Retail Banking Overview: Partnerships for Profit - UK - December 2007

Table of Contents

• Issues in the Market
• Key Issues
• Insights and Opportunities
• Loyalty -- discretionary discounts, rewards, etc...
• Build some emotion
• Creating a bond with the young
• Building better selling capability through the online channel
• Market in Brief
• Unprecedented market conditions will fuel an uncertain domestic market, and a slowdown in consumer demand
• Retail banks in the firing line of the OFT -- signalling an end to highly lucrative income streams
• Strategically, all the major bank brands are grappling with the same challenges
• Differentiate....differentiate...differentiate
• A third of adults account for well over half of all holdings
• Retail banks' current account base means they dominate personal finance markets
• In a market where there is often little distinction between brands, innovation is key
• Banks creating a multi-channel retail mix that drives customer value
• Television and direct mail prop up banks' advertising investment
• Internal Market Environment
• Key Points
• Building customer relationships
• Moving the income profile
• Depolarisation presented a huge opportunity...
• ...but few have made the most of it
• Charges and overdraft fees under the microscope
• Finding alternatives
• A prompt to account switching?
• Future revenue growth
• External Market Environment
• Key points
• Consumer spending habits
  • Figure 2: Total personal disposable income (PDI), consumer expenditure and savings, 2003-12
• Caution comes to the fore
• Few signs of consumer panic...
• ...but life is getting tougher for some
• Credit crunch yet to be fully felt
• Base rates and lending
  • Figure 3: BoE average annual base rate, 2004-12
• Employment trends
  • Figure 4: UK workforce and employment, by gender, 2002-12
• Consumer confidence
  • Figure 5: Year-on-year trend in monthly approvals for house purchase to individuals, September 2005-September 2007
• Bigger market opportunities from population increase
  • Figure 6: Size of UK population, by age group, 1999-2011
• Scope to adjust to the new retirement reality...
• ...as well as changing ethnic makeup of the country
• Household formation delivers further opportunity
  • Figure 7: Total number of UK households and one-person households, 1991-2012
• Changing household structure leads to changing product requirements
• Online development
• Finance sales grow online
  • Figure 8: Online product purchasing, by category, April 2005-July 2007
• Strengths and Weaknesses in the Market
• Strengths/opportunities
• Growing numbers of people and households, evolving mix
• Existing large customer franchises to cross-sell to
• Inertial tie creates customer bonds
• Migrating more customers to low-cost channels
• Weaknesses/threats
• Cooling UK economy
• Under scrutiny from the OFT
• Homogeneous brands, lack of differentiation
• Cross-selling has not taken off
• Who' s Innovating?
• Key Points
• Product innovation through segmentation
• Age segmentation leads the way
• High net worth and niche services
• Packaged accounts remain a point of focus
• Account aggregation yet to hit the mainstream
• Contactless payments come of age
• Mobile banking -- the next big thing...
• ...or just another channel option?
• Aggregator sites
• Green banking hits the mainstream
• Co-op still leads the way in green finance
• Lessons from the US
• The dangers of greenwash
• Current Accounts and Overdrafts
• Key Points
• Current accounts -- the key battleground
• Steady growth in the number of accounts
  • Figure 9: Number of personal bank accounts held by individuals UK (Major British Banking Group only), 2000-06
• Value of personal accounts reaches £500 billion
  • Figure 10: Value of personal bank accounts held by individuals (MBBG only), 2000-05
• Overdrafts
  • Figure 11: Overdraft advances to individuals by residual maturity* (MBBG only), 2000-06
• Savings Accounts
• Key Points
• UK banks account for almost 70% of individual deposits
  • Figure 12: Individual trusts' private sector holdings of sterling assets, 2001-06
• Savings bonds see a shift in the market
• The Northern Rock debacle shakes up the market
• Mortgages
• Key Points
• Mortgages -- dealing with the fallout from the credit crunch
• House prices in the balance
• First-time buyers slip away from the market
  • Figure 13: Number of loans for house purchase, by type of mortgagor, 1999-2006
• An end to fixed rates could impact mortgage business
• Credit Cards
• Key Points
• Number of payment cards in issue flattens...
  • Figure 14: Number of payment cards in issue, by type, 2001-06
• ...and payment volumes reflect tough conditions
  • Figure 15: Volume of UK purchases, by card type, 2001-06
• Value of credit card purchases in decline
  • Figure 16: Value of UK purchases, by card type, 2001-06
• Big 5 leverage retail advantage
• Credit problems spread to the card market
• Charging cap hits margins
• Personal Unsecured Loans
• Key Points
• Cross selling vital
  • Figure 17: Total gross unsecured consumer lending split by product category, 2000-07
• Banks making more use of their customer relationships
• A shift away from price?
• General Insurance
• Key Points
• Market size -- pressure on premiums limits growth
  • Figure 18: General insurance business for UK risks, by annual net written premiums, 2000-06
• Fall in property transactions to hit property insurance?
• The Competitive Landscape
• Key Points
• Current Accounts
  • Figure 19: Current account market share, August 2007
• A relatively static market...
• ...but still huge competition
• Regional banks limited to their local strongholds
• Savings accounts
• Traditional providers reign supreme
  • Figure 20: Estimated volume share of savings acount market, November 2007
• Credit cards
• Barclays and Lloyds TSB still lead the pack
  • Figure 22: Leading credit card providers, by volume market share, April 2007
• Mortgages
• Building societies slip away
  • Figure 22: Gross mortgage advances by mortgage provider, 2005-06
• Mixed signals
• Personal insurance
• Bancassurance accounts for growing proportion of business
  • Figure 21: Distribution of personal lines general insurance business by proportion of gross written premiums, 2000-06
• Banks using subsidiaries to sell insurance
  • Figure 22: Largest general insurers in the UK -- total market, by GWP, 2005-06
• Personal unsecured loans
  • Figure 23: Personal loan market share by company, August 2007
• Companies and Products
• Key Points
  • Figure 24: Selected current account parent and subsidiary brands (MBBG only), 2007
• Top 6 company profiles
• Lloyds TSB
  • Figure 25: Lloyds TSB company profile, 2002-05
• RBS Group
  • Figure 26: RBS/NatWest company profile, 2002-05
• Barclays
  • Figure 27: Barclays company profile, 2002-05
• HSBC
  • Figure 28: HSBC company profile, 2002-05
• HBOS
  • Figure 29: HBOS company profile, 2002-05
• Abbey
  • Figure 30: Abbey company profile, 2002-05
• Brand Communication and Promotion
• Key Points
• General insurance and credit products the key battleground...
  • Figure 31: Financial services adspend, by product type, 2003-07
• ...but signs of a credit cutback?
• Concentrating on retail banking
  • Figure 32: Retail banking-related adspend, by advertiser, 2003-07
• TV vies with direct mail
  • Figure 33: Advertising expenditure on financial services , by media type, 2006/07
• Direct mail -- the cross-selling advantage
• More to be made of online advertising?
• Channels to Market
• Key Points
• Joined-up banking in a multi-channel environment
• Branches finding new favour
• Branch numbers still falling -- but not by much
  • Figure 34: Number of branches, by bank, 1999-2004
• Scope for more rationalisation?
• The scope for negative press
• ATMs take up the slack
  • Figure 35: Number of cash dispensers and ATMs, by bank, 1999-2004
• Wide variation in the ATM: branch ratio
• The independents' growing role
• Extending the range of vended banking
  • Figure 37: Availability of additional ATM facilities, 2001-06
• Remote banking via online and telephone
  • Figure 38: Comparative performance of telephone and online banking, 2001 and 2006.
  • Figure 39: Number of transactions by telephone, by transaction type, 2001-04
• Building the online franchise
• Will a high street player break rank?
• Mobile telephony
• Brand Elements
  • Figure 40: Retail banking brand map, October 2007
• Barclays
• Brand personality
  • Figure 41: Attitudes associated with Barclays, October 2007
• Brand performance
• Lloyds TSB
• Brand personality
  • Figure 42: Attitudes associated with Lloyds TSB, October 2007
• Brand performance
• HSBC
• Brand personality
  • Figure 43: Attitudes associated with HSBC, October 2007
• Brand performance
• NatWest
• Brand personality
  • Figure 44: Attitudes associated with NatWest, October 2007
• Brand performance
• Halifax/HBOS
• Brand personality
  • Figure 45: Attitudes associated with HBOS, October 2007
• Brand performance
• The Co-operative Bank
• Brand perception
  • Figure 46: Attitudes associated with Co-operative bank, October 2007
• Consideration highest for HBOS
  • Figure 47: Retail banking brand retention and consideration, October 2007
• The Consumer -- Product Ownership
• Key Points
• Financial holdings
  • Figure 48: Ownership of financial products by gender and age, August 2007
• Potential for the unbanked?
  • Figure 49: Ownership of financial products by gender and age, expressed as indices, August 2007
• Derived demand alongside discretionary spending
• Big 5 maintain their stranglehold on the market
  • Figure 50: Current account market share, August 2007
• Multiple holdings
  • Figure 52: Product ownership, by number of products held expressed as Index against the All-Average, August 2007
• Profiling customers with multiple holdings
  • Figure 53: Multiple product ownership, by technology usage, August 2007
• Which bank brands have the most favourable customer profile?
  • Figure 54: Product ownership, by number of products held expressed as Index against the All-Average, August 2007
• Identifying the product opportunities
  • Figure 55: Cross holdings of (same brand) current account holders, August 2007
  • Figure 56: Opportunity scoring for financial holdings August 2007
• Potential to increase share of home insurance market
• Lloyds TSB tops the cross-selling league
  • Figure 57: Products held with current account provider, by current account provider, August 2007
• Deepening the banking relationship
  • Figure 58: Agreement with statement ' I would be happy to arrange more products (eg a mortgage, a personal loan, an ISA) through my main bank where I hold my current account' , August 2007
• Younger people turn to their current account provider
  • Figure 59: Agreement with statements concerning current accounts by gender, age, socio-economic group, and gross annual household income, August 2007
• Barclays and Lloyds TSB could struggle to convert leads
  • Figure 60: Agreement with statement ' I would be happy to arrange more through my main bank where I hold my current account' , by current account provider, August 2007
• The Consumer -- Channel Usage
• Key Points
• The drift to remote banking
• Online banking -- no longer niche
  • Figure 61: Agreement with statement ' I use online banking regularly' by main current account providers, August 2007
• High-value customers move online
  • Figure 62: Agreement with statements about the usage of retail banking facilities, by gender, age, socio-economic group and gross annual household income, August 2007
  • Figure 63: Agreement with statements about the usgae of retail banking facilities, by product ownerhip, August 2007
• Branch banking -- still vital
  • Figure 64: Agreement with the statement ' I visit my local branch regularly' , by main current account providers, August 2007
• Older customers still rely on the branch
  • Figure 65: Agreement with statements about the usage of retail banking facilities, by gender, age, socio-economic group and gross annual household income, August 2007
  • Figure 66: Product ownership by agreement with the statement "I visit my local bank branch regularly", August 2007
• Telephone banking
  • Figure 67: Agreement with statements about the usgae of retail banking facilities, by gender, age, socio-economic group and gross annual household income, August 2007
  • Figure 68: Agreement with the statement ' I use telephone banking regularly' , by main current account provider, August 2007
• The Consumer -- Customer Satisfaction and Loyalty
• Key Points
• Overall satisfaction
  • Figure 69: Agreement with statement ' i am happy with the service provided by the bank where i hold my current account' , August 2007
• High earners could vote with their wallets
  • Figure 70: Agreement with statements concerning current accounts by gender, age, socio-economic group, and gross annual household income, August 2007
• NatWest winning the service war
  • Figure 71: Agreement with statement ' I am happy with the service provided by the bank where I hold my current account' , by current account provider, August 2007
• Switching banks
  • Figure 72: Agreement with statement ' i may consider switching my main bank where i hold my current account over' , August 2007
• Young and affluent the most mobile
  • Figure 73: Agreement with statements concerning current accounts by gender, age, socio-economic group, and gross annual household income, August 2007
• NatWest customers going nowhere
  • Figure 74: Agreement with statement ' i may consider switching my main bank where i hold my current account over' , by current account provider, August 2007
• What is making unhappy customers?
  • Figure 75: Attitudes towards current account providers, August 2007
• Target analysis: where is the likely customer attrition?
• Penalty charges the key push factor
  • Figure 77: Attitudes about banks by cluster groups, expressed as indices, August 2007
• Appendix
• Abbreviations
• Currencies
• Financial holdings analysis
  • Figure 78: Number of financial holdings, by key demographic and economic factors, August 2007
  • Figure 79: Number of financial holdings, by key lifestyle indicators, August 2007
• Analysis of same brand holdings
  • Figure 80: Cross holdings of (same brand) current account holders by gender, age, socio-economic group and marital status, August 2007
  • Figure 81: Cross holdings of (same brand) current account holders by lifestage, special group, working status and gross annual household income, August 2007
  • Figure 82: Cross holdings of (same brand) current account holders by TV region, ACORN group, newspaper readership and supermarket used, August 2007
• Profiling the major UK retail banks
  • Figure 83: Main current account providers by gender, age, socio-economic group, and gross annual household income, August 2007
  • Figure 84: Main current account providers by marital status, lifetstage, working status, and household tenure, August 2007
  • Figure 85: Main current accont providers by technology users, newspaper readership, tv region, and supermarket usage, August 2007
• Analysis of same brand holdings, by named retail bank
  • Figure 86: Products held with current account provider, by current account provider, August 2007