Current Accounts - UK - June 2007

ISSUES IN THE MARKET
Abbreviations
INSIGHTS AND OPPORTUNITIES
Transparency with charges
Once a customer, always a customer
Offer a competitive rate of interest
Focus on insurance
Keeping costs under control
MARKET IN BRIEF
Demand for current accounts is expected to remain strong over the coming years
People are going online more regularly to manage their account
Approximately one in ten adults do not have a current account
The number of current accounts is estimated to have surpassed 74 million in 2006
The big five continue to reign supreme
First Direct is the leading advertiser of current accounts
As branch networks shrink, remote banking grows in popularity
Poor service will send customers packing
FAST FORWARD TRENDS
Trend 1: Express Yourself
Definition
Context
Market touch points/implications
Trend 2: Back to my roots
Definition
Context
Market touch points/implications
BROADER MARKET ENVIRONMENT
Key points
A growing population will fuel demand for current accounts
Figure 1: UK population, by age group, 1992-2012
Another 320,000 people are expected to enter the workforce by 2012
Figure 2: UK workforce and employment, by gender, 2002-12
Savings activity is expected to increase gradually in the coming years
Figure 3: PDI, consumer expenditure, savings and the savings ratio, 1992-2012
Interest rates are at their highest level since 2001
Figure 4: The Bank of England’s base rate, February 2003-May 2007
At least 61% of adults have access to the Internet
Figure 5: British Internet penetration at home/work/place of study or elsewhere, by socio-economic group, 2001-06
Over a fifth of Internet users have recently browsed current accounts online
Figure 6: Websites browsed and purchased from, by type of financial product, 2002-06
INTERNAL MARKET ENVIRONMENT
Key points
Fees account for a growing proportion of bank income
Figure 7: Sources of bank income, net interest and non-net interest, 2000-05
Overdraft fee investigation prompts consumer movement to reclaim ‘unlawful’ charges…
…and a new investigation will examine the entire structure of personal banking…
… which may result in the end of ‘free’ banking
Banks are under pressure to accelerate the cheque clearing process
COMPETITIVE CONTEXT
Key points
What alternatives?
Basic bank accounts: a stepping stone to current accounts
Over 153,000 basic bank accounts were opened in the last quarter of 2006
Figure 8: Total number of basic bank accounts opened, net of closures, April 2003-December 2006
STRENGTHS AND WEAKNESSES
Would you like motor insurance with that?
Sources of revenue are running dry
WHO’S INNOVATING?
Key points
Making Internet banking more secure
Tailoring products for specific segments
Charging for banking services
Helping customers to save
TRADE PERSPECTIVE
Branch banking versus remote banking
Brand weight
Increasing churn
Unfair fees?
Challenges and the future
The green agenda?
MARKET SIZE AND FORECAST
Key points
Over £461 billion is held in personal bank accounts
Figure 9: Value of personal bank accounts (MBBG only), 2000-05
Why not earn interest?
Figure 10: Number of personal bank accounts (MBBG only), 2000-05
Multi-account ownership has helped to drive up account numbers
Figure 11: Number of current accounts, 1998-2006
Borrowing on overdraft is rapidly gaining popularity
Figure 12: Number of overdraft advances (MBBG only), 1998-2005
The number of debit cards in circulation has grown by over a third
Figure 13: Number of cards in issue, 2000-05
 FORECAST
Figure 14: Forecast of the value of personal bank accounts (MBBG only), 2006-12
Figure 15: Forecast of the number of current accounts, 2006-12
 FACTORS USED IN THE FORECAST
MARKET SHARE
Key points
Smaller banks have not managed to increase their share
Figure 16: Volume share of current account market, 2003-07
Poaching tactics
COMPANIES AND PRODUCTS
Competitive rates are available to those who look for them
Figure 17: Examples of leading interest-bearing current accounts, 2007
Too many types of account?
Figure 18: Bank accounts offered by Halifax, 2007
Banks target specific consumer groups through sub-brands
Figure 19: Selected current account parent and subsidiary brands (MBBG only), May 2007
 COMPANY PROFILES
Lloyds TSB
Figure 20: Lloyds TSB company profile, 2002-05
RBS Group
Figure 21: The Royal Bank of Scotland/NatWest company profile, 2002-05
Barclays
Figure 22: Barclays company profile, 2002-05
HSBC
Figure 23: HSBC company profile, 2002-05
HBOS
Figure 24: HBOS company profile, 2002-05
BRAND ELEMENTS
Figure 25: Current Accounts brand map, 2007
NatWest
Figure 26: Words associated with NatWest brand, May 2007
Brand qualities
Time to find another way?
Halifax
Figure 27: Words associated with Halifax brand, May 2007
Brand qualities
Higher Xtra from Halifax banking
Nationwide
Figure 28: Words associated with Nationwide brand, May 2007
Brand qualities
Proud to be different – and with good reason
Barclays
Figure 29: Words associated with Barclays brand, May 2007
Brand qualities
Eagles are the least of Barclays’ problems
First Direct
Figure 30: Words associated with First Direct brand, May 2007
Brand qualities
Has ending free banking been an expensive move?
 USAGE OF BRANDS
Lloyds TSB lead the way – but Halifax on the way up
Figure 31: Consumer usage of various Current Account brands, May 2007
 ATTITUDES TOWARDS BRANDS
Figure 32: Attitudes towards Current Account brands, May 2007
 BRAND SATISFACTION AND PERFORMANCE
Nationwide – building on its customer service
Figure 33: Customer ratings of Current Account brands, May 2007
 BRAND COMMITMENT
Nationwide mortgage holders are keen to recommend the brand
Figure 34: Degree of customer commitment to Current Account brands, May 2007
 CHALLENGING THE OLD GUARD
BRAND COMMUNICATION AND PROMOTION
Key points
Over £28 million was spent advertising current accounts in 2006/07
Figure 35: Advertising expenditure on financial services, by sector, 2006/07
First Direct is one of the leading current account advertisers
Figure 36: Top ten current account advertisers, 2002/03-2006/07
A significant proportion of current account adspend went to TV adverts
Figure 37: Advertising expenditure on current accounts, by media type, 2006/07
CHANNELS TO MARKET
Key points
The branch network continues to shrink
Figure 38: Number of branches, by bank, 1999-2005
Backlash against branch closures and bans
But is a branch renaissance on the cards?
The number of fee-charging ATMs continues to surge
Figure 39: Number of ATMs, 2000-05
ATM cash withdrawals are on the rise
Figure 40: Number of bank cash dispensers/ATMs and cash withdrawals, 2003-05
ATMs allow customers to do more than withdraw money
Figure 41: Proportion of ATMs with additional facilities, banks and building societies only, 2005
Are consumers logging in more regularly to check their account?
Figure 42: The number of personal customers registered for telephone and Internet banking and the number of transactions, 2001-05
Telephone banking: popular with banks, not so popular with customers
Figure 43: Number of transactions by telephone, 2001-05
The number of telephone banking transactions has begun to stagnate
Figure 44: Number of telephone and Internet banking transactions, 2001-05
Balance information queries were the most common type of online transaction in 2005
Figure 45: The number of transactions by computer, 2001-05
CONSUMER FINANCIAL ACTIVITY
About the Financial Activity Bulletin
Expected activity picks up
Figure 46: Expected financial activity – savings, investment, borrowing and debt repayment, December 2005-March 2007
Much greater emphasis on saving than spending
Figure 47: UK savings and spending indices, January 2001-March 2007
Activity remains subdued across most demographic segments
Figure 48: Expected financial activity over the next six months, by socio-demographic and income groups, March 2007
Placing a cash deposit and saving in an ISA are the top activities
Figure 49: Top five financial activities planned in the next six months, March 2006-March 2007
Identifying the main financial services providers
Figure 50: Saving, investment and lending: market sizes by expected customer demand and brand leaders, March 2007
Nationwide tops the activity chart
Figure 51: Activity levels of main financial services providers’ customer bases, March 2007
THE CONSUMER – PRODUCT PENETRATION
Key points
Survey background
Latest survey suggests increased take-up of current accounts
Figure 52: Ownership of current accounts – summary of results, 2006 and 2007
The big five dominate
The cross-selling advantage…
… but there are alternative approaches
Lloyds TSB has the largest share of customers
Figure 53: Main current account provider (re-based), 2006 and 2007
To pay or not to pay – the First Direct way
Loss of some customers
Others could follow suit
NatWest and RBS have the greatest success attracting ABs
Figure 54: Customer profile of the top seven current account providers, by gender, age and socio-economic group, March 2007
Implication and opportunity
Targeting the youth market
Implication and opportunity
Abbey and HBOS appeal to families
Figure 55: Customer profile of the top seven current account providers, by marital status, lifestage, Mintel’s Special Groups and tenure, March 2007
Implication and opportunity
HSBC’s customer base is biased towards the higher income groups…
Figure 56: Customer profile of the top seven current account providers, by working status, gross annual household income, region and ACORN category, March 2007
Implication and opportunity
…and records the highest Internet penetration
Figure 57: Customer profile of the top seven current account providers, by new technology usage, newspaper readership, commercial TV viewing and supermarket usage, March 2007
Implication and opportunity
Relationships with retailers
The merits of a multi-brand approach
THE CONSUMER – SWITCHING BEHAVIOUR
Key points
Assessing customer churn
Figure 58: Current account switching activity, 2006 and 2007
Implication
Lloyds TSB and Barclays grab the largest share of recent ‘switchers’
Figure 59: Current account provider, by switching activity, March 2007
Various strategies used to acquire new customers
Barclays targets regular savers
The under-35s are most likely to switch
Figure 60: Current account switching activity, by gender, age, socio-economic group, gross annual household income and region, March 2007
Implication and opportunity
Internet users are also more prone to switching
Figure 61: Current account switching activity, by new technology usage, newspaper readership, commercial TV viewing and supermarket usage, March 2007
Implication and opportunity
THE CONSUMER – CHANNEL PREFERENCE
Key points:
Most switchers visited a branch to open their new account…
Figure 62: Channel used to arrange new current account, 2006 and 2007
Implication and opportunity
…but the Internet is growing in importance
Figure 63: Channel used to arrange new current account, by how long ago switched, March 2007
A fifth of those using ‘ non-branch’ channels joined First Direct
Figure 64: Provider switched to, by channel used to arrange new current account, March 2007
Of the big five, Barclays is best at capturing online switchers
Figure 65: Channel used to arrange new current account, by existing provider (top five only), March 2007
Women are less likely than men to open a current account online
Figure 66: Channel used to arrange new current account, by gender, age, socio-economic group, March 2007
Implication and opportunity
Online switchers are more likely to live in London or the South
Figure 67: Channel used to arrange new current account, by region, March 2007
Implication and opportunity
THE CONSUMER – TARGETING OPPORTUNITIES
Key points
Poor service is most likely to prompt people to switch
Figure 68: Reasons would consider switching, by existing current account provider, March 2007
Implication and opportunity
Cluster analysis
Switching clusters
Figure 69: Current account customer base – cluster segmentation, March 2007
Strong Switching Potential
Motivated by Poor Service
Motivated for Other (Specific) Reason
Non-movers
Cluster composition
Figure 70: Reasons would consider switching, by cluster, March 2007
Many who’ve switched before would switch again
Figure 71: Past switching activity, by clusters, March 2007
Men and ABC1s have Strong Switching Potential
Figure 72: Cluster profiles, by gender, age, socio-economic group, marital status, lifestage and Mintel’s Special Groups, March 2007
Retirees are the most loyal customers
Figure 73: Cluster profiles, by tenure, working status, gross annual household income, region and ACORN category, March 2007
Internet users represent hot prospects
Figure 74: Cluster profiles, by new technology usage, newspaper readership, commercial TV viewing and supermarket usage, March 2007
HSBC and HBOS customers are most service-oriented
Figure 75: Cluster segmentation, by current account provider, March 2007
Further analysis