Abstract
Currently, the retail banking community is in damage control mode. Relatively benign market conditions, which greeted the start of 2007, have morphed into unprecedented turmoil in credit markets, and a set of domestic factors that signal a slowdown in the UK consumer economy. The banks are also under fire when it comes to overdraft charges and payment protection insurance sales - this, relatively soon after a cap was imposed on credit card charges. Nevertheless, recent results have been particularly strong, with write-downs being less than expected, and profitability still high.
Everyone in UK retail banking now subscribes to the mantra of cross-selling. US consultant, AT Kearney, has produced a study showing that cross-sales rates are 3.3 in France, 2.6 in Germany, 2.3 in the UK, and 2.1 in the US. With high returns, it is no surprise that creating higher value from existing customers is so pivotal to future trading strategies. This report examines the extent to which banks are succeeding in this respect.
This report offers a wide ranging review of UK banking, with a focus on customer relationships. It previews the internal and external market environments with which banks must contending, analyses the various markets that form the retail banking portfolio, and the banks' performance in these. Exclusive consumer research commissioned for the report assesses customer product holdings, and the potential for more ‘same brand' holdings, as well as attitudes towards bank switching and prevailing satisfaction levels. The Brand Elements data provides an up to date assessment on the respective bank brands, comparing and contrasting each.
Table of Contents
- Issues in the Market
- Key Issues
- Insights and Opportunities
- Loyalty -- discretionary discounts, rewards, etc...
- Build some emotion
- Creating a bond with the young
- Building better selling capability through the online channel
- Market in Brief
- Unprecedented market conditions will fuel an uncertain domestic market, and a slowdown in consumer demand
- Retail banks in the firing line of the OFT -- signalling an end to highly lucrative income streams
- Strategically, all the major bank brands are grappling with the same challenges
- Differentiate....differentiate...differentiate
- A third of adults account for well over half of all holdings
- Retail banks' current account base means they dominate personal finance markets
- In a market where there is often little distinction between brands, innovation is key
- Banks creating a multi-channel retail mix that drives customer value
- Television and direct mail prop up banks' advertising investment
- Internal Market Environment
- Key Points
- Building customer relationships
- Moving the income profile
- Depolarisation presented a huge opportunity...
- ...but few have made the most of it
- Charges and overdraft fees under the microscope
- Finding alternatives
- A prompt to account switching?
- Future revenue growth
- External Market Environment
- Key points
- Consumer spending habits
- Figure 2: Total personal disposable income (PDI), consumer expenditure and savings, 2003-12
- Caution comes to the fore
- Few signs of consumer panic...
- ...but life is getting tougher for some
- Credit crunch yet to be fully felt
- Base rates and lending
- Figure 3: BoE average annual base rate, 2004-12
- Employment trends
- Figure 4: UK workforce and employment, by gender, 2002-12
- Consumer confidence
- Figure 5: Year-on-year trend in monthly approvals for house purchase to individuals, September 2005-September 2007
- Bigger market opportunities from population increase
- Figure 6: Size of UK population, by age group, 1999-2011
- Scope to adjust to the new retirement reality...
- ...as well as changing ethnic makeup of the country
- Household formation delivers further opportunity
- Figure 7: Total number of UK households and one-person households, 1991-2012
- Changing household structure leads to changing product requirements
- Online development
- Finance sales grow online
- Figure 8: Online product purchasing, by category, April 2005-July 2007
- Strengths and Weaknesses in the Market
- Strengths/opportunities
- Growing numbers of people and households, evolving mix
- Existing large customer franchises to cross-sell to
- Inertial tie creates customer bonds
- Migrating more customers to low-cost channels
- Weaknesses/threats
- Cooling UK economy
- Under scrutiny from the OFT
- Homogeneous brands, lack of differentiation
- Cross-selling has not taken off
- Who' s Innovating?
- Key Points
- Product innovation through segmentation
- Age segmentation leads the way
- High net worth and niche services
- Packaged accounts remain a point of focus
- Account aggregation yet to hit the mainstream
- Contactless payments come of age
- Mobile banking -- the next big thing...
- ...or just another channel option?
- Aggregator sites
- Green banking hits the mainstream
- Co-op still leads the way in green finance
- Lessons from the US
- The dangers of greenwash
- Current Accounts and Overdrafts
- Key Points
- Current accounts -- the key battleground
- Steady growth in the number of accounts
- Figure 9: Number of personal bank accounts held by individuals UK (Major British Banking Group only), 2000-06
- Value of personal accounts reaches £500 billion
- Figure 10: Value of personal bank accounts held by individuals (MBBG only), 2000-05
- Overdrafts
- Figure 11: Overdraft advances to individuals by residual maturity* (MBBG only), 2000-06
- Savings Accounts
- Key Points
- UK banks account for almost 70% of individual deposits
- Figure 12: Individual trusts' private sector holdings of sterling assets, 2001-06
- Savings bonds see a shift in the market
- The Northern Rock debacle shakes up the market
- Mortgages
- Key Points
- Mortgages -- dealing with the fallout from the credit crunch
- House prices in the balance
- First-time buyers slip away from the market
- Figure 13: Number of loans for house purchase, by type of mortgagor, 1999-2006
- An end to fixed rates could impact mortgage business
- Credit Cards
- Key Points
- Number of payment cards in issue flattens...
- Figure 14: Number of payment cards in issue, by type, 2001-06
- ...and payment volumes reflect tough conditions
- Figure 15: Volume of UK purchases, by card type, 2001-06
- Value of credit card purchases in decline
- Figure 16: Value of UK purchases, by card type, 2001-06
- Big 5 leverage retail advantage
- Credit problems spread to the card market
- Charging cap hits margins
- Personal Unsecured Loans
- Key Points
- Cross selling vital
- Figure 17: Total gross unsecured consumer lending split by product category, 2000-07
- Banks making more use of their customer relationships
- A shift away from price?
- General Insurance
- Key Points
- Market size -- pressure on premiums limits growth
- Figure 18: General insurance business for UK risks, by annual net written premiums, 2000-06
- Fall in property transactions to hit property insurance?
- The Competitive Landscape
- Key Points
- Current Accounts
- Figure 19: Current account market share, August 2007
- A relatively static market...
- ...but still huge competition
- Regional banks limited to their local strongholds
- Savings accounts
- Traditional providers reign supreme
- Figure 20: Estimated volume share of savings acount market, November 2007
- Credit cards
- Barclays and Lloyds TSB still lead the pack
- Figure 22: Leading credit card providers, by volume market share, April 2007
- Mortgages
- Building societies slip away
- Figure 22: Gross mortgage advances by mortgage provider, 2005-06
- Mixed signals
- Personal insurance
- Bancassurance accounts for growing proportion of business
- Figure 21: Distribution of personal lines general insurance business by proportion of gross written premiums, 2000-06
- Banks using subsidiaries to sell insurance
- Figure 22: Largest general insurers in the UK -- total market, by GWP, 2005-06
- Personal unsecured loans
- Figure 23: Personal loan market share by company, August 2007
- Companies and Products
- Key Points
- Figure 24: Selected current account parent and subsidiary brands (MBBG only), 2007
- Top 6 company profiles
- Lloyds TSB
- Figure 25: Lloyds TSB company profile, 2002-05
- RBS Group
- Figure 26: RBS/NatWest company profile, 2002-05
- Barclays
- Figure 27: Barclays company profile, 2002-05
- HSBC
- Figure 28: HSBC company profile, 2002-05
- HBOS
- Figure 29: HBOS company profile, 2002-05
- Abbey
- Figure 30: Abbey company profile, 2002-05
- Brand Communication and Promotion
- Key Points
- General insurance and credit products the key battleground...
- Figure 31: Financial services adspend, by product type, 2003-07
- ...but signs of a credit cutback?
- Concentrating on retail banking
- Figure 32: Retail banking-related adspend, by advertiser, 2003-07
- TV vies with direct mail
- Figure 33: Advertising expenditure on financial services , by media type, 2006/07
- Direct mail -- the cross-selling advantage
- More to be made of online advertising?
- Channels to Market
- Key Points
- Joined-up banking in a multi-channel environment
- Branches finding new favour
- Branch numbers still falling -- but not by much
- Figure 34: Number of branches, by bank, 1999-2004
- Scope for more rationalisation?
- The scope for negative press
- ATMs take up the slack
- Figure 35: Number of cash dispensers and ATMs, by bank, 1999-2004
- Wide variation in the ATM: branch ratio
- The independents' growing role
- Extending the range of vended banking
- Figure 37: Availability of additional ATM facilities, 2001-06
- Remote banking via online and telephone
- Figure 38: Comparative performance of telephone and online banking, 2001 and 2006.
- Figure 39: Number of transactions by telephone, by transaction type, 2001-04
- Building the online franchise
- Will a high street player break rank?
- Mobile telephony
- Brand Elements
- Figure 40: Retail banking brand map, October 2007
- Barclays
- Brand personality
- Figure 41: Attitudes associated with Barclays, October 2007
- Brand performance
- Lloyds TSB
- Brand personality
- Figure 42: Attitudes associated with Lloyds TSB, October 2007
- Brand performance
- HSBC
- Brand personality
- Figure 43: Attitudes associated with HSBC, October 2007
- Brand performance
- NatWest
- Brand personality
- Figure 44: Attitudes associated with NatWest, October 2007
- Brand performance
- Halifax/HBOS
- Brand personality
- Figure 45: Attitudes associated with HBOS, October 2007
- Brand performance
- The Co-operative Bank
- Brand perception
- Figure 46: Attitudes associated with Co-operative bank, October 2007
- Consideration highest for HBOS
- Figure 47: Retail banking brand retention and consideration, October 2007
- The Consumer -- Product Ownership
- Key Points
- Financial holdings
- Figure 48: Ownership of financial products by gender and age, August 2007
- Potential for the unbanked?
- Figure 49: Ownership of financial products by gender and age, expressed as indices, August 2007
- Derived demand alongside discretionary spending
- Big 5 maintain their stranglehold on the market
- Figure 50: Current account market share, August 2007
- Multiple holdings
- Figure 52: Product ownership, by number of products held expressed as Index against the All-Average, August 2007
- Profiling customers with multiple holdings
- Figure 53: Multiple product ownership, by technology usage, August 2007
- Which bank brands have the most favourable customer profile?
- Figure 54: Product ownership, by number of products held expressed as Index against the All-Average, August 2007
- Identifying the product opportunities
- Figure 55: Cross holdings of (same brand) current account holders, August 2007
- Figure 56: Opportunity scoring for financial holdings August 2007
- Potential to increase share of home insurance market
- Lloyds TSB tops the cross-selling league
- Figure 57: Products held with current account provider, by current account provider, August 2007
- Deepening the banking relationship
- Figure 58: Agreement with statement ' I would be happy to arrange more products (eg a mortgage, a personal loan, an ISA) through my main bank where I hold my current account' , August 2007
- Younger people turn to their current account provider
- Figure 59: Agreement with statements concerning current accounts by gender, age, socio-economic group, and gross annual household income, August 2007
- Barclays and Lloyds TSB could struggle to convert leads
- Figure 60: Agreement with statement ' I would be happy to arrange more through my main bank where I hold my current account' , by current account provider, August 2007
- The Consumer -- Channel Usage
- Key Points
- The drift to remote banking
- Online banking -- no longer niche
- Figure 61: Agreement with statement ' I use online banking regularly' by main current account providers, August 2007
- High-value customers move online
- Figure 62: Agreement with statements about the usage of retail banking facilities, by gender, age, socio-economic group and gross annual household income, August 2007
- Figure 63: Agreement with statements about the usgae of retail banking facilities, by product ownerhip, August 2007
- Branch banking -- still vital
- Figure 64: Agreement with the statement ' I visit my local branch regularly' , by main current account providers, August 2007
- Older customers still rely on the branch
- Figure 65: Agreement with statements about the usage of retail banking facilities, by gender, age, socio-economic group and gross annual household income, August 2007
- Figure 66: Product ownership by agreement with the statement "I visit my local bank branch regularly", August 2007
- Telephone banking
- Figure 67: Agreement with statements about the usgae of retail banking facilities, by gender, age, socio-economic group and gross annual household income, August 2007
- Figure 68: Agreement with the statement ' I use telephone banking regularly' , by main current account provider, August 2007
- The Consumer -- Customer Satisfaction and Loyalty
- Key Points
- Overall satisfaction
- Figure 69: Agreement with statement ' i am happy with the service provided by the bank where i hold my current account' , August 2007
- High earners could vote with their wallets
- Figure 70: Agreement with statements concerning current accounts by gender, age, socio-economic group, and gross annual household income, August 2007
- NatWest winning the service war
- Figure 71: Agreement with statement ' I am happy with the service provided by the bank where I hold my current account' , by current account provider, August 2007
- Switching banks
- Figure 72: Agreement with statement ' i may consider switching my main bank where i hold my current account over' , August 2007
- Young and affluent the most mobile
- Figure 73: Agreement with statements concerning current accounts by gender, age, socio-economic group, and gross annual household income, August 2007
- NatWest customers going nowhere
- Figure 74: Agreement with statement ' i may consider switching my main bank where i hold my current account over' , by current account provider, August 2007
- What is making unhappy customers?
- Figure 75: Attitudes towards current account providers, August 2007
- Target analysis: where is the likely customer attrition?
- Penalty charges the key push factor
- Figure 77: Attitudes about banks by cluster groups, expressed as indices, August 2007
- Appendix
- Abbreviations
- Currencies
- Financial holdings analysis
- Figure 78: Number of financial holdings, by key demographic and economic factors, August 2007
- Figure 79: Number of financial holdings, by key lifestyle indicators, August 2007
- Analysis of same brand holdings
- Figure 80: Cross holdings of (same brand) current account holders by gender, age, socio-economic group and marital status, August 2007
- Figure 81: Cross holdings of (same brand) current account holders by lifestage, special group, working status and gross annual household income, August 2007
- Figure 82: Cross holdings of (same brand) current account holders by TV region, ACORN group, newspaper readership and supermarket used, August 2007
- Profiling the major UK retail banks
- Figure 83: Main current account providers by gender, age, socio-economic group, and gross annual household income, August 2007
- Figure 84: Main current account providers by marital status, lifetstage, working status, and household tenure, August 2007
- Figure 85: Main current accont providers by technology users, newspaper readership, tv region, and supermarket usage, August 2007
- Analysis of same brand holdings, by named retail bank
- Figure 86: Products held with current account provider, by current account provider, August 2007
