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Packaged and Current Accounts - UK - July 2014
Introduction
 
The vast majority of the UK population has at least one current account, although the dynamics of the market mean that switching activity is relatively low. This is especially the case when compared with other financial markets. Overall, some 50% of adults have never switched their main current account provider. As a result, firms tend to compete strongly when it comes to the student/graduate segment because providers know that winning over custom during this period will lead to long-term banking relationships due to the ‘stickiness’ of current accounts.

However, there have been a number of changes in the market that could help increase switching activity going forward. The introduction of the Current Account Switch Service has already had a positive impact on switching figures. Coupled with the entry of several challenger brands, including the long awaited foray from Tesco Bank, there is potential that more people will consider switching in the future as competition increases. For firms looking to both win over customers from rivals and also maintain their market share, offering interest on in-credit balances and cashback are two increasingly important strategies.

This report examines the current account market, analysing some of the key developments in the sector including market trends and changes. This report also provides a snapshot of recent innovations in the market, and looks at some of the new entrants to the current account sector. Mintel’s exclusively commissioned research concludes the report, looking at current account ownership, attitudes towards paid-for accounts, current account switching activity and reasons why people switch their account provider.

Report scope and product definitions
The focus of this report is on retail current accounts, including packaged accounts for mass-market customers, but excluding premium and private bank accounts targeted at the mass affluent to high net worth. The latter are covered in the Mintel report, Premium and Mass Affluent Banking – UK, September 2013.

Current accounts can be classified into various sub-types according to their target market and pricing model. The predominant type in the UK is the free-if-in-credit (or ‘free banking’) model. This is where the customer does not pay any direct fees for having the account, if in credit, or for core services such as direct debits and cheques. Interest is usually charged on any money borrowed via an overdraft, which can be either ‘authorised’ or ‘unauthorised’. Charges are usually significant on borrowing above an arranged overdraft limit.

Student and graduate accounts are variants of the free-if-in-credit model and may offer special features, such as an interest-free overdraft. Similarly, basic bank accounts are based on the free-if-in-credit model and do not carry any charges provided there are sufficient funds in the account to meet any payments made.

The other main category is the premium or packaged account. This involves the customer being charged a monthly fee in return for a range of additional benefits, such as travel insurance and motor breakdown cover.

Abbreviations
AER | Annual equivalent rate (interest earned on in-credit and savings balances)
BACS | Bankers Automated Clearing System
BBA | British Bankers’ Association
BoS | Bank of Scotland
BSA | Building Societies Association
EAR | Equivalent annual rate (interest charged on borrowing, eg overdraft)
EC | European Commission
FCA | Financial Conduct Authority
FOS | Financial Ombudsman Service
HMRC | HM Revenue & Customs
ISA | Individual Savings Account
LBG | Lloyds Banking Group
LIBOR | London Interbank Offered Rate
M&S | Marks & Spencer
MBBG | Major British banking groups
NAB | National Australia Bank
NMR | Nielsen Media Research. For further information, please contact nmr.communication@nielsenmedia.co.uk
NS&I | National Savings & Investments
OFT | The Office for Fair Trading
ONS | Office for National Statistics
PPI | Payment protection insurance
RBS | Royal Bank of Scotland
SWOT | Strengths, weaknesses, opportunities, threats

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