Table of Contents
Executive Summary
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- Impact of COVID-19 on retail banking
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- Figure 1: Short-, medium- and long-term impact of COVID-19 on retail banking, 10 September 2020
- The market
- Unemployment is set to more than double during 2020
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- Figure 2: Unemployment rate, 2015-24 (central forecast)
- COVID-19 severely restricts branch access
- Not a credit crunch…
- …but consumer borrowing will be dented by falling appetite for big-ticket purchases
- Increase in deposits and savings likely to be only temporary
- Companies and brands
- 65% of main current accounts are held with the ‘Big Four’ providers
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- Figure 3: Main current account providers, July 2020
- COVID-19 leads to dramatic fall in switching activity
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- Figure 4: Number of switches per month using the CASS, October 2013-July 2020
- Banks’ activities that supported the nation
- But significant losses on the horizon…
- …due to an expected spike in bad debts
- But true extent of the crisis remains unclear
- Sector faces an uncertain period as providers look to recover losses
- FinTechs at risk of funding shortages
- Advertising expenditure increases
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- Figure 5: Above-the-line, online display and direct mail advertising expenditure on retail banking, by top 10 highest-spending retail banks/building societies, 2015/16-2019/20
- Marketing in the recovery phase
- ‘Big Five’ leverage their reputation to be seen as reliable
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- Figure 6: Brand personality – micro image of selected brands operating in the retail banking sector, August 2020
- The consumer
- Multiple current account ownership is becoming more common
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- Figure 7: Current account ownership, by number of accounts held, 2018 and 2020
- Only 3% are very likely to switch in the next 12 months…
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- Figure 8: Likelihood to switch main current account, 2019 and 2020
- Most consumers need a trigger to leave their main bank
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- Figure 9: Reasons for not switching main current account, July 2020
- Digital banking gains ground at the expense of branch and telephone
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- Figure 10: Channel preference in retail banking, by activity, 2018 and 2020
- COVID-19 dramatically affects use of cash
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- Figure 11: Impact of COVID-19 on consumer behaviours, July 2020
- An opportunity for banks to refocus their image
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- Figure 12: Consumer attitudes towards retail banking, July 2020
The Impact of COVID-19 on the Retail Banking Sector
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- Impact on the market
- A serious shock to market conditions
- Interest rates to remain at record low
- Not a credit crunch
- Impact on consumers
- People are looking for stability and reassurance
- A more conscious approach to finances
- Accelerated move towards online and mobile channels
- Widespread impact on cash usage…
- …but long term and lasting effect on behaviours likely to be limited
- Impact on companies and brands
- Banks tasked with supporting consumers and keeping things going
- Opportunities
- Banks get to refresh their image and cement their position
- A potential boost for digital finance tools, including via Open Banking
- Threats
- Banks are anticipating reduced cashflow and an increase in bad debts
- The downturn can force unpopular decisions
- FinTechs at risk due to funding difficulties
Issues and Insights
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- A once-in-a-lifetime chance to improve the image of big banks
- An irreversible preference for online channels will widen their scope and reach
- Long-term behavioural changes remain unlikely
The Market – Key Takeaways
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- Providers will face difficult choices in the coming months
- Credit will be available…but not for all
- Changing borrowing trends will highlight sustainable lending practices
- Opportunity to make the most of temporary increase in savings activity
- Increased public and regulatory scrutiny of treatment of vulnerable customers
- COVID-19 forces a change in channel preferences
Market Drivers
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- Economic recovery expected by late 2021 at the earliest
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- Figure 13: GDP growth, 2015-24 (central forecast)
- Unemployment is set to more than double during 2020
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- Figure 14: Unemployment rate, 2015-24 (central forecast)
- Incomes squeezed as inflation overtakes wage growth
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- Figure 15: CPI and average weekly earnings growth, June 2015-June 2020
- Interest rates hit record lows…
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- Figure 16: Consumer deposits quoted interest rates to households, July 2015-July 2020
- …but lockdown and uncertainty boost saving activity
- Consumer credit rates fail to reflect a lower base rate
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- Figure 17: Consumer credit quoted interest rates to households, July 2015-July 2020
Market Environment
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- COVID-19 severely restricts branch access
- Not a credit crunch…
- …but consumer borrowing will be dented by falling appetite for big-ticket purchases
- Increase in deposits and savings likely to be only temporary
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- Figure 18: Household savings ratio, 2006-19
Regulatory and Legislative Changes
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- COVID-19: FCA introduces temporary guidelines to support customers
- Consumer credit
- Mortgages
- Insurance
- Contactless payment limit increased to £45 in response to COVID-19…
- …but access to cash will be protected
- Overhaul to overdraft market takes effect amid emergency measures
- Stamp duty holiday introduced to boost the housing market
- LBG fined for overcharging struggling mortgage customers
Companies and Brands – Key Takeaways
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- Significant losses on the horizon will focus attention on treating customers fairly
- Changes likely as sector seeks to address 2020 challenges
- FinTechs at risk of funding shortages
- Challengers continue to struggle to gain account primacy
- Marketing in the recovery phase
Market Share
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- 65% of main current accounts are held with the ‘Big Four’ providers
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- Figure 19: Main current account providers, July 2020
- Lloyds Banking Group accounts for 25% of main current accounts
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- Figure 20: Main current account providers, by banking group, July 2020
- COVID-19 leads to dramatic fall in switching activity
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- Figure 21: Number of switches per month using the CASS, October 2013-July 2020
- HSBC Group gains the most customers through the CASS
- Challengers show impressive gains
- Santander sees heavy losses
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- Figure 22: Net gains and losses of full account switches using CASS, selected brands, Q1 2020
Competitive Strategies
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- Banks focus on supporting the nation
- Keeping things running
- The ultimate test for remote banking and digital services
- But significant losses on the horizon…
- …due to an expected spike in bad debts
- But true extent of the crisis remains unclear
- And long-term pursuit of profitability will be intensified
- FinTechs at risk of funding shortages
Advertising and Marketing Activity
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- Advertising expenditure increases
- Marketing in the recovery phase
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- Figure 23: Above-the-line, online display and direct mail advertising expenditure on retail banking, by top 10 highest-spending retail banks/building societies, 2015/16-2019/20
- Nationwide is the largest spender
- Lloyds highlights its focus on mental health issues
- Barclays and NatWest reassure customers by promoting online services
- Starling Bank invests heavily, including in its first TV ads
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- Figure 24: Top 10 highest-spending retail banks/building societies for recorded above-the-line, online display and direct mail advertising expenditure on retail banking, 2019/20
- Brand building accounts for 41% advertising
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- Figure 25: Top 10 highest-spending retail banks/building societies for recorded above-the-line, online display and direct mail advertising expenditure on retail banking, by product category, 2019/20
- TV is the main channel for retail banking advertising
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- Figure 26: Top 10 highest-spending retail banks/building societies for recorded above-the-line, online display and direct mail advertising expenditure on retail banking, by media type, 2019/20
- Nielsen Ad Intel coverage
Brand Research
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- Brand map
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- Figure 27: Attitudes towards and usage of selected brands operating in the retail banking sector, August 2020
- Key brand metrics
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- Figure 28: Key metrics for selected brands, August 2020
- Brand attitudes: ‘Big Four’ score highly on trust and reputation
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- Figure 29: Attitudes, by brand, August 2020
- Brand personality: Online banks associated with being fun
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- Figure 30: Brand personality – macro image, August 2020
- Challengers are seen as progressive
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- Figure 31: Brand personality – micro image, August 2020
- Brand analysis
- ‘Big Five’ leverage their reputation to be seen as reliable
- Nationwide stands out from the crowd
- Digital banks enjoy high levels of differentiation
- Virgin Money evokes mixed feelings
The Consumer – Key Takeaways
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- Switching intentions reflect ongoing consumer inertia
- 26% don’t switch because they feel actively supported
- Accelerated move towards online and mobile channels
- An opportunity for banks to refresh their image
- Beyond cash and channel usage, effect on behaviours likely to be limited
Impact of COVID-19 on Consumer Behaviour
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- Confidence recovers some lost ground …
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- Figure 32: The financial confidence index, January 2015-August 2020
- … as households feel relatively comfortable about their finances
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- Figure 33: The financial wellbeing index, January 2015-August 2020
Current Account Ownership
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- 99% of consumers have a current account
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- Figure 34: Current account ownership, by number of accounts held, July 2020
- Multiple current account ownership is becoming more common…
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- Figure 35: Current account ownership, by number of accounts held, 2018 and 2020
- …with multi-banking also on the increase
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- Figure 36: Proportion of secondary current accounts held with main current account provider, 2018 and 2020
- But majority of people still prefer to hold most products with the same provider
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- Figure 37: Preference for holding most products with the same provider, July 2020
Switching Activity and Intentions
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- Only 14% have switched in the last three years
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- Figure 38: Switching activity, July 2020
- Younger people are more likely to have switched…
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- Figure 39: Switching activity, by age, July 2020
- Only 3% are very likely to switch in the next 12 months…
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- Figure 40: Likelihood to switch main current account, July 2020
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- Figure 41: Likelihood to switch main current account, 2019 and 2020
- …but likelihood to switch is higher among younger generations
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- Figure 42: Likelihood to switch main current account, July 2020
Why People Don’t Switch their Main Current Account
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- Most consumers would need a trigger to leave their main bank…
- …as more than one in four feels actively supported
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- Figure 43: Reasons to not switch main current account, July 2020
- Consumer inertia plays an important role…
- …as does a lack of awareness of the perceived benefits
Channel Preferences
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- Online continues to be the most preferred channel
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- Figure 44: Channel preference in retail banking, by activity, 2018 and 2020
- Mobile apps gain ground…
- … but third-party aggregators still not on consumers’ radars
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- Figure 45: Attitudes towards banking channels, July 2020
- Preference for branches falls…
- …with telephone banking an adequate alternative to less than half
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- Figure 46: Telephone banking vs in-branch staff, July 2020
Impact of COVID-19 on Consumer Behaviours
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- Clearest impact is on cash usage
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- Figure 47: Impact of COVID-19 on consumer behaviours, July 2020
- A more conscious approach to finances
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- Figure 48: Impact of COVID-19 on financial worries, by age, July 2020
- Accelerated shift towards online channels
- But overall effect of the crisis on behaviours remains limited
COVID-19 and Changing Consumer Attitudes
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- An opportunity for banks to refresh their image…
- …and cement their position
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- Figure 49: Consumer attitudes towards retail banking, July 2020
- Concerns about sustainability will gradually return to the spotlight
Appendix – Data Sources, Abbreviations and Supporting Information
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- Abbreviations
- Consumer research methodology
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