How customer-led beliefs lie behind Handelsbanken’s extraordinary success

By Sean Meehan’s and Charlie Dawson

Handelsbanken is an extraordinary organisation. It is probably the most successful bank you’ve never heard of. It is one of Sweden’s leaders with over 750 branches in six home markets (Sweden, Denmark, Norway, Finland, the Netherlands and the UK), a presence in the world’s most significant economies and nearly 12,000 employees. It has over 200 branches in Britain following its launch in 1982 and a close to £22 billion loan book. For the seven years since 31 December 2012, Handelsbanken generated positive shareholder value of SEK 128 billion (£11.3 billion). Market capitalisation has grown by SEK 53 billion (£4.71 billion), and it paid SEK 75 billion (£6.6 billion) in dividends to shareholders.

So what’s the key to its success? Handelsbanken is not like other banks. It is low profile and distinctly idiosyncratic. It doesn’t do any advertising beyond local promotion. There are no bonuses, no budgets, no sales targets, no call centres. There is not a centralised credit approval process where the computer, or a committee, has the sole authority to say yes or no. Every decision needs local support. Each bank manager of each of Handelsbanken’s individual branches takes decisions about local customers – no algorithm, but human judgement instead.

The firm’s mantra is that ‘the branch is the bank.’ Operating with something called the ‘church spire principle,’ each branch is autonomous and operates in an exclusive geographical area in which all its customers fall – whether an individual, a small business or the headquarters of a multinational, which would then be run from the branch, not from head office. The manager hires staff, decides whether to sign up a new customer, what to charge them, whether to lend to them and the interest rate they would attach.

It sounds like madness when you are conditioned by the way most big banks work. But Handelsbanken has more satisfied customers than the sector average in all its six home markets according to research by the Stockholm School of Economics and the independent research from SKI/ EPSI. Much of its new business comes from referrals – word of mouth from satisfied customers. When was the last time that you were so delighted by your bank that you actually recommended it to a friend?

Sean Meehan

Perhaps even more telling, Handelsbanken has also had lower losses from lending that its competitors. In the UK, between 2008 and 2016, an independent assessment of loan losses by SNL looking at Handelsbanken against a basket of banks comprising Barclays, RBS, Lloyds and HSBC showed the Swedish bank averaging losses of 0.2% against 0.8% for the more conventional group. A decentralised approach using customer proximity to guide judgement-based decision-making turns out to be four times more effective than the centralised and apparently higher control approach that is the norm. These figures include the years of the crash when the differences were most pronounced.

Handelsbanken has stuck to its beliefs and its approach, and as a result it continues to produce one of the highest returns on equity in the world.

Customer-led beliefs are key to its success. When we say customer-led, we mean being guided by what customers value – the underlying problems they are trying to solve or the outcomes they want – and then finding new and better ways to create this value, solve these problems or achieve these outcomes, leading in a market not following, inventing not benchmarking.

When companies do this well, their customers do well – they, or we, get a better quality of life, better solutions, lower costs of all kinds – financial but also effort, time, emotional pain, attention and more. And it’s not just customers that benefit; companies do well too – reaping significant rewards from the increased value they provide.

Handelsbanken shows that customer-led beliefs are clearly good for customers are also good for business. Handelsbanken…