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Technology and the Internet in Financial Services - UK - August 2010

This report examines a broad range of issues connected to new (and not-so-new) technology in the financial services industry. It highlights the way in which internet banking is now the default option for most of the online population, and the fact that it’s by far the most popular option when people are considering buying a new financial services product. That said, there are still areas where it is yet to find mainstream acceptance, and this report highlights the sizeable differences in buying behaviours in different financial services segments.

What we have found out:

  • Only a minority have used any sort of internet or SMS banking services, and even the early adopters are ambivalent. Just 4% of those who have actually used these services would be prepared to pay for them - like internet banking, mobile banking is unlikely to be revenue generating.
  • The early adopters who are willing to embrace new ways of managing their finances are in a minority, but they're a key target market - younger, relatively affluent, and more financially engaged.
  • Online banking is now the default option for most internet users. Three quarters now prefer to use this channel for routine transactions, such as a balance checks.
  • People appear to be happy with the status quo when it comes to payment technology. Half say that they prefer chip and PIN to contactless payments, with security flagged up as a major concern.
  • Just 4%, or the equivalent of a little under two million adults, say that they have already got a contactless card. This hints at a major gap in consumer awareness, given that this figure is well short of the number of cards that are already in issue.
  • There's some interest in adding contactless payment facilities to mobile phones, but people are watchful rather than enthusiastic - 7% say they'd apply for it straight away, but more than a third say that while they're interested, they'd wait to see how it worked for other people before trying it.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Abbreviations
        • Future Opportunities

          • Time for the bank manager to defer to the customer?
            • Time to switch off?
            • Market in Brief

              • UK consumers are split: should they embrace change…?
                • Figure 1: Approach towards emerging technology among consumers, May 2010
              • … or should they steer clear of untried technology?
                • Figure 2: Use of new banking technology, May 2010
              • Why segmentation matters
                • Online banking now entirely routine…
                  • Figure 3: Preferred channel for banking services, May 2010
                • … and seven in ten have bought at least one product online
                  • Figure 4: Types of financial services products arranged online, May 2010
                • A fifth have used mobile banking…
                  • Figure 5: Financial transactions performed using a mobile phone, May 2010
                • … with the fear of losing a phone holding back the market
                  • Figure 6: Attitudes towards mobile banking services, May 2010
                • Chip and PIN good enough for many
                  • Figure 7: Statements on touch and go technology in credit/debit cards, May 2010
                • Adding payment technology to mobiles…?
                  • Figure 8: Level of interest in using mobile phones to make payments in shops and other outlets, May 2010
                • “The idea horrifies me”
                • Technology Ownership and Usage

                  • Key points
                    • The rapid growth of broadband
                      • Figure 9: Broadband penetration, 2004-09
                    • Price comparison sites and online transactions are routine
                      • Figure 10: Types of activity undertaken on the internet, October 2008 to October 2009
                    • Mobile internet gains ground
                      • Figure 11: Device ownership summary, October 2008-Nov 2009
                  • Online Banking

                    • Key points
                      • Online banking hasn’t changed who we bank with…
                        • Figure 12: The number of personal customers registered for telephone and internet banking, and the number of transactions, 2003-08
                      • … but it has changed how we bank with them
                        • Increasing customers’ expectations?
                          • A clear shift in preferences…
                            • Figure 13: Preferred channel for banking services, May 2010
                          • … but although they’ll research online, many prefer to buy face-to-face
                            • The personal service pushback
                            • Consumers and Online Purchasing

                              • Key points
                                • Motor insurance still standing out from the crowd
                                    • Figure 14: Types of financial services products arranged online, May 2010
                                  • Considerable scope for growth – but at what cost?
                                    • Direct-to-consumer fund supermarkets – a product that has found its moment?
                                      • The digital divide – old versus young…
                                        • Figure 15: Types of financial services products arranged online, by gender, age, affluence and household income, May 2010
                                      • … or rich versus poor?
                                      • Attitudes Towards Online Banking

                                        • Key points
                                          • Taking control of your finances
                                            • Figure 16: Statements on online banking and security, May 2010
                                          • The security issue
                                            • Bank branches key for the less experienced
                                              • Even those who are prepared to buy online won’t desert the high street
                                                • Figure 17: Statements on online banking and security by willingness to buy financial services products online, May 2010
                                            • Web 2.0/Social Networking

                                              • Key points
                                                • Many are struggling to get a handle on how to use social networking
                                                  • Picking up on buzz
                                                    • Intrusive? Or responsive?
                                                      • Social networks as a data gathering tool
                                                        • The risks of inviting criticism…
                                                          • … and the risks of uncontrolled communication
                                                            • Reaction to the FSA’s statement on new media
                                                              • Barclaycard – going beyond social networking
                                                                • Waterslide – an accidental online sensation
                                                                  • Capitalising on the initial enthusiasm
                                                                    • Fitting the media to the message
                                                                      • How to manage social networking in a banking giant
                                                                        • Figure 18: BarclaycardNews Twitter feed, 23 July 2010
                                                                      • Turning to the experts
                                                                        • Internal marketing – external successes
                                                                          • Informed Choice – education and client acquisition
                                                                            • Freedom to act
                                                                              • Building profile
                                                                                • Figure 19: The Informed Choice blog, July 2010
                                                                              • Targeting different consumer groups
                                                                                • Expanding channels of communication
                                                                                  • Measuring responses
                                                                                    • “Just another media channel”
                                                                                    • Mobile Banking

                                                                                      • Key points
                                                                                        • The UK now has more mobile subscribers than people…
                                                                                          • Figure 20: Mobile phone subscribers, 2004-09
                                                                                        • … and smartphone ownership starts to reach critical mass
                                                                                          • Figure 21: Smartphone ownership, July 2010
                                                                                        • Monitise dominates UK mobile banking
                                                                                          • Text banking – the mobile middle ground
                                                                                              • Figure 22: Financial transactions performed using a mobile phone, May 2010
                                                                                            • Mobile transactions are still rare
                                                                                              • Mobile banking – it’s a young man’s game…
                                                                                                • Figure 23: Proportion of adults who have used mobile banking services, by gender, age and region, May 2010
                                                                                              • … and it helps if you can get hold of the latest handset
                                                                                                • Figure 24: Proportion of adults who have used mobile banking services, by affluence, income and mobile phone provider, May 2010
                                                                                              • Charging structure could confuse some customers…
                                                                                                • ... but most are reluctant to pay anything at all for the service
                                                                                                  • Figure 25: Attitudes towards mobile banking services, May 2010
                                                                                                • Is it a question of allaying security fears…
                                                                                                  • … creating demand for the service…
                                                                                                    • … or just letting people know that the service exists?
                                                                                                      • Even those who have used the service are wary
                                                                                                        • Figure 26: Statements on mobile banking services among those who have used the service, May 2010
                                                                                                    • Contactless Payments

                                                                                                      • Key points
                                                                                                        • The rollout continues…
                                                                                                          • … but acceptance is still limited
                                                                                                            • Barclaycard leading the charge
                                                                                                              • Cost not an issue for consumers, but potentially a barrier for retailers
                                                                                                              • Consumer Attitudes Towards Contactless Payments

                                                                                                                • Key points
                                                                                                                  • Do people want to change?
                                                                                                                      • Figure 27: Statements on touch and go technology in credit/debit cards, May 2010
                                                                                                                    • Allaying security fears
                                                                                                                      • The mismatch between reality and consumer perception…
                                                                                                                        • … leads to a real risk of consumer dissatisfaction
                                                                                                                          • You can’t please all the people all of the time
                                                                                                                            • Little sign that the Oystercard is acting as a gateway technology
                                                                                                                                • Figure 28: Attitudes towards touch and go technology in credit/debit cards, by region, May 2010
                                                                                                                              • Adoption pattern very different to mobile banking
                                                                                                                                • Cash-rich, time-poor – every second counts
                                                                                                                                    • Figure 29: Attitudes towards cash and faster payments, by household income, May 2010
                                                                                                                                • Integrating Mobile and Contactless Technology

                                                                                                                                  • Key points
                                                                                                                                    • The logical evolution of the mobile phone…
                                                                                                                                      • … and the barriers are logistical, not technological
                                                                                                                                        • Numerous trials but no mass-market launch
                                                                                                                                          • Transport could provide the ‘killer app’
                                                                                                                                            • Consumers take a ‘wait and see’ approach…
                                                                                                                                              • Figure 30: Level of interest in using mobile phones to make payments in shops and other outlets, May 2010
                                                                                                                                            • … and security, again, is a huge barrier
                                                                                                                                              • It’s all about the handset
                                                                                                                                                • The appeal of speed
                                                                                                                                                  • Figure 31: Interest in using mobile phones to make payments in shops and other outlets, by attutides towards contactless payments, May 2010
                                                                                                                                              • Identifying the Early Adopters

                                                                                                                                                • Key points
                                                                                                                                                  • A third are ready to embrace change
                                                                                                                                                    • Figure 32: Approach towards emerging technology among consumers, May 2010
                                                                                                                                                  • Generational change
                                                                                                                                                    • Figure 33: Approach towards emerging technology among consumers, by demographics, May 2010
                                                                                                                                                  • Two in five early adopters have already tried mobile banking…
                                                                                                                                                    • Figure 34: Financial transactions performed using a mobile phone, by target groups, May 2010
                                                                                                                                                  • … but even they won’t pay for it
                                                                                                                                                    • Figure 35: Statements on mobile banking services, by approach towards emerging technology, May 2010
                                                                                                                                                  • The influence of existing technology
                                                                                                                                                    • Figure 36: Statements on touch and go technology in credit/debit cards, by approach towards emerging technology, May 2010
                                                                                                                                                  • A danger of annoying loyal customers?
                                                                                                                                                    • Early Adopters like the idea of mobile payments
                                                                                                                                                      • Figure 37: Level of interest in using mobile phones to make payments in shops and other outlets, by approach towards emerging technology, May 2010
                                                                                                                                                    • The strategic importance of Early Adopters
                                                                                                                                                      • Figure 38: Preferred purchasing channel, by target groups, May 2010
                                                                                                                                                  • Appendix – Consumers and Online Purchasing

                                                                                                                                                      • Figure 39: Types of financial services products that people have bought over the internet, by demographics, May 2010
                                                                                                                                                      • Figure 40: Further types of financial services products that people have bought over the internet, by demographics, May 2010
                                                                                                                                                      • Figure 41: Types of financial services products that people would consider arranging over the internet, by demographics, May 2010
                                                                                                                                                      • Figure 42: Further types of financial services products that people would consider arranging over the internet, by demographics, May 2010
                                                                                                                                                      • Figure 43: Types of financial services products that people wouldn’t consider arranging over the internet, by demographics, May 2010
                                                                                                                                                      • Figure 44: Further types of financial services products that people wouldn’t consider arranging over the internet, by demographics, May 2010
                                                                                                                                                      • Figure 45: Types of financial services products that people wouldn’t consider buying, by demographics, May 2010
                                                                                                                                                      • Figure 46: Further types of financial services products that people wouldn’t consider buying, by demographics, May 2010
                                                                                                                                                  • Appendix – Online Banking

                                                                                                                                                      • Figure 47: Banking services that people prefer to access face to face, by demographics, May 2010
                                                                                                                                                      • Figure 48: Further banking services that people prefer to access face-to-face, by demographics, May 2010
                                                                                                                                                      • Figure 49: Banking services that people prefer to access over the telephone, by demographics, May 2010
                                                                                                                                                      • Figure 50: Banking services that people prefer to access over the internet, by demographics, May 2010
                                                                                                                                                      • Figure 51: Further banking services that people prefer to access over the internet, by demographics, May 2010
                                                                                                                                                      • Figure 52: Key banking services that people prefer to access via mobile phone or ATM, by demographics, May 2010
                                                                                                                                                      • Figure 53: Banking services that people don’t use, by demographics, May 2010
                                                                                                                                                  • Appendix – Attitudes Towards Online Banking

                                                                                                                                                      • Figure 54: Most popular statements on online banking and security, by demographics, May 2010
                                                                                                                                                      • Figure 55: Next most popular statements on online banking and security, by demographics, May 2010
                                                                                                                                                  • Appendix – Mobile Banking

                                                                                                                                                      • Figure 56: Financial transactions performed using a mobile phone, by demographics, May 2010
                                                                                                                                                      • Figure 57: Most popular statements on mobile banking services, by demographics, May 2010
                                                                                                                                                      • Figure 58: Next most popular statements on mobile banking services, by demographics, May 2010
                                                                                                                                                  • Appendix – Contactless Payments

                                                                                                                                                      • Figure 59: Most popular statements on touch and go technology in credit/debit cards, by demographics, May 2010
                                                                                                                                                      • Figure 60: Next most popular statements on touch and go technology in credit/debit cards, by demographics, May 2010
                                                                                                                                                  • Appendix – Integrating Mobile and Contactless Technology

                                                                                                                                                      • Figure 61: Level of interest in using mobile phones to make payments in shops and other outlets, by demographics, May 2010
                                                                                                                                                  • Appendix – Identifying the Early Adopters

                                                                                                                                                      • Figure 62: Approach towards emerging technology among consumers, by demographics, May 2010

                                                                                                                                                  Companies Covered

                                                                                                                                                  • Aldi Stores Ltd (UK & Ireland)
                                                                                                                                                  • AMT Coffee
                                                                                                                                                  • Apple Computer UK Ltd
                                                                                                                                                  • Asda Group Ltd
                                                                                                                                                  • Aviva Plc
                                                                                                                                                  • Barclaycard
                                                                                                                                                  • Barclays Bank plc
                                                                                                                                                  • Bebo Inc
                                                                                                                                                  • British Bankers' Association (BBA)
                                                                                                                                                  • British Broadcasting Corporation (BBC)
                                                                                                                                                  • British Retail Consortium
                                                                                                                                                  • British Sky Broadcasting Group plc (BSkyB)
                                                                                                                                                  • Cahoot
                                                                                                                                                  • Citigroup Private Bank
                                                                                                                                                  • Co-operative Group
                                                                                                                                                  • Egg plc
                                                                                                                                                  • Facebook, Inc.
                                                                                                                                                  • Financial Services Authority (The)
                                                                                                                                                  • First Direct
                                                                                                                                                  • Freeview
                                                                                                                                                  • FriendsReunited
                                                                                                                                                  • Google UK
                                                                                                                                                  • HSBC Investments (UK) Limited
                                                                                                                                                  • John Gilbert Financial Research
                                                                                                                                                  • Kantar Media
                                                                                                                                                  • Kelkoo S.A.
                                                                                                                                                  • Lehman Brothers [UK]
                                                                                                                                                  • Lidl (UK)
                                                                                                                                                  • Linden Lab
                                                                                                                                                  • Little Chef
                                                                                                                                                  • Lloyds Banking Group
                                                                                                                                                  • Market & Opinion Research International (MORI)
                                                                                                                                                  • Marks & Spencer
                                                                                                                                                  • MBNA Europe
                                                                                                                                                  • Metro Bank
                                                                                                                                                  • mmO2 plc
                                                                                                                                                  • MSN UK
                                                                                                                                                  • MySpace.com
                                                                                                                                                  • NatWest
                                                                                                                                                  • Netto Foodstores Ltd
                                                                                                                                                  • Newcastle Building Society Limited
                                                                                                                                                  • Nokia Corporation (UK)
                                                                                                                                                  • Ofcom
                                                                                                                                                  • Office of Fair Trading
                                                                                                                                                  • Orange plc (UK)
                                                                                                                                                  • PayPal Inc.
                                                                                                                                                  • PriceRunner UK
                                                                                                                                                  • Research in Motion Uk Ltd.
                                                                                                                                                  • Royal Bank of Scotland Group plc
                                                                                                                                                  • Saffron Walden Herts & Essex Building Society
                                                                                                                                                  • Skype Technologies S.A.
                                                                                                                                                  • Smile
                                                                                                                                                  • T-Mobile (UK) Ltd
                                                                                                                                                  • Tesco Plc
                                                                                                                                                  • TomTom International B.V.
                                                                                                                                                  • Twitter, Inc.
                                                                                                                                                  • Virgin Media Ltd
                                                                                                                                                  • Virgin Mobile
                                                                                                                                                  • Visa Europe
                                                                                                                                                  • Vodafone Group Plc (UK)
                                                                                                                                                  • Waitrose
                                                                                                                                                  • Wm Morrison Supermarkets
                                                                                                                                                  • Yahoo! UK & Ireland
                                                                                                                                                  • YouTube, Inc.

                                                                                                                                                  Technology and the Internet in Financial Services - UK - August 2010

                                                                                                                                                  US $2,727.29 (Excl.Tax)