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Consumer Attitudes towards Challenger Brands - UK - October 2016

“Consumer expectations of financial services providers are growing, giving challengers an opportunity to meet people’s needs where the more traditional providers cannot. However, increasing awareness levels and highlighting their differences will be key to consumer consideration of challengers. Beyond this, they will also need to prove they can get the basics right in order to build consumer trust.”
– Jessica Galletley, Financial Services Analyst

This report discusses the following key topics:

  • Savings products offer challengers an opportunity to get a foothold in the market
  • Challengers will need to prove they can get the basics right
  • Financially-experienced are a prime target for non-traditional challengers

New regulation is supporting the entrance of challenger brands into the retail banking market. The Financial Conduct Authority (FCA) and Competition and Markets Authority (CMA) are working to make it easier for new brands to launch and, on the consumer side, they are implementing initiatives that will make it easier for consumers to compare a wider range of products. The hope is that this will help people understand if they would be better off switching, and to erode the inertia that has always limited the scope for new entrants to gain market share.

However, despite these efforts, consumers still strongly favour the traditional high street giants. People have a greater level of trust in the more established brands, while a lack of awareness of smaller challengers, and underlying concerns about their financial and operational stability also hinders switching to alternatives. More importantly, though, a generally high level of satisfaction with their main current account provider means they lack the incentive to switch. So much of the narrative around the current account market centres around the idea that everyone would switch banks, if only the process was easier. The truth is, though, that Mintel’s research consistently shows that a high proportion of the incumbents’ customers are actually pretty happy with their bank.

This Report examines consumer awareness and use of challenger brands in the UK retail banking market. It looks at consumers’ consideration of challenger brands for different financial services products, and the concerns they have about using banks that are new to the market. It also explores the most important qualities that people look for in a current account provider, and what opportunities this presents for new brands entering the market.

This Report examines the UK retail banking market for challenger brands. Mintel defines a ‘challenger bank’ as: a financial institution that currently competes with the big five high street banks (Barclays, HSBC, Lloyds Bank, RBS, and Santander) or has obtained a banking licence and plans to offer retail banking products.

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Table of contents

  1. Overview

    • What you need to know
      • Report definition
      • Executive Summary

          • The market
            • Current Account Switch Service
              • Figure 1: Number of switches per month since launch of CASS, September 2013-September 2016
            • CMA Market Study and Reforms
              • FCA supports alternative finance market
                • Payments innovation poses a threat to traditional model
                  • Companies and brands
                    • Incumbent providers still dominate the market
                      • Figure 2: Current account providers, by share of main and other current account market, July 2016
                    • CASS has led to net losses for most challengers
                      • Figure 3: Net gains of full account switches completed using CASS between Q4 2014 and Q4 2015
                    • Full-service traditional challengers: How do they differ to the big banks?
                      • Retailers in unique position to attract new financial services customers
                        • The consumer
                          • High-street challengers top list of awareness
                            • Figure 4: Awareness of challenger brands, August 2016
                          • One in ten has heard of a digital-only bank
                            • Figure 5: Awareness of digital banks, August 2016
                          • People more likely to consider a new bank for savings
                            • Figure 6: Likelihood to consider a new bank for different financial services products, August 2016
                          • Customer service is a priority when choosing a provider
                            • Figure 7: Most important qualities when choosing a provider – ‘Any selected’, August 2016
                          • People want a bank that’s on their side
                            • Figure 8: Interest in different banking services, August 2016
                          • New banks must prove their ability to get the basics right
                            • Figure 9: Concerns about arranging products with a bank that is relatively new in the market, August 2016
                          • What we think
                          • Issues and Insights

                            • Savings products offer challengers an opportunity to get a foothold in the market
                              • The facts
                                • The implications
                                  • Challengers will need to prove they can get the basics right
                                    • The facts
                                      • The implications
                                        • Financially-experienced are a prime target for non-traditional challengers
                                          • The facts
                                            • The implications
                                            • The Market – What You Need to Know

                                              • Growing population increases opportunity for challengers
                                                • Current Account Switch Service
                                                  • CMA Market Study and Reforms
                                                    • FCA supports alternative finance market
                                                      • Payments innovation poses a threat to traditional model
                                                      • Market Drivers

                                                        • Growing population increases opportunity for challengers
                                                          • Figure 10: Estimated number of current accounts, 2014-16
                                                        • Challengers embrace fintech to drive competition
                                                          • Regulatory support for challenger brands
                                                            • Current Account Switch Service
                                                              • Figure 11: Number of switches per month since launch of CASS, September 2013-September 2016
                                                            • Project Innovate
                                                              • CMA Market Study and Reforms
                                                                • Open Banking has the greatest potential for disruption
                                                                  • FCA supports alternative finance market
                                                                    • Payments innovation poses a threat to traditional model
                                                                      • PSD2 will accelerate innovation in the payments market
                                                                      • Companies and Brands – What You Need to Know

                                                                        • Incumbent providers retain dominant share of the market
                                                                          • CASS has led to net losses for most challengers
                                                                            • Full-service traditional challengers: How do they differ to the big banks?
                                                                              • Retailers in unique position to attract new financial services customers
                                                                              • Market Share

                                                                                • Incumbent providers retain dominant share of the market…
                                                                                  • …and even the challengers still follow a traditional banking model
                                                                                    • Figure 12: Current account providers, by share of main and other current account market, July 2016
                                                                                  • CASS has led to net losses for most challengers
                                                                                    • Figure 13: Net gains of full account switches completed using CASS between Q4 2014 and Q4 2015
                                                                                • Competitive Strategies

                                                                                  • Full-service traditional challengers: How do they differ to the big banks?
                                                                                    • TSB
                                                                                      • Metro Bank
                                                                                        • Retailers in unique position to attract new financial services customers
                                                                                          • Tesco Bank
                                                                                            • M&S Bank
                                                                                              • John Lewis/Waitrose Partnership
                                                                                                • Digital-only banks focus on personal financial management
                                                                                                  • Starling Bank wants informed customers
                                                                                                    • Atom Bank focusses on complete personalisation
                                                                                                      • Monzo targets budget-focussed students
                                                                                                      • The Consumer – What You Need to Know

                                                                                                        • High-street challengers top list of awareness
                                                                                                          • People more likely to consider a new bank for savings
                                                                                                            • Customer service is a priority when choosing a provider
                                                                                                              • People want a bank that’s on their side
                                                                                                                • New banks must prove their ability to get the basics right
                                                                                                                • Awareness of Challenger Brands

                                                                                                                  • High-street challengers top list of awareness
                                                                                                                    • Figure 14: Awareness of challenger brands, August 2016
                                                                                                                  • TSB tops list of awareness
                                                                                                                    • Awareness lacking among younger consumers
                                                                                                                      • Figure 15: Repertoire of challenger brand awareness, by age, August 2016
                                                                                                                  • Use of Challenger Brands

                                                                                                                    • Larger, established challengers top the list for usage
                                                                                                                      • Figure 16: Use of challenger brands, August 2016
                                                                                                                    • 45-54-year-olds most likely to have used multiple challengers
                                                                                                                      • Figure 17: Use of challenger brands, August 2016
                                                                                                                    • Challengers have an opportunity to reach out to the under-served
                                                                                                                        • Figure 18: Use of challenger brands, by household income, August 2016
                                                                                                                    • Awareness of Digital Banks

                                                                                                                      • One in ten has heard of a digital-only bank
                                                                                                                        • Figure 19: Awareness of digital banks, August 2016
                                                                                                                      • Potential switchers are more aware
                                                                                                                        • Figure 20: Awareness of digital banks, by likelihood to consider a new bank for a current account, August 2016
                                                                                                                      • 20-24-year-olds are most aware
                                                                                                                      • Likelihood to Consider a New Bank

                                                                                                                        • Majority are unlikely to consider a new bank
                                                                                                                          • Figure 21: Likelihood to consider a new bank for different financial services products, August 2016
                                                                                                                        • People are more open when it comes to savings accounts
                                                                                                                          • Convenience of only having one provider is also a barrier to switching
                                                                                                                          • Most Important Qualities When Choosing a Provider

                                                                                                                            • One in five says that high interest rates are most important…
                                                                                                                              • Figure 22: Most important qualities when choosing a current account provider, August 2016
                                                                                                                            • …but customer service is still an underlying priority
                                                                                                                                • Figure 23: Most important qualities when choosing a provider – ‘Any selected’, August 2016
                                                                                                                              • Online banking has widespread importance…
                                                                                                                                • …but generational variances show growing demand for mobile services
                                                                                                                                    • Figure 24: Most important qualities when choosing a provider – ‘Any selected’, by age, August 2016
                                                                                                                                  • The importance of a branch poses a challenge for online-centric providers
                                                                                                                                  • Interest in Banking Services

                                                                                                                                    • People want a bank that’s on their side
                                                                                                                                        • Figure 25: Interest in different banking services, August 2016
                                                                                                                                      • Ethical banking appeals to half of consumers
                                                                                                                                        • Empathy rather than apathy
                                                                                                                                          • Are challengers better-placed to respond to consumer demand for innovation?
                                                                                                                                            • Online and mobile only banks pose a threat
                                                                                                                                              • Figure 26: Interest in new/niche banking concepts – CHAID – Tree output, August 2016
                                                                                                                                            • Challenger brand users more interested in new concepts
                                                                                                                                              • Figure 27: Interest in new/niche banking concepts, by repertoire of challenger brand use, August 2016
                                                                                                                                          • Concerns About New Banks

                                                                                                                                            • The legacy of the financial crisis on challenger brands
                                                                                                                                              • But banks must first prove their capability in basic operations
                                                                                                                                                • Figure 28: Concerns about arranging products, August 2016
                                                                                                                                            • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                                • Abbreviations
                                                                                                                                                  • Methodology
                                                                                                                                                    • Consumer research methodology

                                                                                                                                                    Consumer Attitudes towards Challenger Brands - UK - October 2016

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