Sheryl Crow might have sung “A change will do you good”, but RBS’ [NWG] share price begs to differ.
Known as the NatWest Group since 22 July, RBS’ share price had already tanked over 50% in 2020 by the time the name change took place as the coronavirus knocked the UK economy for six. Since the rebrand, NatWest’s share price has slipped a further 12.62% as it faces the same headwinds as other UK banks.
Adding to NatWest’s share price misery is an influential study criticising the bank’s customer service. This is a dangerous position to be in when challenger banks like Monzo are building brands on straight-forward, in-app customer support and the ability to open a new bank account in a single day from anywhere with an internet connection.
Given customers’ increasing digital awareness, this could be a huge blind spot for NatWest. So, just how great is the challenger bank threat, and what does it mean for NatWest’s share price?
The threat of challenger banks
NatWest’s share price, and those of other high street banks, have had to contend with the threat of losing business to challenger banks like Monzo. These digital-only banks claim to provide a smoother user experience through their apps, while reducing the time it takes to open an account.
In a major survey released last month by the Competition and Markets Authority, Monzo, Starling, First Direct and Metro came out as the best banks and building societies for customer service in the UK. Bottom of the pile was NatWest Group-owned RBS, along with Tesco Bank. What's worse, less than half of those surveyed who had accounts with RBS would recommend the bank to friends and family.
“We can do more to improve the experience for customers in certain aspects of our service. We’re investing in dedicated teams focused on making targeted improvements for customers in order to address the areas where our service falls short of expectations," a spokesperson for RBS said in response to the findings.
One reason that the challenger banks performed highly is their ease of use. In a separate study conducted by UX website Built for Mars, it took 2 days on average to open an account with Monzo, while it took 8 days at NatWest.
“Some challenger banks are doing an impressive job at keeping their customers happy, and their scores should serve as a wake-up call to the big household names that better customer service is needed to keep up with the competition,” Gareth Shaw, head of money at Which , commented on the CMA survey.
“Some challenger banks are doing an impressive job at keeping their customers happy, and their scores should serve as a wake-up call to the big household names that better customer service is needed to keep up with the competition” - Gareth Shaw, head of money at Which?
Is NatWest's share price a bargain?
Despite the plaudits, there isn't likely to be a mass exodus of people leaving NatWest to open up a Monzo account anytime soon. According to the CMA study, the number of unhappy customers taking action fell 65% to under 100,000 as the pandemic hit.
Some analysts also reckon NatWest’s share price could be a bargain at the moment. According to Rupert Hargreaves writing on the Motley Fool:
"NatWest stands out as one of the cheapest stocks on the London market. Shares in the banking giant are changing hands at a price-to-book (P/B) ratio of just 0.3. That’s compared to the market average of 1.2."
Hargreaves isn’t alone in rating NatWest’s share price. Among the analysts, NatWest's share price carries a 130p price target, which would see a 26.5% upside on the current price (as of 14 September’s close).
“NatWest stands out as one of the cheapest stocks on the London market. Shares in the banking giant are changing hands at a price-to-book (P/B) ratio of just 0.3. That’s compared to the market average of 1.2” - Rupert Hargreaves
Where next for NatWest’s share price?
To hit that target NatWest will have to clear the same headwinds facing other traditional UK banks. Only last week, NatWest withdrew a £5bn loan from a Bank of England fund to help struggling small businesses through the pandemic. Given the size of the withdrawal, it's bound to rattle investor confidence.
There will undoubtedly be increased consumer expectations for the online services banks offer over the next few years. According to Finder.com, 44% of Britons are expected to have an online bank account by 2025. That means NatWest will have to provide a better experience if customers — and investors — are going to stick with it.