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Loyalty in Financial Services - UK - October 2019

“Financial companies need to maintain high standards of customer service, offer convenient and reliable access points and address any problems quickly and fairly. They also need to reward customers for their loyalty, in a way that is meaningful and shows them they are appreciated.”

– Sarah Hitchcock, Senior Financial Services Analyst

This report examines the following issues:

  • Building brand loyalty is particularly challenging for new banks
  • How can insurers improve customer loyalty?

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Table of contents

  1. Overview

    • What you need to know
    • Executive Summary

        • The market
          • Open Banking has introduced more choice and competition
            • Incumbents are responding to the digital challenge
              • Not all newcomers will survive
                • Fostering ‘true’ loyalty in the more commoditised insurance markets is difficult
                  • Pricing models typically used by insurers do not help the problem
                    • Companies and brands
                      • 86% of UK adults are customers of one of major banking groups
                        • Figure 1: Brand customer share shown on a group basis (top eight banking groups only), July 2019
                      • More than a quarter of UK adults are customers of a mid-sized challenger or supermarket bank
                        • Nationwide stands apart in the building society sector
                          • Digital banks are attracting customers but struggle to turn a profit
                            • Barclaycard is the leading credit card specialist
                              • Aviva is ahead of its rivals in the insurance sector
                                • Figure 2: Brand customer share – insurance companies, July 2019
                              • The consumer
                                • The average person is a customer of five different financial companies
                                  • The major retail banks are best at cross-selling
                                    • Figure 3: Top 15 financial companies with highest ratio for multiple product holdings, July 2019
                                  • Trust is multi-faceted
                                    • Figure 4: Top 15 financial companies with highest ratio for trust, July 2019
                                  • Supermarket banks are best at rewarding loyalty
                                    • Figure 5: Top 15 financial companies with highest ratio for rewarding loyalty, July 2019
                                  • Insurers generally have shorter customer tenures
                                    • Figure 6: Top 15 financial companies with highest ratio for 5+ years tenure, July 2019
                                  • First Direct customers are most likely to recommend the brand
                                    • Figure 7: Top 15 financial companies with highest ratio for recommending the brand, July 2019
                                  • Bank customers want reliable and convenient access
                                    • Figure 8: Factors that make people loyal to a particular bank or building society, July 2019
                                  • A fair pricing policy will help insurers to foster loyalty
                                    • Figure 9: Factors that make people loyal to a particular insurance company, July 2019
                                  • What we think
                                  • Issues and Insights

                                    • Building brand loyalty is particularly challenging for new banks
                                      • The facts
                                        • The implications
                                          • How can insurers improve customer loyalty?
                                            • The facts
                                              • The implications
                                              • The Market – What You Need to Know

                                                • Open Banking injects more competition into the market…
                                                  • …but incumbents are responding to the challenge
                                                    • Not all newcomers will survive
                                                      • Fostering loyalty in more commoditised markets is much more difficult
                                                        • Pricing models typically used by insurers do not help the problem
                                                        • Market Challenges and Drivers – Retail Banking

                                                          • An evolving market but major banks still dominate
                                                            • Figure 10: Main current account provider, July 2019
                                                          • A current account is the bedrock of the customer relationship
                                                            • Many current account customers need a push to switch
                                                                • Figure 11: Satisfaction with various banking services, July 2019
                                                              • The dawn of Open Banking
                                                                • Gaining customers is one thing, making a profit out of them is another
                                                                  • Barclays’ mobile app aims to offer a “one-stop-shop”
                                                                    • RBS launches new standalone digital brand, Bó
                                                                      • Credit card issuers scale back on rewards…
                                                                        • …potentially jeopardising brand loyalty
                                                                        • Market Challenges and Drivers – Insurance

                                                                          • Difficult to stand out in a crowded market and engage an apathetic audience
                                                                            • High levels of churn demonstrate the challenge insurers face
                                                                              • Figure 12: Proportion of general insurance policyholders who have switched, by type of policy and length of time ago switched, September 2017
                                                                            • Limited opportunity for customer interaction with the brand
                                                                              • One in four home policyholders has been with their insurer for over five years
                                                                                • Regulator steps in to tackle ‘loyalty penalty’
                                                                                  • Some insurers introduce price promises in response
                                                                                  • Companies and Brands – What You Need to Know

                                                                                    • 86% of UK adults are customers of one of major banking groups
                                                                                      • 29% are customers of a mid-sized challenger or supermarket bank
                                                                                        • Nationwide stands apart in the building society sector
                                                                                          • Digital banks are attracting customers but struggle to turn a profit
                                                                                            • In the insurance sector, Aviva is well ahead of its rivals
                                                                                            • Largest Providers by Sector

                                                                                              • Barclays is the largest retail bank brand by customer share…
                                                                                                • …followed by Halifax
                                                                                                  • TSB Bank works on restoring trust
                                                                                                    • Tesco Bank is the largest supermarket bank
                                                                                                        • Figure 13: Brand customer share – retail banks, July 2019
                                                                                                      • LBG is the largest on a group basis
                                                                                                        • Figure 14: Brand customer share shown on a group basis (top eight banking groups only), July 2019
                                                                                                      • Monzo leads the charge among specialist and digital-only banks
                                                                                                        • Figure 15: Brand customer share – specialist and digital-only banks, July 2019
                                                                                                      • One in four UK adults holds a product with Nationwide Building Society
                                                                                                        • Figure 16: Brand customer share – building societies, July 2019
                                                                                                      • Barclaycard reigns supreme in the credit card market
                                                                                                        • Figure 17: Brand customer share – credit card providers, July 2019
                                                                                                      • Aviva stands out in the crowded insurance market
                                                                                                        • Figure 18: Brand customer share – insurance companies, July 2019
                                                                                                      • 28% of UK adults hold an NS&I savings product
                                                                                                        • Figure 19: Brand customer share – other providers, July 2019
                                                                                                    • Top 30 Brands by Customer Share

                                                                                                      • NS&I has the most customers of all the brands
                                                                                                        • Figure 20: Top 30 financial brands by customer share, July 2019
                                                                                                    • The Consumer – What You Need to Know

                                                                                                      • The average person is a customer of five different financial companies
                                                                                                        • The major retail banks are best at cross-selling…
                                                                                                          • …and generally have the longest-standing customers
                                                                                                            • Trust is often only truly tested when things go wrong
                                                                                                              • Supermarket banks are best at rewarding customers
                                                                                                                • Customers of First Direct are most likely to recommend the brand
                                                                                                                  • Insurers can improve loyalty by adopting a fair pricing policy
                                                                                                                  • Number of Financial Brand Relationships

                                                                                                                      • The average person is a customer of five different financial companies
                                                                                                                        • Figure 21: Repertoire analysis – number of financial brands a customer of, July 2019
                                                                                                                      • Income is a factor
                                                                                                                        • Most NS&I customers hold products with at least three other financial brands
                                                                                                                          • Figure 22: Top 20 financial brands based on customer share, by number of financial brands a customer of, July 2019
                                                                                                                        • Seven brands account for three quarters of the single-provider market
                                                                                                                          • Figure 23: Top 17 financial brands based on share of customers who hold products with a single provider, July 2019
                                                                                                                      • Breadth of Customer Relationship – Multiple Products

                                                                                                                        • In pursuit of greater wallet share
                                                                                                                          • Some companies are better than others
                                                                                                                            • Product range is a factor
                                                                                                                              • Figure 24: Customers who hold two or more products with brand – largest 30 financial companies by customer share, July 2019
                                                                                                                            • Major banks have the highest concentration of multiple product holdings
                                                                                                                              • Figure 25: Top 15 financial companies with highest ratio for multiple product holdings, July 2019
                                                                                                                            • Scope for Nationwide to increase wallet share
                                                                                                                              • Aviva is the best insurance company at cross-selling
                                                                                                                              • Strength of Customer Relationship – Trust in the Brand

                                                                                                                                • The major high street banks attract the highest levels of trust
                                                                                                                                  • …although RBS still has work to do
                                                                                                                                    • Figure 26: Customers who trust brand to resolve any problems – largest 30 financial companies by customer share, July 2019
                                                                                                                                  • Customers of First Direct and Bank of Scotland are most likely to trust them to resolve problems
                                                                                                                                    • Figure 27: Top 15 financial companies with highest ratio for trust, July 2019
                                                                                                                                  • It takes time to build trust
                                                                                                                                  • Valued Customers – Rewarding Loyalty

                                                                                                                                    • Most customers do not feel rewarded…
                                                                                                                                      • …or perhaps they don’t value the rewards on offer as much as providers think
                                                                                                                                        • A lack of awareness may be a factor
                                                                                                                                          • Bank loyalty schemes are not as generous as they were a few years ago
                                                                                                                                            • Figure 28: Customers who are rewarded for their custom or loyalty – largest 30 financial companies by customer share, July 2019
                                                                                                                                          • Insurers fare particularly poorly
                                                                                                                                            • Supermarket banks lead the way for rewarding loyalty
                                                                                                                                              • Challenger brands, Co-op Bank and TSB Bank offer no-fee reward accounts
                                                                                                                                                • Figure 29: Top 15 financial companies with highest ratio for rewarding loyalty, July 2019
                                                                                                                                              • Starling Bank and Revolut offer extra benefits at no extra cost
                                                                                                                                              • Length of Customer Relationship – 5+ Years Tenure

                                                                                                                                                • Current account providers generally have the highest concentration of long-standing customers
                                                                                                                                                  • Figure 30: Customers who have been with the brand for at least five years – largest 30 financial companies by customer share, July 2019
                                                                                                                                                • Brands belonging to the top five banking groups have the highest tenure ratios
                                                                                                                                                    • Figure 31: Top 15 financial companies with highest ratio for 5+ years tenure, July 2019
                                                                                                                                                • Positive Customer Experience – Recommending the Brand

                                                                                                                                                  • A customer recommendation is the highest praise a brand can get
                                                                                                                                                    • Figure 32: Customers who would recommend the brand – largest 30 financial companies by customer share, July 2019
                                                                                                                                                  • First Direct has highest level of recommendation
                                                                                                                                                    • Figure 33: Top 15 financial companies with highest ratio for recommending the brand, July 2019
                                                                                                                                                • Ways to Win Customer Loyalty – Banking

                                                                                                                                                  • Convenient and reliable access points are key to winning bank customer loyalty…
                                                                                                                                                    • Figure 34: Factors that make people loyal to a particular bank or building society, July 2019
                                                                                                                                                  • …competitive interest rate and the offer of rewards also help
                                                                                                                                                    • 25-34 year olds are the most difficult to extract loyalty from
                                                                                                                                                      • Loyalty is generated through a combination of factors
                                                                                                                                                        • Figure 35: Factors that make people loyal to a particular bank or building society – cross-analysis, July 2019
                                                                                                                                                    • Ways to Win Customer Loyalty – Insurance

                                                                                                                                                      • Renewal premiums heavily influence loyalty
                                                                                                                                                        • Figure 36: Factors that make people loyal to a particular insurance company, July 2019
                                                                                                                                                      • There’s no magic bullet for building loyalty
                                                                                                                                                        • Figure 37: Factors that make people loyal to a particular insurance company, July 2019
                                                                                                                                                    • Appendix: Data Sources and Abbreviations

                                                                                                                                                        • Abbreviations
                                                                                                                                                          • Consumer research methodology

                                                                                                                                                          Loyalty in Financial Services - UK - October 2019

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