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Retail Banking Overview - UK - November 2009

  • The weak economy and low consumer confidence has prompted people to cut back on spending, become more demanding and value-oriented - all in all a more difficult proposition.
  • Helped by the work of aggregators and a more cost-conscious consumer mindset during the recession, people are increasingly switching their provider.
  • The total gross income of the major banks (MBBG members) fell by 16% in 2008, from £100.8 billion to £84.8 billion, as a result of the recession.
  • UK banks saw bad debts increase significantly in 2008, rising by 15% from £6.5 billion to £7.5 billion. This has lead to tighter lending criteria in the mortgage and consumer credit markets.
  • In 2009, Mintel estimates that gross advances on unsecured personal loans will fall by 27% to £27.4 billion (lending fell by 28% in 2008).
  • According to the FSA’s MLAR statistics, gross mortgage advances fell by 54% in H1 2009 compared with the same period in 2008, standing at just £66 billion.
  • Online banking has become increasingly popular, with the total number of transactions made by registered customers having risen by 420% since 2002.
  • According to our own consumer research, Lloyds TSB, Halifax and Nationwide are the leading providers when it comes to cross-selling other financial products to their existing current account customers.
  • Our research also shows that three fifths of people are happy with the service provided by their existing current account provider, with just 9% of people currently considering switching.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Engaging the young
            • Let’s start treating customers fairly…
              • … and rebuilding trust through greater transparency
                • Targeting the wealthy… and keeping them
                • Market in Brief

                  • Big changes in the retail banking market in 2008
                    • The economy is improving but we’re not out of the woods yet
                      • Consumer confidence has picked up
                        • Figure 1: Monthly, 3-monthly and 12-monthly UK consumer confidence index, Jan 1982-Jan 2008
                      • The number of current accounts has fallen slightly since 2006
                        • Figure 2: Estimated number of current accounts in the UK, 2004-09
                      • Retail savings balances increased by just 5% in 2008
                        • Figure 3: Retail savings balances and market shares, 2002-09
                      • Unsecured personal loan advances have plummeted
                        • Figure 4: Estimated gross lending for unsecured personal loans, 2004-09
                      • Credit card lending has also declined in the recession
                        • Figure 5: Gross lending and net amounts outstanding on credit card lending (monthly data, seasonally adjusted), Jan 2003-Sep 2009
                      • Mortgage lending has been severely affected by the credit crunch
                        • Figure 6: Total mortgage lending, gross and net advances, 2003-09
                      • Banks account for 17% of the general insurance market
                        • Figure 7: Value of the UK personal motor, home, travel, and total general insurance markets, by GWP, 2003-09
                      • The boom in online banking
                        • Figure 8: Number of registered customers, and number of online/telephone banking transactions, by transaction type (MBBGs only), 2002 and 2008
                      • Ownership of financial products increases with age and wealth
                        • Savings accounts are the most common cross-holding
                          • Figure 9: Other financial products held with current account provider, September 2009
                        • Over-55s are most likely to be happy with their provider
                        • Internal Market Environment

                          • Key points
                            • A new banking landscape in 2010 and possibly beyond
                              • A quick overview of 2008
                                • Rebuilding capital is a key priority for banks at present
                                  • Banks’ income fell substantially in 2008…
                                    • Figure 10: Sources of bank income, net interest and net non-interest (MBBGs only), 2002-08
                                  • …while bad debts increased
                                    • Figure 11: Total sterling write-offs by UK banks, 2002-08
                                  • Consumer lending has fallen sharply during the downturn
                                    • Figure 12: Gross lending to individuals, by category, 2000-08
                                  • More demanding customers, less loyalty in the market
                                    • The CC announces new rules on selling PPI
                                      • The OFT investigation into bank charges continues
                                        • Banks face stricter regulation in the future…
                                          • … and here is just one example
                                            • Possible changes to the current regulatory system in 2010
                                              • Figure 13: The different pledged approaches to financial regulation of the two main political parties, 2009
                                          • Broader Market Environment

                                            • Key points
                                              • House prices have fallen… but have started to pick up again
                                                • Figure 14: Average UK house prices, Jan 2007-Jul 2009
                                              • The inter-bank lending challenge
                                                • Figure 15: 3-month LIBOR rate vs the BoE base rate, Jan 2002-Jul 2009
                                              • Unemployment is high, and rising
                                                • Figure 16: UK unemployment levels, Q1 2002-Q1 2009
                                              • Arrears and repossessions are rising…
                                                • Figure 17: Repossessions and the number of homes with mortgages three months or more in arrears. 2002-08
                                              • … as are personal insolvencies
                                                • Figure 18: Individual insolvencies and bankruptcies in England and Wales (seasonally adjusted), Q1 2002-Q1 2009
                                              • An ageing population, but one which is heavily technology-driven
                                                • Figure 19: UK Population, by lifestage, 2004-14
                                            • The Consumer Environment

                                              • Key points
                                                • Consumer confidence on the up…
                                                  • Figure 20: Monthly, 3-monthly and 12-monthly UK consumer confidence index, Jan 1982-Sep 2009
                                                • … though some people are still struggling
                                                  • Figure 21: Households’ current financial position, Q2 2008-Q2 2009
                                                • Uncertainty leads to good intentions in the savings market
                                                  • Figure 22: Intended cash-based activities, Q3/Q4 2002-Q2/Q3 2009*
                                                • Consumer credit demand has increased slightly this year
                                                  • Figure 23: Intended consumer credit activities, Q3/Q4 2002-Q2/Q3 2009
                                                • Mortgage activity has declined alongside the fall in house prices
                                                  • Figure 24: Expected mortgage and property purchase activity, Q3/Q4 2002-Q2/Q3 2009
                                                • Lloyds TSB is the leading main financial services provider
                                                  • Figure 25: Top 10 main financial services providers, June 2009
                                              • SWOT Analysis

                                                  • Figure 26: Retail banking overview – SWOT analysis, 2009
                                              • Current Accounts and Overdrafts

                                                • Key points
                                                  • The number of current accounts has fallen slightly in recent years
                                                    • Figure 27: Estimated number of current accounts in the UK, 2004-09
                                                  • Current accounts have very high levels of penetration
                                                    • Figure 28: Ownership of financial products, September 2009
                                                  • Packaged accounts are being pushed hard
                                                    • Borrowing on overdrafts increased by 4% in 2008
                                                      • Figure 29: Overdraft advances to individuals and individual trusts (MBBGs only), 2003-08
                                                    • Lloyds Banking Group has a 28% share of the market
                                                      • Figure 30: Current account provider, September 2009
                                                  • Savings Accounts and ISAs

                                                    • Key points
                                                      • Retail savings balances grew less in 2008 than previous years
                                                        • Figure 31: Retail savings balances and market shares, 2002-08 and September 2009
                                                      • Instant-access savings accounts are the most popular…
                                                        • Figure 32: Ownership of deposit or savings accounts and NS&I products, December 2008
                                                      • … but cash ISA subscriptions have grown strongly
                                                        • Figure 33: Amounts subscribed into ISAs, by type of component, 2002/03-2008/09
                                                    • Unsecured Personal Loans

                                                      • Key points
                                                        • Unsecured personal loan advances continue to fall
                                                          • Figure 34: Estimated gross lending for unsecured personal loans, 2004-09
                                                      • Credit Cards

                                                        • Key points
                                                          • Gross credit card lending increased marginally in 2008…
                                                            • Figure 35: Gross lending and net amounts outstanding on credit card lending (monthly data, seasonally adjusted), Jan 2003-Sep 2009
                                                          • … although usage was down slightly in value and volume terms
                                                            • Figure 36: Number of credit cards in issue, transaction volumes and value of UK purchases, 2002-08
                                                        • Mortgages

                                                          • Key points
                                                            • Gross mortgage lending remains subdued in 2009…
                                                              • Figure 37: Gross mortgage advances*, by type of loan, Q1 2008-Q2 2009
                                                            • …after falling significantly in 2008…
                                                              • Figure 38: Total mortgage lending, gross and net advances, 2003-09
                                                            • … as lending criteria remain extremely tight
                                                              • The specialist lending market has virtually disappeared
                                                                • Figure 39: Gross advances, by type of lender, Jan 2007-Jul 2009 (monthly data, seasonally adjusted)
                                                            • General Insurance

                                                              • Key points
                                                                • Motor insurance is the largest category of general insurance…
                                                                  • Figure 40: Value of the UK personal motor, home, travel, and total general insurance markets, by GWP, 2003-09
                                                                • Bancassurers hold 17% of the general insurance market
                                                                  • Figure 41: GWP in the UK personal general insurance market, by distribution channel, 2008
                                                              • Companies and Products

                                                                • Overview of the retail banking market
                                                                  • Figure 42: Main retail banking parent and subsidiary brands, 2009
                                                                • Company profiles – the key players
                                                                  • Barclays
                                                                    • Figure 43: Barclays company profile, 2004-08
                                                                    • Figure 44: Barclays key facts
                                                                  • HSBC
                                                                    • Figure 45: HSBC company profile, 2004-08
                                                                  • Lloyds Banking Group
                                                                    • Figure 46: Lloyds TSB company profile, 2004-08
                                                                  • Nationwide Building Society
                                                                    • Figure 47: Nationwide company profile, 2004-08
                                                                  • Royal Bank of Scotland
                                                                    • Figure 48: RBS company profile, 2004-08
                                                                  • Santander
                                                                    • Figure 49: Abbey company profile, 2004-08
                                                                    • Figure 50: Alliance & Leicester company profile, 2004-08
                                                                  • Other providers in the market
                                                                    • Co-operative Bank/Britannia BS
                                                                      • First Direct
                                                                        • Northern Rock
                                                                          • Yorkshire Bank/Clydesdale Bank
                                                                          • Brand Communication and Promotion

                                                                            • Key points
                                                                              • Adspend for loans and mortgages fell markedly in 2008
                                                                                • Figure 51: Top 15 advertising categories within financial services, 2007-08
                                                                              • Lloyds Banking Group has a massive advantage in terms of advertising
                                                                                • Figure 52: Retail banking adspend of selected providers, 2007-08 and H1 2009
                                                                              • Direct mail is the highest area of adspend
                                                                                • Figure 53: Retail banking adspend, by media type, 2008
                                                                            • Brand Elements

                                                                                • Key points
                                                                                  • Brand map
                                                                                      • Figure 54: Attitudes towards and usage of retail banking brands, September 2009
                                                                                    • Brand qualities of retail banking brands
                                                                                      • Barclays still profit-centric, but also most authoritative
                                                                                        • Figure 55: Personalities of various retail banking brands, September 2009
                                                                                      • Experience of retail banking brands
                                                                                        • Halifax most used, HSBC lags behind
                                                                                          • Figure 56: Consumer usage of various retail banking brands, September 2009
                                                                                        • Brand intentions for retail banking brands
                                                                                          • Consideration consistent, but First Direct and Tesco less appealing
                                                                                            • Figure 57: Consideration of various retail banking brands, September 2009
                                                                                          • Brand satisfaction for retail banking brands
                                                                                            • Nationwide best for satisfaction, big banks have poorer performance
                                                                                              • Figure 58: Satisfaction with various retail banking brands, September 2009
                                                                                            • Brand commitment to retail banking brands
                                                                                              • Lloyds TSB sees firm commitment
                                                                                                • Figure 59: Commitment to various retail banking brands, September 2009
                                                                                              • Barclays
                                                                                                • What the consumer thinks
                                                                                                  • Figure 60: Attitudes towards the Barclays brand, September 2009
                                                                                                • First Direct
                                                                                                  • What the consumer thinks
                                                                                                    • Figure 61: Attitudes towards the First Direct brand, September 2009
                                                                                                  • Halifax
                                                                                                    • What the consumer thinks
                                                                                                      • Figure 62: Attitudes towards the Halifax brand, September 2009
                                                                                                    • Abbey
                                                                                                      • What the consumer thinks
                                                                                                        • Figure 63: Attitudes towards the Abbey brand, September 2009
                                                                                                      • HSBC
                                                                                                        • What the consumer thinks
                                                                                                          • Figure 64: Attitudes towards the HSBC brand, September 2009
                                                                                                        • Tesco
                                                                                                          • What the consumer thinks
                                                                                                            • Figure 65: Attitudes towards the Tesco brand, September 2009
                                                                                                          • NatWest
                                                                                                            • What the consumer thinks
                                                                                                              • Figure 66: Attitudes towards the NatWest brand, September 2009
                                                                                                            • The Co-operative Bank
                                                                                                              • What the consumer thinks
                                                                                                                • Figure 67: Attitudes towards the Co-operative Bank brand, September 2009
                                                                                                              • Lloyds TSB
                                                                                                                • What the consumer thinks
                                                                                                                  • Figure 68: Attitudes towards the Lloyds TSB brand, September 2009
                                                                                                                • Nationwide
                                                                                                                  • What the consumer thinks
                                                                                                                    • Figure 69: Attitudes towards the Nationwide brand, September 2009
                                                                                                                • Channels to Market

                                                                                                                  • Key points
                                                                                                                    • Most banks have downsized their branch networks…
                                                                                                                      • Figure 70: Number of branches of selected banks and building societies, 2002-08
                                                                                                                    • … but Santander increased its number of branches by 63% in 2008
                                                                                                                      • The number of ATMs in the UK has steadily increased…
                                                                                                                        • Figure 71: Number of ATMs of selected banks and building societies and in the whole of the UK, 2002-08
                                                                                                                      • … especially those owned by independent operators
                                                                                                                        • Online banking is booming
                                                                                                                          • Figure 72: Number of registered customers, and number of online/telephone banking transactions, by transaction type (MBBGs only), 2002 and 2008
                                                                                                                      • The Consumer – Product Ownership

                                                                                                                        • Key points
                                                                                                                          • Nine in ten people in the UK have a current account…
                                                                                                                            • Figure 73: Ownership of financial products, September 2009
                                                                                                                          • … while mortgages and loans are less commonly owned
                                                                                                                            • Young adults are less likely to own financial products
                                                                                                                              • Figure 74: Types of financial products owned, by demographics, September 2009
                                                                                                                            • Higher earners are more likely to own most products
                                                                                                                              • Complex products attract more financially engaged people
                                                                                                                                • Figure 75: Cross-holdings of different financial products, September 2009
                                                                                                                              • Inter-relationships exist between different products
                                                                                                                              • The Consumer – Choosing a Provider

                                                                                                                                • Key points
                                                                                                                                  • Lloyds Banking Group is a force to be reckoned with
                                                                                                                                    • Figure 76: Current account provider, September 2009
                                                                                                                                  • The traditional ‘big five’ dominate the younger market
                                                                                                                                    • Figure 77: Type of current account provider, by demographics, September 2009
                                                                                                                                  • High earners are more likely to use a direct bank
                                                                                                                                    • HSBC attracts a lot of young adults…
                                                                                                                                      • Figure 78: Leading current account providers, by demographics, September 2009
                                                                                                                                    • … who are also affluent and well-educated
                                                                                                                                      • Direct banks have the highest level of customer satisfaction
                                                                                                                                        • Figure 79: Leading current account providers, by attitudes towards banks and current accounts, September 2009
                                                                                                                                    • The Consumer – Cross-selling

                                                                                                                                      • Key points
                                                                                                                                        • Savings accounts are the most common cross-holding
                                                                                                                                          • Figure 80: Other financial products held with current account provider, September 2009
                                                                                                                                        • Men are more likely to have other products with their main bank…
                                                                                                                                          • Figure 81: Other financial products held with current account provider, by demographics, September 2009
                                                                                                                                        • … as are ABs, but not because they are apathetic
                                                                                                                                          • Savings accounts have the highest cross-sales penetration
                                                                                                                                            • Figure 82: Penetration rates of cross-selling other financial products to existing current account customers, September 2009
                                                                                                                                          • Despite being a small market, loans are a key cross-sale product
                                                                                                                                            • Which banks are best at cross-selling?
                                                                                                                                              • Figure 83: Proportion of people who hold other financial products wuth their current account provider, by individual brand, September 2009
                                                                                                                                          • The Consumer – Attitudes towards Providers

                                                                                                                                            • Key points
                                                                                                                                              • Most people are happy with their current account provider…
                                                                                                                                                • Figure 84: Attitudes towards banks and current accounts, September 2009
                                                                                                                                              • …but are they delighted?
                                                                                                                                                • The introduction of charges could destroy inertia
                                                                                                                                                  • Older people are less likely to be considering switching
                                                                                                                                                    • Figure 85: Attitudes towards banks and current accounts, by demographics, September 2009
                                                                                                                                                  • ABs are more difficult to please
                                                                                                                                                    • People with cross-holdings are more loyal and less likely to switch
                                                                                                                                                      • Figure 86: Attitudes towards banks and current accounts by, financial products held with current account provider, September 2009
                                                                                                                                                    • Loan customers are keen to get a grip on their finances
                                                                                                                                                    • The Consumer – Target Groups

                                                                                                                                                      • Key points
                                                                                                                                                        • Am I Bovverd’s are uninterested and apathetic
                                                                                                                                                          • Figure 87: Target groups, by attitudes towards banks and current accounts, September 2009
                                                                                                                                                        • Engaged Loyalists are happy with their bank
                                                                                                                                                          • Likely Switchers have very low customer satisfaction
                                                                                                                                                            • Prudence Bearers may have been hard hit by the recession
                                                                                                                                                              • Engaged Loyalists are more likely to be men
                                                                                                                                                                • Figure 88: Target groups, by demographics (profile format), September 2009
                                                                                                                                                              • Avoid 25-34-year-olds – they’re Likely Switchers
                                                                                                                                                                • Engaged Loyalists own the widest range of financial products…
                                                                                                                                                                  • Figure 89: Financial products owned and those held with current account provider, by target groups, September 2009
                                                                                                                                                                • … and hold more products with their current account provider
                                                                                                                                                                  • Likely Switchers are most likely to bank with Barclays
                                                                                                                                                                    • Figure 90: Bank with which current account is, by target groups, September 2009
                                                                                                                                                                • Appendix – The Consumer

                                                                                                                                                                    • Figure 91: Financial products owned, by demographics, September 2009
                                                                                                                                                                    • Figure 92: Financial products owned, by demographics, September 2009 (continued)
                                                                                                                                                                    • Figure 93: Cross-holdings of different financial products, September 2009
                                                                                                                                                                    • Figure 94: Cross-holdings of different financial products, September 2009 (continued)
                                                                                                                                                                    • Figure 95: Type of current account provider, by demographics, September 2009
                                                                                                                                                                    • Figure 96: Current account provider, by demographics, September 2009
                                                                                                                                                                    • Figure 97: Proportion of people who hold other finaincial products wuth their current account provider, by individual brand, september 2009
                                                                                                                                                                    • Figure 98: Other financial products held with current account provider, by demographics, September 2009
                                                                                                                                                                    • Figure 99: Financial product owners that hold their product with their current account provider, September 2009
                                                                                                                                                                    • Figure 100: Financial product owners that hold their product with their current account provider, September 2009 (continued)
                                                                                                                                                                    • Figure 101: Attitudes towards banks and current accounts, September 2009
                                                                                                                                                                    • Figure 102: Attitudes towards banks and current accounts, September 2009 (continued)
                                                                                                                                                                    • Figure 103: Target groups, by demographics (profile format), September 2009
                                                                                                                                                                • Appendix – The Regulatory Environment

                                                                                                                                                                  • Retail Distribution Review
                                                                                                                                                                    • Splitting sales and advice
                                                                                                                                                                      • Figure 104: Proposed regulatory landscape, 2012
                                                                                                                                                                    • From commission to fees
                                                                                                                                                                      • Possible extension to non-investment markets
                                                                                                                                                                        • Treating Customers Fairly
                                                                                                                                                                          • Creditor Insurance
                                                                                                                                                                            • CAB, Office of Fair Trading and Competition Commission investigations
                                                                                                                                                                              • Severe restrictions place on the sale of policies
                                                                                                                                                                                • Consumer Credit Act 2006
                                                                                                                                                                                  • Banking Code Revisions

                                                                                                                                                                                  Retail Banking Overview - UK - November 2009

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