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Current, Packaged and Premium Accounts - UK - June 2009

The current account market is the cornerstone of the UK retail banking sector. As the most widely owned and regularly used financial product, current accounts enable providers to establish a valuable and often profitable relationship with consumers. However, over the recent past the sector has experienced a series of challenges relating to charging structures for unarranged overdrafts. This has resulted in an OFT investigation into the fairness of these charges and a high-profile High Court test case over the issue. In a market that already suffers from a lack of trust, headlines created by the issue of overdraft charges and bank bailouts only serve to undermine consumer confidence further.

However, over the last year the market has witnessed considerable innovation, despite the economic downturn and banking crisis. This has been largely driven by providers seeking to address concerns regarding overdraft structures and transparency. Increased innovation should help to improve consumer engagement in a sector that has historically suffered from a high level of inertia in terms of switching activity. Changes to the existing current account model may also help to bridge the transition towards a new type of current account, which will become increasingly important if the OFT investigation is successful in imposing a cap on unarranged overdraft charges.

This report examines the dynamics of the overall UK current account market, principally focusing on standard current accounts, but also including some detail on packaged and premium accounts. Other current account sectors such as student/graduate, migrant worker and basic bank accounts are considered in the report, albeit from a high-level perspective.

The report includes analysis of the size of the current account market, key players and recent innovations and developments. It also examines channel usage, advertising of current accounts and broader economic and demographic influences on the market. Mintel has also commissioned exclusive research into the ownership of current account products, account providers, switching activity and attitudes towards packaged and premium accounts.

Key issues in the market

  • The implications and challenges created by the ongoing OFT investigation into unarranged overdraft fees.

  • Recent innovations in the market that seek to provide a more transparent charging structure for overdrafts.

  • The impact of the economic downturn and financial crisis.

  • The development and expansion of packaged current accounts.

  • Consumer attitudes towards product switching.

  • Developments in technology and their impact on channel usage.

  • Increased competition to the established current account providers, by the sector’s challenger brands and potential new entrants.

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Table of contents

  1. Issues in the Market

      • Key issues in the market
        • Product definitions
          • Abbreviations
          • Future Opportunities

            • Changing consumer perceptions
              • Increasing the appeal of packaged accounts
                • Packaged accounts amid the downturn
                  • Current account rationalisation
                    • A different perspective on segmentation
                    • Market in Brief

                      • Overall current account numbers show slight decline
                        • Figure 1: Estimated number of current accounts in the UK, 2004-09
                      • Lloyds TSB tops current account market share
                        • Figure 2: Main or primary current account providers, March 2009
                      • Banking turmoil creates new landscape
                        • Potential new entrants to the market
                          • Legal proceedings continue to create negative headlines
                            • Packaged accounts drive adspend
                              • Figure 3: Proportion of adspend on ordinary and value-added (prem) accounts, 2006-08
                            • An innovative market
                              • Remote channels develop but branch remains key
                                • 90% of adults have a current account
                                  • Switchers are more likely to be tempted by incentives
                                    • Figure 4: Reasons to change existing current account provider, March 2009
                                  • There is still considerable resistance to packaged accounts
                                    • Figure 5: Attitudes towards packaged and premium current accounts, March 2009
                                • Overview of the OFT Investigation

                                  • Key points
                                    • OFT investigation dominates current account market
                                      • OFT investigation – two years of uncertainty
                                        • Figure 6: Timeline of OFT investigation into unarranged overdraft charges, May 2009
                                      • Overdraft charges continue to create negative headlines
                                        • Consumer perspective on overdraft charges
                                          • Potential consequences of OFT ruling
                                            • Figure 7: Breakdown of personal current account revenue, 2006
                                          • Pros and cons of a new current account model
                                          • Internal Market Environment

                                            • Key points
                                              • Bank rate falls to an historic low
                                                • Figure 8: Official end of month bank rate and monthly bank and building society overdraft interest rate, January 2002-May 2009
                                              • FSA to take more control of retail banking activities
                                                • Replacing the Banking Code
                                                  • Faster Payments Service should benefit customers and providers
                                                    • OFT to investigate consumer credit market
                                                    • Broader Market Environment

                                                      • Key points
                                                        • Economic crisis brings turmoil to retail banking sector
                                                          • Impact of the recession on current accounts
                                                            • Industry thoughts on the impact of the downturn
                                                              • Consumer confidence begins to level out
                                                                • Figure 9: Monthly consumer confidence index, March 1988-March 2009
                                                              • Financial activity indicators reveal a change in consumer priorities
                                                                • Figure 10: Savings, investment, borrowing and debt repayment – consumers’ expected activity, quarterly indices, 2002-09 (Q2)
                                                              • Growing population will continue to drive demand for current accounts
                                                                • Figure 11: Overview of UK population, by age group, 1994-2014
                                                              • Some 70% of the UK population are now online
                                                                • Figure 12: British internet penetration at home/work/place of study or elsewhere, April 2002-January 2009
                                                            • Competitive Context

                                                              • Key points
                                                                • Only a small minority of population exist without a current account
                                                                  • More than 7 million basic bank accounts in the UK
                                                                    • Figure 13: Number of basic bank accounts in operation in the UK, 2003-07
                                                                  • Prepaid cards – a growing niche
                                                                  • Strengths and Weaknesses in the Market

                                                                      • Figure 14: Current account SWOT analysis, May 2009
                                                                  • Who’s Innovating?

                                                                    • Key points
                                                                      • What is driving innovation?
                                                                        • Taking a different approach
                                                                          • Barclays overhauls overdraft structure
                                                                            • HSBC amends its current account proposition
                                                                              • Product bundling becomes more prominent
                                                                                • Lloyds TSB offers account add-ons to suit individual needs
                                                                                  • Packaged accounts evolve to target different consumer groups
                                                                                    • Mobile banking developments
                                                                                    • Trade Perspective

                                                                                        • Changing customer perspective is biggest challenge facing market
                                                                                          • Downturn is having a limited impact…
                                                                                            • …but economic conditions are increasing the level of competition
                                                                                              • Competition and OFT case are driving innovation
                                                                                                • Some developments in switching activity but activity remains low
                                                                                                  • Many packaged accounts lack differentiation
                                                                                                  • Market Size and Forecast

                                                                                                    • Key points
                                                                                                      • Overall number of current account numbers shows slight decline
                                                                                                        • Figure 15: Estimated number of current accounts in the UK, 2004-09
                                                                                                      • Account ownership levels off, after period of sustained growth
                                                                                                        • Figure 16: Percentage of people with a current account, 2001-08
                                                                                                      • Multiple account ownership is on a downward trend
                                                                                                        • Figure 17: Trends in number of current accounts held by individuals and estimated total number of current accounts in the UK, 2006-08
                                                                                                      • Several factors contribute to fall in multiple account ownership
                                                                                                        • Individual sight account numbers to continue to rise
                                                                                                          • Figure 18: Number of individual sight accounts (MBBG only), 2002-07
                                                                                                          • Figure 19: Deposits into individual sight accounts (MBBG only), 2002-07
                                                                                                        • Overdraft advances fall as the credit crisis bites
                                                                                                          • Figure 20: Overdraft advances to individuals and individual trusts (MBBG only), 2002-07
                                                                                                        • Forecast
                                                                                                          • Figure 21: Forecast for the number of current accounts in the UK, 2004-14
                                                                                                        • Factors used in the forecast
                                                                                                        • Market Share

                                                                                                          • Key points
                                                                                                            • Lloyds TSB remains the largest current account provider
                                                                                                              • Figure 22: Main or primary current account providers, March 2009
                                                                                                            • A new landscape for current accounts
                                                                                                              • Figure 23: Main or primary current account providers, by main banking groups, March 2009
                                                                                                            • Lloyds TSB is also number one main financial services provider
                                                                                                              • Figure 24: Leading main financial services providers brands’, 2008 and 2009
                                                                                                          • Companies and Products

                                                                                                            • Key points
                                                                                                              • Packaged accounts make up around a quarter of the market
                                                                                                                • Figure 25: Overview of number of products in the current account market, April 2009
                                                                                                              • The possibility of new entrants
                                                                                                                • Segmentation drives innovation in current account market
                                                                                                                  • Figure 26: Current accounts distribution, by provider, April 2009
                                                                                                                • Overdraft structures overhauled
                                                                                                                  • Company profiles of major players
                                                                                                                    • Lloyds Banking Group
                                                                                                                      • Royal Bank of Scotland
                                                                                                                        • HSBC
                                                                                                                          • Santander Group
                                                                                                                            • Barclays
                                                                                                                              • Nationwide
                                                                                                                              • Brand Communication and Promotion

                                                                                                                                • Key points
                                                                                                                                  • Adspend for current accounts impacted by financial crisis
                                                                                                                                    • Figure 27: Total adspend on current accounts and associated products, 2005-08
                                                                                                                                  • Packaged accounts take a greater proportion of adspend
                                                                                                                                    • Figure 28: Proportion of adspend on ordinary and value-added (prem) accounts, 2006-08
                                                                                                                                  • TV advertising dominates current account market
                                                                                                                                    • Figure 29: Adspend on current accounts, by media type, 2006-08
                                                                                                                                  • HSBC tops the current account adspend chart
                                                                                                                                    • Figure 30: Adspend on current accounts, by top providers, 2006-08
                                                                                                                                • Channels to Market

                                                                                                                                  • Key points
                                                                                                                                    • Branch network remains the most used banking channel
                                                                                                                                      • Figure 31: Use of banking channels, April 2008
                                                                                                                                    • Telephone banking transactions in decline…
                                                                                                                                      • Figure 32: The number of personal customers registered for telephone and internet banking, and the number of transactions, 2003-07
                                                                                                                                    • …but online transactions continue to increase sharply
                                                                                                                                      • Mobile banking – still in the early stages
                                                                                                                                        • Branch numbers fall further…
                                                                                                                                          • Figure 33: Branch numbers, 2003-07 (end-December figures)
                                                                                                                                        • …but branch network integral to gaining market share
                                                                                                                                          • Figure 34: Comparison of current account market share and branch network share
                                                                                                                                        • ATM numbers remain stable, but withdrawals increase
                                                                                                                                          • Figure 35: Number of ATMs and cash withdrawls (MBBG only), 2003-07
                                                                                                                                      • The Consumer – Product Ownership

                                                                                                                                        • Key points
                                                                                                                                          • Near universal ownership of current accounts
                                                                                                                                            • Figure 36: Ownership of various financial products and services, March 2009
                                                                                                                                          • Account ownership peaks among over-35s
                                                                                                                                            • Figure 37: Ownership of current accounts and premium/packaged accounts, by age group, March 2009
                                                                                                                                          • Packaged accounts appeal to an older audience
                                                                                                                                            • Opportunities exist to extend ownership among those in education
                                                                                                                                              • Figure 38: Ownership of current accounts and premium/packaged accounts, by working group, March 2009
                                                                                                                                            • Account ownership boosted among lower income groups
                                                                                                                                              • Appeal of package accounts increases with affluence
                                                                                                                                                • Figure 39: Ownership of current accounts and premium/packaged accounts, by annual household income, March 2009
                                                                                                                                              • Current accounts provide ‘gateway’ for cross-sale opportunities
                                                                                                                                                • Figure 40: Ownership of current accounts and premium/packaged accounts, by ownership of other financial products, March 2009
                                                                                                                                              • Four in ten have more than one current account
                                                                                                                                                • Figure 41: Current account ownership – number of current accounts, 2008
                                                                                                                                            • The Consumer – Current Account Providers

                                                                                                                                              • Key points
                                                                                                                                                • Lloyds TSB remains the leading current account provider
                                                                                                                                                  • Figure 42: Main or primary current account providers, March 2009
                                                                                                                                                • Winners and losers in the packaged account market
                                                                                                                                                  • Figure 43: Ownership of current accounts and premium/packaged current accounts, by main or primary current account provider, March 2009
                                                                                                                                                • Banking crisis leads to a new landscape for current accounts
                                                                                                                                                  • Almost 30% have a current account with the Lloyds Banking Group
                                                                                                                                                    • Figure 44: Main or primary current account providers, by main banking groups, March 2009
                                                                                                                                                  • Lloyds Banking Group also dominates packaged/premium account market
                                                                                                                                                    • Figure 45: Ownership of current accounts and premium/packaged current accounts, by main or primary current account provider (main banking groups), March 2009
                                                                                                                                                  • RBS and HSBC attract a younger demographic
                                                                                                                                                    • Figure 46: Main or primary current account providers, by main banking groups, by demographics, March 2009
                                                                                                                                                  • HSBC more likely than average to attract higher earners
                                                                                                                                                    • Figure 47: Main or primary current account providers, by main banking groups, by demographics, March 2009
                                                                                                                                                • The Consumer – Switching Activity

                                                                                                                                                  • Key points
                                                                                                                                                    • More than four in ten are not interested in switching
                                                                                                                                                      • Figure 48: Reasons to change existing current account provider, March 2009
                                                                                                                                                    • Packaged/premium account holders more likely to value safety and flexibility
                                                                                                                                                      • Figure 49: Reasons to change existing current account provider, by ownership of various financial products and services, March 2009
                                                                                                                                                    • Likelihood to switch varies between current account providers
                                                                                                                                                      • Figure 50: Reasons to change existing current account provider, by main or primary current account providers (main banking groups), March 2009
                                                                                                                                                    • Account features provide the strongest motivation to switch
                                                                                                                                                        • Figure 51: Reasons to change existing current account provider, March 2009
                                                                                                                                                      • Younger adults are much more likely to consider switching providers
                                                                                                                                                        • Figure 52: Reasons to change existing current account provider, by demographics, March 2009
                                                                                                                                                      • More affluent consumers are more likely to switch accounts
                                                                                                                                                        • Figure 53: Reasons to change existing current account provider, by demographics, March 2009
                                                                                                                                                    • The Consumer – Attitudes towards Packaged Accounts and Targeting Opportunities

                                                                                                                                                      • Key points
                                                                                                                                                        • Majority are not keen on paying for packaged/premium accounts…
                                                                                                                                                          • Figure 54: Attitudes towards packaged and premium current accounts, March 2009
                                                                                                                                                        • …but there is some scope to extend ownership
                                                                                                                                                          • Monthly fee appears to be creating a barrier
                                                                                                                                                            • Figure 55: Attitudes towards packaged and premium current accounts, by ownership of current and packaged accounts, March 2009
                                                                                                                                                          • Santander and Nationwide account holders are the most resistant…
                                                                                                                                                            • Figure 56: Attitudes towards packaged and premium current accounts, by main or primary current account held, March 2009
                                                                                                                                                          • …but Barclays account holders seem to be the most positive
                                                                                                                                                            • A third of account holders are looking for better rates
                                                                                                                                                                • Figure 57: Benefits most appealing from premium and packaged current accounts, March 2009
                                                                                                                                                              • Winning people over to the concept of packaged accounts
                                                                                                                                                                • Figure 58: Benefits most appealing from premium and packaged current accounts, by people not prepared to pay for packaged/premium accounts, March 2009
                                                                                                                                                              • Providers need to take different approach to packaged account concept
                                                                                                                                                                • Figure 59: Benefits most appealing from premium and packaged current accounts, by main or primary current account held, March 2009
                                                                                                                                                              • Target group analysis
                                                                                                                                                                • Figure 60: Current account target groups, March 2009
                                                                                                                                                              • Non-movers
                                                                                                                                                                • Pro-packaged account switchers
                                                                                                                                                                  • Anti-packaged account switchers
                                                                                                                                                                    • Service & safety switchers
                                                                                                                                                                      • Incentive-led switchers
                                                                                                                                                                        • Different motivations to switch providers
                                                                                                                                                                          • Figure 61: Reasons to change existing current account provider, by target groups, March 2009
                                                                                                                                                                        • A wide range of attitudes towards packaged accounts
                                                                                                                                                                          • Figure 62: Attitudes towards fee on premium and packaged current accounts, by target groups, March 2009
                                                                                                                                                                      • Appendix – Internal Market Environment

                                                                                                                                                                        • Banking Code Revisions – March 2008
                                                                                                                                                                        • Appendix – Brand Promotion and Communication

                                                                                                                                                                            • Figure 63: Current account adspend, by category, 2004-08
                                                                                                                                                                            • Figure 64: Current account adspend of the top providers, by media type, 2008
                                                                                                                                                                        • Appendix – The Consumer – Product Ownership

                                                                                                                                                                            • Figure 65: Ownership of various financial products and services, by demographics, March 2009
                                                                                                                                                                        • Appendix – The Consumer – Current Account Providers

                                                                                                                                                                            • Figure 66: Main or primary current account held, by demographics, March 2009
                                                                                                                                                                            • Figure 67: Main or primary current account held, by demographics, March 2009
                                                                                                                                                                        • Appendix – The Consumer – Attitudes towards Packaged Accounts and Targeting Opportunities

                                                                                                                                                                            • Figure 68: Ownership of current accounts and packaged/premium accounts, by target groups, March 2009
                                                                                                                                                                            • Figure 69: Main or primary current account held, by target groups, March 2009
                                                                                                                                                                            • Figure 70: Benefits most appealing from premium and packaged current accounts, by target groups, March 2009
                                                                                                                                                                            • Figure 71: Target groups, by demographics, March 2009

                                                                                                                                                                        Companies Covered

                                                                                                                                                                        • Abbey
                                                                                                                                                                        • Alliance & Leicester
                                                                                                                                                                        • Asda Group Ltd
                                                                                                                                                                        • Bank of England
                                                                                                                                                                        • Bank of Ireland
                                                                                                                                                                        • Barclays Bank plc
                                                                                                                                                                        • Bradford & Bingley plc
                                                                                                                                                                        • Britannia Building Society
                                                                                                                                                                        • British Bankers' Association (BBA)
                                                                                                                                                                        • British Market Research Bureau (BMRB)
                                                                                                                                                                        • British Sky Broadcasting Group plc (BSkyB)
                                                                                                                                                                        • Building Societies Association
                                                                                                                                                                        • Cheltenham & Gloucester plc
                                                                                                                                                                        • Cheshire Building Society
                                                                                                                                                                        • Citibank
                                                                                                                                                                        • Clydesdale Bank
                                                                                                                                                                        • Co-operative Group
                                                                                                                                                                        • Coventry Building Society
                                                                                                                                                                        • Derbyshire Building Society
                                                                                                                                                                        • Dunfermline Building Society
                                                                                                                                                                        • Financial Ombudsman Service
                                                                                                                                                                        • Financial Services Authority (The)
                                                                                                                                                                        • First Direct
                                                                                                                                                                        • First Trust Bank
                                                                                                                                                                        • Gfk NOP
                                                                                                                                                                        • HBOS plc (Halifax Bank of Scotland)
                                                                                                                                                                        • HM Revenue & Customs
                                                                                                                                                                        • HSBC Private Bank (UK) Limited
                                                                                                                                                                        • J. Sainsbury
                                                                                                                                                                        • John Gilbert Financial Research
                                                                                                                                                                        • Lidl (UK)
                                                                                                                                                                        • Lloyds Banking Group
                                                                                                                                                                        • Marks & Spencer
                                                                                                                                                                        • Ministry of Sound
                                                                                                                                                                        • Monilink
                                                                                                                                                                        • Nationwide Building Society
                                                                                                                                                                        • NatWest
                                                                                                                                                                        • Newcastle Building Society Limited
                                                                                                                                                                        • Northern Bank Ltd
                                                                                                                                                                        • Northern Rock plc
                                                                                                                                                                        • Office of Fair Trading
                                                                                                                                                                        • Royal Bank of Scotland Group plc
                                                                                                                                                                        • Tesco Plc
                                                                                                                                                                        • Ulster Bank Ltd
                                                                                                                                                                        • Virgin Media Ltd
                                                                                                                                                                        • Woolwich plc
                                                                                                                                                                        • Yorkshire Bank PLC

                                                                                                                                                                        Current, Packaged and Premium Accounts - UK - June 2009

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