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Retail Banking Overview - UK - November 2010

This report focuses on consumers’ views of the retail banking market, and highlights the role that the current account plays in people’s financial life. The importance of cross-selling is confirmed, and the opportunities for expanding these sales are assessed. Drawing on exclusive consumer research, as well as findings from other Mintel reports, attitudes towards service standards, technology and loyalty are also considered. This consumer-focused approach is supplemented by data on the size of the key segments of the retail banking market.

  • Banks can compensate for lost revenue in the loans market by boosting their general insurance sales. Currently, general insurance is one of the least cross-sold products in the retail banking market, but hardening premiums means that many will be looking for new quotes at renewal time. Banks are well-placed to capitalise on this business.
  • Older customers hold a higher-than-average number of products with banks other than their current account provider. This presents a threat to incumbents, giving rival banks the chance to leverage their relationship with this customers to hijack the status of 'main financial services provider'.
  • The most valuable customers - those who own the most products with their current account providers - are the most likely to be thinking of switching, even though they tend to be happy with the service they're getting. Even a relatively minor financial reward for multiple product holdings could make a difference here.
  • Londoners and the better-off are also more likely to be thinking of switching accounts. Metro Bank's capital-centric approach to retail banking could, over time, enable them to carve out a profitable niche.
  • People differentiate between 'banks' and 'my bank'. They're far more negative about the industry as a whole than they are about their own provider.
  • People with multiple product holdings are particularly likely to appreciate good service. These valuable customers will respond well to banks who can offering them some of the trappings of premium banking services - a named contact at the local branch, for example.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Decline of deference
            • Cool vending
            • Market in Brief

              • Consumer attitudes towards retail banking
                • A market built on cross-sales
                  • Figure 1: Product holdings and cross-sales, August 2010
                • Four fifths own at least one additional product with their current account provider
                  • Figure 2: Number of financial products or services arranged with main current account provider, August 2010
                • Inertia remains high…
                    • Figure 3: Switching intentions, August 2010
                  • …because customer satisfaction is also high
                    • Figure 4: Customer satisfaction, August 2010
                  • Cynicism in the retail banking market
                    • Figure 5: Attitudes towards banks and building societies, August 2010
                  • The prospects for new entrants
                    • Figure 6: Key current account features, August 2010
                  • Credit crisis – a force for change?
                    • Figure 7: Proportion of consumers who are more or less likely to switch retail banking provider as compared to three years ago, July 2010
                  • Rates, or local service?
                    • Figure 8: Retail banking consumer segmentation, August 2010
                  • Market conditions
                    • Figure 9: Unsecured lending, 2000-10
                    • Figure 10: Secured lending, 2000-10
                • Economic Environment

                  • Key points
                    • The recovery continues…
                      • …but there are challenges to be faced
                        • The impact of the economy on the banking industry
                          • Insolvencies up – but they haven’t soared
                            • Figure 11: Individual insolvencies in England and Wales (not seasonally adjusted), by type, Q1 2000-Q3 2010
                          • Loan write-offs spike in Q2 2010
                            • Figure 12: Write-offs of loans by banks and building societies, 2005-10
                        • Technological Developments

                          • Key points
                            • The internet is undermining the primacy of the bank branch…
                              • Figure 13: Primary source of information for arranging a financial services product, August 2010
                            • …and becoming the main means of interaction
                              • Figure 14: Preferred channel for banking services, May 2010
                            • Still a sizeable pool of consumers who wouldn’t buy online
                              • Figure 15: Types of financial services products arranged online, May 2010
                            • Mobile banking still a step too far for most
                              • Figure 16: Financial transactions performed using a mobile phone, May 2010
                            • Barclays leads the way with contactless payment technology…
                              • …and it will be banks and retailers that drive adoption, not consumers
                                • Figure 17: Statements on touch-and-go technology in credit/debit cards, May 2010
                              • The danger of negative reactions
                              • Consumer Context

                                • Key points
                                  • Confidence remains weak…
                                    • Figure 18: Consumer confidence, 2005-10
                                  • …and this is reflected in expected financial activity
                                      • Figure 19: Savings, investment, borrowing and debt repayment – consumers’ expected activity, 2002-10
                                    • Marketing needs to reflect the new mood
                                      • Borrowing intentions – coping, rather than planning
                                        • Figure 20: Consumer credit – consumers’ expected activity, 2002-10
                                      • The transformation of the mortgage market
                                        • Figure 21: Mortgage and home buying – consumers’ expected activity, 2002-10
                                    • The Interest Rate Effect

                                      • Key points
                                        • Fundamental shift in the interest rate environment…
                                          • …with a major impact on retail banking markets
                                            • Mortgages
                                              • Figure 22: Average quoted household mortgage rates, 2005-10
                                            • Consumer credit
                                              • Figure 23: Average quoted consumer credit rates, 2005-10
                                            • Savings and investments
                                              • Figure 24: Average quoted instant-access savings and ISA rates, 2005-10
                                          • Segment Performance

                                            • Key points
                                              • Current and deposit accounts
                                                • Little scope for growth in account numbers...
                                                  • Figure 25: Number of current account holders and number of current accounts, 2007-09
                                                • …but still room to grow the fee-based market
                                                  • Figure 26: Ownership of fee-based packaged and free/ordinary current accounts, March 2010
                                                • Retail deposits show little growth…
                                                  • Figure 27: Outstanding retail savings balances*, 2005-10
                                                • …but the ISA market is showing growth
                                                  • Figure 28: Number of ISAs and amounts subscribed, segmented by type, 1999/2000-2009/10
                                                • Secured and unsecured credit
                                                  • Appetite for unsecured credit falls post-recession…
                                                    • Figure 29: Unsecured lending, 2000-10
                                                  • …and new mortgage lending plummets
                                                    • Figure 30: Secured lending, 2000-10
                                                  • Insurance
                                                    • Motor and home insurance weather the recession well
                                                      • Figure 31: Domestic motor and home insurance premiums, 2004-09
                                                    • The search for new product lines
                                                      • Figure 32: New guaranteed acceptance plan and other non-linked whole-of-life premiums, by channel, 2006-09
                                                  • Key Providers

                                                    • Key points
                                                      • Is there a difference between ‘your current account provider’…
                                                        • Figure 33: Main current account provider, August 2010
                                                      • …and ‘your bank’?
                                                        • Figure 34: Main financial services provider, 2009 and 2010
                                                    • New Entrants

                                                      • Key points
                                                        • Virgin and Tesco are the most likely contenders
                                                          • Figure 35: Awareness of potential new entrants and willingness to switch to them (selected brands only), March 2010
                                                        • Learning from previous challenges to the big brands
                                                          • What would success look like for a new entrant?
                                                            • The banking crisis – an opportunity for new entrants…
                                                              • …but has it led to a safety-first approach?
                                                                  • Figure 36: Proportion of consumers who are more or less likely to switch retail banking provider as compared to three years ago, July 2010
                                                                • People need new entrants to prove their credentials
                                                                  • Figure 37: Willingness to consider using a retail banking provider who has only started offering the product in the last six months, July 2010
                                                                • Large majority wouldn’t consider a direct-only current account
                                                                  • Figure 38: Proportion of current account customers who would consider using a direct-only provider, July 2010
                                                                • The cost of free banking
                                                                • Product Ownership and Cross-Sales

                                                                  • Key points
                                                                    • Savings products most cross-sold: motor insurance the least
                                                                      • Figure 39: Product holdings and cross-sales, August 2010
                                                                    • Cross-sales the rule, not the exception
                                                                      • Figure 40: Number of financial products or services arranged with main current account provider, August 2010
                                                                    • General insurance – a major opportunity in a difficult climate
                                                                      • Little difference in banks’ ability to cross-sell
                                                                        • Figure 41: Repertoire of financial products or services arranged with main current account provider, by most popular main current account providers, August 2010
                                                                      • Loyalty among the older generation?
                                                                        • Figure 42: Repertoire of financial products or services arranged with main current account provider and with other providers, by age, August 2010
                                                                    • Switching and Satisfaction

                                                                      • Key points
                                                                        • Few are thinking of switching…
                                                                            • Figure 43: Switching intentions and customer satisfaction, August 2010
                                                                          • …because most are pleased with what they’ve already got
                                                                            • The First Direct effect
                                                                              • Figure 44: Main current account provider, by attitudes towards banks and building societies, August 2010
                                                                            • Paying attention to the key customers
                                                                                • Figure 45: Repertoire of financial products or services arranged with main current account provider, by attitudes towards banks and building societies, August 2010
                                                                              • The mobile affluent
                                                                                • Figure 46: Switching intentions and customer satisfaction, by demographics, August 2010
                                                                            • Trust and Differentiation

                                                                              • Key points
                                                                                • Are banks all the same?
                                                                                  • Figure 47: Attitudes towards banks and building societies, August 2010
                                                                                • Small isn’t always beautiful
                                                                                  • Losing touch with their customers
                                                                                    • Different expectations from a different era in banking
                                                                                      • Concentrating on safety
                                                                                        • Figure 48: Agreement with the statement ‘Big banks are the safest place for your money’, by product cross-holdings, August 2010
                                                                                    • Loyalty in Retail Banking

                                                                                      • Key points
                                                                                        • Is loyalty a one-way deal?
                                                                                          • Figure 49: Attitudes towards buying financial products, August 2010
                                                                                        • The benefits of not shopping around
                                                                                          • New entrants will undermine inertia
                                                                                            • The difference between ‘banks’ and ‘my bank’
                                                                                              • Key customers recognise the advantage of loyalty
                                                                                                • Figure 50: Repertoire of financial products or services arranged with main current account provider, by attitudes towards buying financial products, August 2010
                                                                                              • The voice of experience?
                                                                                                • Figure 51: Attitudes towards buying financial products, by demographics, August 2010
                                                                                            • Provider Choice

                                                                                              • Key points
                                                                                                • Branches are crucial, even in an online world
                                                                                                  • Figure 52: Key current account features, August 2010
                                                                                                • Penalty charges and overdraft rates – the triumph of optimism over experience?
                                                                                                  • Young and the old are keeping to the high street
                                                                                                    • An ability to take control of a problem
                                                                                                    • Segmenting the Market

                                                                                                      • Key points
                                                                                                        • All about the rate, or looking to build relationships?
                                                                                                          • Figure 53: Retail banking consumer segmentation, August 2010
                                                                                                        • All about the rate
                                                                                                          • Keep it local
                                                                                                            • Relationship-builder
                                                                                                              • Figure 54: Key current account features, by target groups, August 2010
                                                                                                            • The benefits of getting to know your customers
                                                                                                              • Figure 55: Agreement with selected statements regarding banks and building societies, by target groups, August 2010
                                                                                                            • The London challenge
                                                                                                              • Tailoring the offering in a time of demographic change…
                                                                                                                • Figure 56: Target groups, by age, August 2010
                                                                                                              • …and bringing business back to the main current account provider?
                                                                                                                • Figure 57: Attitudes towards buying financial products, by target groups, August 2010
                                                                                                              • Even those looking for traditional service are moving online
                                                                                                                • Figure 58: First place to look for information when arranging a financial services product, by target groups, August 2010
                                                                                                            • Appendix – Key Providers

                                                                                                                • Figure 59: Most popular current account provider, by demographics, August 2010
                                                                                                                • Figure 60: Next most popular current account provider, by demographics, August 2010
                                                                                                            • Appendix – Product Ownership and Cross-Sales

                                                                                                                • Figure 61: Repertoire of financial products or services arranged with main current account provider, by most popular main current account provider, August 2010
                                                                                                                • Figure 62: Repertoire of financial products or services arranged with main current account provider, by next most popular main current account provider, August 2010
                                                                                                                • Figure 63: Product holdings, by repertoire of financial products or services arranged with main current account provider, August 2010
                                                                                                                • Figure 64: Most popular product holdings own/arranged with current account provider, by demographics, August 2010
                                                                                                                • Figure 65: Next most popular product holdings own/arranged with current account provider, by demographics, August 2010
                                                                                                                • Figure 66: Most popular product holdings own/arranged with another provider, by demographics, August 2010
                                                                                                                • Figure 67: Next most popular product holdings own/arranged with another provider, by demographics, August 2010
                                                                                                                • Figure 68: Most popular don’t own product holdings, by demographics, August 2010
                                                                                                                • Figure 69: Next most popular don’t own product holdings, by demographics, August 2010
                                                                                                                • Figure 70: Repertoire of financial products or services arranged with main current account provider, by demographics, August 2010
                                                                                                                • Figure 71: Repertoire of financial products or services arranged with firms other than main current account provider, by demographics, August 2010
                                                                                                            • Appendix – Switching and Satisfaction

                                                                                                                • Figure 72: Switching intentions and customer satisfaction, by demographics, August 2010
                                                                                                            • Appendix – Trust and Differentiation

                                                                                                                • Figure 73: Most common attitudes towards banks and building societies, by demographics, August 2010
                                                                                                                • Figure 74: Next most common attitudes towards banks and building societies, by demographics, August 2010
                                                                                                                • Figure 75: Repertoire of financial products or services arranged with main current account provider, by attitudes towards banks and building societies, August 2010
                                                                                                                • Figure 76: Repertoire of financial products or services arranged with main current account provider, by attitudes towards banks and building societies, August 2010
                                                                                                                • Figure 77: Main current account provider, by attitudes towards banks and building societies, August 2010
                                                                                                                • Figure 78: Main current account provider, by attitudes towards banks and building societies, August 2010
                                                                                                            • Appendix – Loyalty in Retail Banking

                                                                                                                • Figure 79: Attitudes towards buying financial products, by demographics, August 2010
                                                                                                                • Figure 80: Main current account provider, by attitudes towards buying financial products, August 2010
                                                                                                            • Appendix – Provider Choice

                                                                                                                • Figure 81: Most popular key current account features, by demographics, August 2010
                                                                                                                • Figure 82: Next most popular key current account features, by demographics, August 2010
                                                                                                                • Figure 83: Key current account features, by most popular main current account provider, August 2010
                                                                                                                • Figure 84: Key current account features, by next most popular main current account provider, August 2010
                                                                                                            • Appendix – Segmenting the Market

                                                                                                                • Figure 85: Target groups, by most popular main current account provider, August 2010
                                                                                                                • Figure 86: Target groups, by most popular main current account provider, August 2010
                                                                                                                • Figure 87: Product holdings, by target groups, August 2010
                                                                                                                • Figure 88: Target groups, by demographics, August 2010

                                                                                                            Companies Covered

                                                                                                            • Alliance & Leicester
                                                                                                            • Association of British Insurers
                                                                                                            • Bank of England
                                                                                                            • British Sky Broadcasting Group plc (BSkyB)
                                                                                                            • Chartered Institute of Personnel and Development [CIPD]
                                                                                                            • Clydesdale Bank
                                                                                                            • Co-operative Group
                                                                                                            • ComparetheMarket.com
                                                                                                            • First Direct
                                                                                                            • Government Actuary's Department (GAD)
                                                                                                            • HBOS plc (Halifax Bank of Scotland)
                                                                                                            • HSBC Private Bank (UK) Limited
                                                                                                            • ING Direct
                                                                                                            • J. Sainsbury
                                                                                                            • John Gilbert Financial Research
                                                                                                            • Kantar Media
                                                                                                            • Lidl (UK)
                                                                                                            • Lloyds Banking Group
                                                                                                            • Marks & Spencer
                                                                                                            • MoneySupermarket.com Limited
                                                                                                            • Newcastle Building Society Limited
                                                                                                            • Office of Fair Trading
                                                                                                            • Royal Bank of Scotland Group plc
                                                                                                            • Tesco Plc
                                                                                                            • Virgin Media Ltd
                                                                                                            • Virgin Mobile
                                                                                                            • Virgin Money
                                                                                                            • Waitrose
                                                                                                            • Wm Morrison Supermarkets
                                                                                                            • Yahoo! UK & Ireland
                                                                                                            • Yorkshire Bank PLC

                                                                                                            Retail Banking Overview - UK - November 2010

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