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Retail Banking Overview - UK - October 2008

ISSUES IN THE MARKET
Key issues
 ABBREVIATIONS
INSIGHTS AND OPPORTUNITIES
Emphasising safety
Boosting uptake amongst DEs
Waiving penalty fees to boost loyalty
Boosting penetration in non-mainstream areas
Migrating customers online to increase cross-sales
MARKET IN BRIEF
Cross-selling is key to increasing customer value
A deteriorating economy presents its own challenges
Lloyds TSB and RBS lead the current account market
The savings market may do well in the economic downturn…
Figure 1: Savings balances and market shares, 2002-07
…whereas personal loans are likely to suffer
The mortgage market continues to decline
Figure 2: Gross mortgage lending, by type of advance (monthly data), Jan 2007-Jun 2008
Barclaycard leads the credit card market
Banks have a 16% share of the general insurance market
Figure 3: General insurance retail sales, 2007
Online banking is booming
Figure 4: Number of registered customers, and number of online/telephone banking transactions, by transaction type (MBBG only), 2002 and 2007
The industry is rapidly reshaping
Current accounts are key to cross-selling
Figure 5: Cross-holding of other financial products with main current account provider, April 2008
Most people are happy with their bank
FAST FORWARD TRENDS
 TREND 1: RETHINKING BUSINESS, CAPITALISM AND CONSUMERISM
The new era of responsible lending
Integrating with the consumer on a more personal level
Promoting sound principles and financial stability
 TREND 2: REBUILDING TRUST
Trust is required on two fronts
Banks need customers’ support
INTERNAL MARKET ENVIRONMENT
Key points
Expanding the product range and increasing customer value…
…using increasingly sophisticated methods
A shift has occurred in income streams
Figure 6: Sources of bank income, net interest and net non-interest (MBBG only), 2002-07
Opportunities arising in niche segments
PPI under the spotlight…
…along with overdraft charges
The new Banking Code
Issues with fundraising
A dramatic rescue package for UK banks
BROADER MARKET ENVIRONMENT
Key points
The economy and consumer confidence is suffering
House prices are falling…
Figure 7: Average UK house prices, Jan 2007-Aug 2008
…as is the BoE’s base rate
Figure 8: Base rate, Jan 2000-Oct 2008
Growth is expected in the employed population…
…although the UK has an ageing population…
Figure 9: UK population, by lifestage, 2003-13
…with growth expected in one-person households
CONSUMER ENVIRONMENT
Key points
Consumer confidence is falling…
Figure 10: UK Consumer confidence major indices (not seasonally adjusted), Jun 2004-Aug 2008
…across all household income bands
More people are beginning to struggle
Figure 11: UK households’ financial position, August 2007, July 2008 and August 2008
Growing fears over unemployment
Figure 12: Unemployment expectations* in next 12 months, Jan 2001-Aug 2008
Overall spending and saving intentions are down…
Figure 13: Spending and savings intentions (3-month moving average), Mar 2000-Aug 2008
…although the FAB Cash Index has picked up slightly
Figure 14: Intended cash-based activities, Q3/Q4 2002-Q2/Q3 2008
Consumer borrowing may increase in the short term…
Figure 15: Intended consumer credit activities, Q3/Q4 2002-Q2/Q3 2008
…while the mortgage market looks set to decline further
Figure 16: Expected mortgage and property purchase activity, Q3/Q4 2002-Q2/Q3 2008
Barclays considered as main financial services provider
Figure 17: Leading main financial services provider brands, June 2008
SWOT ANALYSIS
Figure 18: Retail banking market SWOT analysis
WHO’S INNOVATING?
Key points
Segmentation is key
Value derived from the high net worth sector
Green banking has become a hot issue
The future of contactless payment systems
Advances in mobile banking
Aggregator sites
TRADE PERSPECTIVE
Consumers are concerned about safety…
…but are also more value-orientated
The mortgage market is in turmoil…
…along with the lending market in general
Borrowing rates are rising
Banks compete for savings deposits
Cross-selling is more important than ever
No shedding of ‘low net worth’ individuals
There are few incentives for loyal customers
Bad debts are expected to rise
The end of an era of cheap credit?
What about the future for building societies?
CURRENT ACCOUNTS AND OVERDRAFTS
Key points
A possible decline in multiple current account ownership…
Figure 19: Number of current accounts held by individuals and estimated total number of current accounts in the UK, Jan 2006-Sep 2007
…causing the total number of accounts to drop in 2007
Figure 20: Estimated number of current accounts in the UK, 2002-07
Packaged accounts are now big business
Figure 21: Type of (main) current account held by consumers, April 2008
Growth seen in the number of basic bank accounts
Figure 22: Number of basic bank accounts in operation in the UK, 2003-07
Overdraft lending has increased over the last six years
Figure 23: Overdraft advances to individuals and individual trusts (MBBG only), 2002-07
RBS is catching Lloyds TSB in the current account market
Figure 24: Current account market share, August 2007
A word on overdraft fees
SAVINGS ACCOUNTS AND ISAS
Key points
Two thirds of adults own some kind of savings product
Figure 25: Number of savers, by type of account, November 2007
Cash ISA deposits have grown by a third since 2002/03
Figure 26: Cash* and stocks and shares** component subscriptions into ISAs, 2002/03-2007/08
Building societies’ share of the market increased in 2007
Figure 27: Savings balances and market shares, 2002-07
Safety is a prime concern at the moment
Halifax is the leading savings provider
Figure 28: Estimated volume share of savings acount market, November 2007
Issues in the market and other developments
UNSECURED PERSONAL LOANS
Key points
Non-credit card lending has fallen since 2004
Figure 29: Total gross lending and net amounts outstanding of other consumer credit lending* (monthly data, seasonally adjusted), Jan 2003-Jul 2008
Lending on unsecured personal loans has fallen since 2004
Figure 30: Estimated gross lending for unsecured personal loans, 2002-07
Lloyds TSB leads the field
Figure 31: Personal loan market share, by provider, August 2007
The outlook for personal loans and other developments
MORTGAGES
Key points
The mortgage market is in a bad way…
Approvals for house purchase have fallen to record lows
Figure 32: Approvals for house purchase (monthly data), Jan 2000-Jul 2008
Gross mortgage lending has increased over the last five years…
Figure 33: Gross mortgage lending, by type of advance, 2002-07
…but the situation looks very different in 2008
Figure 34: Gross mortgage lending, by type of advance (monthly data), Jan 2007-Jun 2008
Specialist mortgage lenders’ share of the market has grown…
Figure 35: Gross advances (£ billion), by type of lender, 2002-07
…but banks still hold the greatest liabilities
Figure 36: Balances outstanding, by type of lender, 2002-07
HBOS leads the pack, but change is expected in 2008
Figure 37: Market share of top ten providers, by gross mortgage lending, 2007
CREDIT CARDS
Key points
Borrowing on credit cards has decreased slightly
Figure 38: Total gross lending and net amounts outstanding on credit card lending (monthly data, seasonally adjusted), Jan 2003-Jul 2008
The number of credit cards in issue has increased…
Figure 39: Number of credit cards in issue, transaction volumes and value of UK purchases, 2002-07
…but they are being used less often
Figure 40: Credit card usage frequency, 2002-07
Barclaycard leads the market
Figure 41: Credit card market share, by brand, April 2008
PPI revenue could be hit
Contactless payment cards the next big thing?
GENERAL INSURANCE
Key points
Gross written premium has slowly increased…
Figure 42: UK general insurance annual business, gross written premium, by category, 2002-07
…although net written premium fell sharply in 2007
Figure 43: UK net written premium, by class of business, 2002-07
Bancassurance represents one sixth of the market
Figure 44: General insurance retail sales, 2007
RBS is the top bancassurer in the insurance market
Figure 45: Total GWP of top 20 companies, 2006 and 2007
Where next for banks and general insurance?
CHANNELS TO MARKET
Key points
A multi-channel approach
Lloyds TSB has the largest branch network
Figure 46: Number of UK branches of selected providers, 2003, 2005 and 2007
Growth in the number of privately operated ATMs
Figure 47: Number of ATMs in the UK of selected providers, by location, 2007
Online banking has grown very popular
Figure 48: Number of registered customers, and number of online/telephone banking transactions, by transaction type (MBBG only), 2002 and 2007
Mobile banking is poised to do better
COMPANIES AND PRODUCTS
A highly fragmented market…
Figure 49: Selected retail banking parent and subsidiary brands, 2008
…which has changed a lot of late
Figure 50: Estimated market shares of the major banking groups in the main retail banking sectors
 THE TOP SIX COMPANY PROFILES
Abbey
Figure 51: Abbey company profile, 2004-07
Barclays
Figure 52: Barclays company profile, 2004-07
HBOS
Figure 53: HBOS company profile, 2004-07
HSBC
Figure 54: HSBC company profile, 2004-07
Lloyds TSB
Figure 55: Lloyds TSB company profile, 2004-07
RBS Group
Figure 56: RBS Group company profile, 2004-07
BRAND COMMUNICATION AND PROMOTION
Key points
Consumer credit and mortgage adspend has plummeted
Figure 57: Top 15 advertising categories within financial services, 2006/07-2007/08
Barclays and Lloyds TSB are the biggest advertisers
Figure 58: Retail banking adspend of selected providers, 2006/07-2007/08
Mass media channels are effective at reaching a large audience
Figure 59: Retail banking* adspend, by media type, 2006/07-2007/08
BRAND ELEMENTS
 BRAND MAP
Figure 60: Attitudes and usage of retail bank brands, September 2008
 ALLIANCE & LEICESTER
What the brand is trying to achieve
What the consumer thinks
Figure 61: Attitudes towards the Alliance & Leicester brand, September 2008
 BARCLAYS
What the brand is trying to achieve
What the consumer thinks
Figure 62: Attitudes towards the Barclays brand, September 2008
 THE CO-OPERATIVE BANK
What the brand is trying to achieve
What the consumer thinks
Figure 63: Attitudes towards The Co-operative Bank brand, September 2008
 HALIFAX
What the brand is trying to achieve
What the consumer thinks
Figure 64: Attitudes towards the Halifax brand, September 2008
 NATIONWIDE
What the brand is trying to achieve
What the consumer thinks
Figure 65: Attitudes towards the Nationwide brand, September 2008
 BRAND QUALITIES OF RETAIL BANK BRANDS
Nationwide is regarded as the most helpful brand
Figure 66: Personality of various retail bank brands, September 2008
Nationwide a consumer favourite
Figure 67: Commitment to various retail bank brands, September 2008
Halifax has the highest level of usage…
Figure 68: Consumer usage of various retail bank brands, September 2008
…and most people will continue using it
Figure 69: Consideration of various retail bank brands, September 2008
Lloyds TSB is thought to be gaining ground
Figure 70: Momentum of various retail bank brands, September 2008
Nationwide leads on motivation for savings and mortgages
Figure 71: Motivation of various retail bank brands, September 2008
Abbey and Barclays have very poor brand satisfaction
Figure 72: Satisfaction of various retail bank brands, September 2008
 ROUND UP
THE CONSUMER: PRODUCT OWNERSHIP AND CROSS-HOLDINGS
Key points
Around 41 million people have a bank account – a huge market
Figure 73: Ownership of financial products, April 2008
Savings account and credit card penetration is also high
Less educated people own fewer financial products…
Figure 74: Ownership of financial products, by gender, age, socio-economic group and education level, April 2008
…as do the lower socio-economic groups
Savings accounts and credit cards are easily cross-sold…
Figure 75: Cross-holding of other financial products with main current account provider, April 2008
Reducing the impact of rate tarts
Figure 76: Ownership of financial products with main current account provider, by gender, age, gross annual household income and newspaper readership, April 2008
Potential to boost penetration in non-mainstream insurance
Figure 77: Relative cross-selling penetration of financial products, April 2008
Only a quarter of mortgage holders have this with their main bank
Figure 78: Proportion of product holders who hold financial products with their main current account provider, April 2008
Protection products may present a good opportunity
Online bankers are likely to own more financial products…
Figure 79: Overall product ownership, by online banking usage, April 2008
…and have more cross-holdings
Figure 80: With-brand product ownership, by online banking tendancy, April 2008
ABs are likely to have more cross-holdings
Figure 81: Total number of additional products held with main current account provider, by socio-economic group, April 2008
THE CONSUMER: SWITCHING BEHAVIOUR
Key points
A word on multiple current account ownership
Inertia is a big factor in switching
Most are happy with their bank and are not considering switching…
Figure 82: Customer satisfaction and attitudes towards switching provider, April 2008
…which is largely due to good customer service…
Figure 83: Factors encouraging consumers to switch their current account, April 2008
…though interest rates are also important
For a third of people, nothing would prompt them to switch
Older people are less prone to switching…
Figure 84: Customer satisfaction and attitudes towards switching provider, by age, socio-economic group, working status, ACORN group and newspaper readership, April 2008
…while broadsheet readers are harder to please (and retain)
Wealthy consumers are highly influenced by customer service
Figure 85: Switching propensity, by gross annual household income, April 2008
Women and elderly customers are more loyal
Figure 86: Factors encouraging consumers to switch their current account, by gender, age, socio-economic group, lifestage, gross annual household income and household tenure, April 2008
Young people are tempted by cash incentives
DEs can’t be bothered to switch
Safety is likely to be a growing concern
Happy customers are more likely to have cross-holdings…
Figure 87: With-brand cross-holdings, by customer satisfaction and switching intentions, April 2008
…but safety is also crucial at the moment
THE CONSUMER: CONSUMER ATTITUDES AND BEHAVIOUR
Key points
Consumers tend to stick with the same bank
Figure 88: General attitudes and consumer behaviour in retail banking, April 2008
Personal recommendation is highly effective
Women are better brand advocates…
Figure 89: General attitudes and consumer behaviour in retail banking, by gender, age, socio-economic group, marital status and special group, April 2008
…while ABC1 pre-/no family have high cross-holdings
Couples living as married have overdraft issues
Those that have paid penalty fees are more likely to switch
Figure 90: Attitudes towards retail banking, by potential reasons for switching, April 2008
Others are susceptible in different areas
THE CONSUMER: FURTHER ANALYSIS
Key points
Attitudinal groups
Figure 91: Proportional splits of attitudinal groups, April 2008
Figure 92: Sample sizes of attitudinal groups, April 2008
Overview of the different groups’ characteristics
Figure 93: Headline characteristics of attitudinal groups, April 2008
The consumer’s dilemma
Likely switchers
Predominant trends
Product ownership
Loyalty profile
Demographic profile
Apathetics
Predominant trends
Product ownership
Loyalty profile
Demographic profile
A potential switcher group?
Super loyals
Predominant trends
Product ownership
Loyalty profile
Demographic profile
Happy customers
Predominant trends
Product ownership
Loyalty profile
Demographic profile
Super Loyals tend to be older customers
Figure 94: Attitudinal groups, by gender, age, socio-economic group, marital status and lifestage, April 2008
Apathetics own more financial products…
Figure 95: Attitudinal groups, by number of financial products owned, April 2008
…and also have more cross-holdings
Figure 96: Attitudinal groups, by number of products held with main current acount provider, April 2008
Repertoire analysis
Figure 97: Number of products held with main current acount provider, April 2008
High earners own more financial products overall
Figure 98: Number of financial products held, by repertoire of products owned, April 2008
With-brand mortgages more for people with high cross-holdings
Figure 99: Type of financial products held, by repertoire of with-brand product ownership, April 2008
Men have more cross-holdings
Figure 100: Number of products held with main current account provider, by gender, age, socio-economic group and lifestage, April 2008
Products offering the best and least cross-selling potential
Figure 101: With-brand cross-selling penetration of financial products, April 2008
APPENDIX – MARKET AND PRODUCT DATA
Figure 102: Total gross unsecured consumer lending split, by product category, 2002-07
Figure 103: Number of current accounts held by individuals and estimated total number of current accounts in the UK, Jan 2006-Sep 2007
APPENDIX – PRODUCT OWNERSHIP AND CROSS-SELLING
Figure 104: Type of current account held by consumers, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008
Figure 105: Ownership of financial products, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008, (part 1)
Figure 106: Ownership of financial products, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008, (part 2)
Figure 107: Ownership of financial products with main current account provider, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008
APPENDIX – SWITCHING BEHAVIOUR
Figure 108: Customer satisfaction and attitudes towards switching provider, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008
Figure 109: Factors encouraging consumers to switch their current account, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008, (Table 1 of 2)
Figure 110: Factors encouraging consumers to switch their current account, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008, (Table 2 of 2)
Figure 111: General attitudes and consumer behaviour in retail banking, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008, (Table 1 of 2)
Figure 112: General attitudes and consumer behaviour in retail banking by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008, (Table 2 of 2)
Figure 113: Attitudes towards retail banking, by potential reasons for switching, April 2008, (table 1 of 2)
Figure 114: Attitudes towards retail banking, by potential reasons for switching, April 2008, (table 2 of 2)
APPENDIX – FURTHER ANALYSIS
Figure 115: Attitudinal groups, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008
Figure 116: Attitudinal groups, by overall product ownership, April 2008
Figure 117: Attitudinal groups, by type of current account owned, April 2008
Figure 118: Attitudinal groups, by products held with main current acount provider, April 2008
Figure 119: Repertoire analysis of customer cross-holdings, April 2008
Figure 120: Number of financial products held, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008

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