further over the coming years.
But still in our most mature market of Sweden, we find significant opportunities for growth. Our lending and deposit volumes for both private and corporate customers are all growing healthily, as are our pensions and life-insurance business and, as I mentioned, our mutual-fund inflows. I’m also pleased with the growing interest in green bonds and other sustainable financial products, where the bank is very active.
Just now, we can see so many opportunities to differentiate and grow our business: from our digital approach to our holistic advice offering, and from individual career development to sustainability. But they all have one point of origin—our unique business model, refined over half a century and as effective today as it has ever been. The culture that this way of working naturally creates has made every job I’ve had since joining the bank three decades ago such a privilege.
Mr. Bouvin, your unique business model of putting the customer first definitely seems to be the way for Handelsbanken to go and is an excellent example for other banks to follow. Thank you very much for being with us today.