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Retail Banking Overview - UK - November 2009

ISSUES IN THE MARKET
Key issues
Abbreviations
FUTURE OPPORTUNITIES
Engaging the young
Let’s start treating customers fairly…
… and rebuilding trust through greater transparency
Targeting the wealthy… and keeping them
MARKET IN BRIEF
Big changes in the retail banking market in 2008
The economy is improving but we’re not out of the woods yet
Consumer confidence has picked up
Figure 1: Monthly, 3-monthly and 12-monthly UK consumer confidence index, Jan 1982-Jan 2008
The number of current accounts has fallen slightly since 2006
Figure 2: Estimated number of current accounts in the UK, 2004-09
Retail savings balances increased by just 5% in 2008
Figure 3: Retail savings balances and market shares, 2002-09
Unsecured personal loan advances have plummeted
Figure 4: Estimated gross lending for unsecured personal loans, 2004-09
Credit card lending has also declined in the recession
Figure 5: Gross lending and net amounts outstanding on credit card lending (monthly data, seasonally adjusted), Jan 2003-Sep 2009
Mortgage lending has been severely affected by the credit crunch
Figure 6: Total mortgage lending, gross and net advances, 2003-09
Banks account for 17% of the general insurance market
Figure 7: Value of the UK personal motor, home, travel, and total general insurance markets, by GWP, 2003-09
The boom in online banking
Figure 8: Number of registered customers, and number of online/telephone banking transactions, by transaction type (MBBGs only), 2002 and 2008
Ownership of financial products increases with age and wealth
Savings accounts are the most common cross-holding
Figure 9: Other financial products held with current account provider, September 2009
Over-55s are most likely to be happy with their provider
INTERNAL MARKET ENVIRONMENT
Key points
A new banking landscape in 2010 and possibly beyond
A quick overview of 2008
Rebuilding capital is a key priority for banks at present
Banks’ income fell substantially in 2008…
Figure 10: Sources of bank income, net interest and net non-interest (MBBGs only), 2002-08
…while bad debts increased
Figure 11: Total sterling write-offs by UK banks, 2002-08
Consumer lending has fallen sharply during the downturn
Figure 12: Gross lending to individuals, by category, 2000-08
More demanding customers, less loyalty in the market
The CC announces new rules on selling PPI
The OFT investigation into bank charges continues
Banks face stricter regulation in the future…
… and here is just one example
Possible changes to the current regulatory system in 2010
Figure 13: The different pledged approaches to financial regulation of the two main political parties, 2009
BROADER MARKET ENVIRONMENT
Key points
House prices have fallen… but have started to pick up again
Figure 14: Average UK house prices, Jan 2007-Jul 2009
The inter-bank lending challenge
Figure 15: 3-month LIBOR rate vs the BoE base rate, Jan 2002-Jul 2009
Unemployment is high, and rising
Figure 16: UK unemployment levels, Q1 2002-Q1 2009
Arrears and repossessions are rising…
Figure 17: Repossessions and the number of homes with mortgages three months or more in arrears. 2002-08
… as are personal insolvencies
Figure 18: Individual insolvencies and bankruptcies in England and Wales (seasonally adjusted), Q1 2002-Q1 2009
An ageing population, but one which is heavily technology-driven
Figure 19: UK Population, by lifestage, 2004-14
THE CONSUMER ENVIRONMENT
Key points
Consumer confidence on the up…
Figure 20: Monthly, 3-monthly and 12-monthly UK consumer confidence index, Jan 1982-Sep 2009
… though some people are still struggling
Figure 21: Households’ current financial position, Q2 2008-Q2 2009
Uncertainty leads to good intentions in the savings market
Figure 22: Intended cash-based activities, Q3/Q4 2002-Q2/Q3 2009*
Consumer credit demand has increased slightly this year
Figure 23: Intended consumer credit activities, Q3/Q4 2002-Q2/Q3 2009
Mortgage activity has declined alongside the fall in house prices
Figure 24: Expected mortgage and property purchase activity, Q3/Q4 2002-Q2/Q3 2009
Lloyds TSB is the leading main financial services provider
Figure 25: Top 10 main financial services providers, June 2009
SWOT ANALYSIS
Figure 26: Retail banking overview – SWOT analysis, 2009
CURRENT ACCOUNTS AND OVERDRAFTS
Key points
The number of current accounts has fallen slightly in recent years
Figure 27: Estimated number of current accounts in the UK, 2004-09
Current accounts have very high levels of penetration
Figure 28: Ownership of financial products, September 2009
Packaged accounts are being pushed hard
Borrowing on overdrafts increased by 4% in 2008
Figure 29: Overdraft advances to individuals and individual trusts (MBBGs only), 2003-08
Lloyds Banking Group has a 28% share of the market
Figure 30: Current account provider, September 2009
SAVINGS ACCOUNTS AND ISAS
Key points
Retail savings balances grew less in 2008 than previous years
Figure 31: Retail savings balances and market shares, 2002-08 and September 2009
Instant-access savings accounts are the most popular…
Figure 32: Ownership of deposit or savings accounts and NS&I products, December 2008
… but cash ISA subscriptions have grown strongly
Figure 33: Amounts subscribed into ISAs, by type of component, 2002/03-2008/09
UNSECURED PERSONAL LOANS
Key points
Unsecured personal loan advances continue to fall
Figure 34: Estimated gross lending for unsecured personal loans, 2004-09
CREDIT CARDS
Key points
Gross credit card lending increased marginally in 2008…
Figure 35: Gross lending and net amounts outstanding on credit card lending (monthly data, seasonally adjusted), Jan 2003-Sep 2009
… although usage was down slightly in value and volume terms
Figure 36: Number of credit cards in issue, transaction volumes and value of UK purchases, 2002-08
MORTGAGES
Key points
Gross mortgage lending remains subdued in 2009…
Figure 37: Gross mortgage advances*, by type of loan, Q1 2008-Q2 2009
…after falling significantly in 2008…
Figure 38: Total mortgage lending, gross and net advances, 2003-09
… as lending criteria remain extremely tight
The specialist lending market has virtually disappeared
Figure 39: Gross advances, by type of lender, Jan 2007-Jul 2009 (monthly data, seasonally adjusted)
GENERAL INSURANCE
Key points
Motor insurance is the largest category of general insurance…
Figure 40: Value of the UK personal motor, home, travel, and total general insurance markets, by GWP, 2003-09
Bancassurers hold 17% of the general insurance market
Figure 41: GWP in the UK personal general insurance market, by distribution channel, 2008
COMPANIES AND PRODUCTS
Overview of the retail banking market
Figure 42: Main retail banking parent and subsidiary brands, 2009
 COMPANY PROFILES – THE KEY PLAYERS
Barclays
Figure 43: Barclays company profile, 2004-08
Figure 44: Barclays key facts
HSBC
Figure 45: HSBC company profile, 2004-08
Lloyds Banking Group
Figure 46: Lloyds TSB company profile, 2004-08
Nationwide Building Society
Figure 47: Nationwide company profile, 2004-08
Royal Bank of Scotland
Figure 48: RBS company profile, 2004-08
Santander
Figure 49: Abbey company profile, 2004-08
Figure 50: Alliance & Leicester company profile, 2004-08
 OTHER PROVIDERS IN THE MARKET
Co-operative Bank/Britannia BS
First Direct
Northern Rock
Yorkshire Bank/Clydesdale Bank
BRAND COMMUNICATION AND PROMOTION
Key points
Adspend for loans and mortgages fell markedly in 2008
Figure 51: Top 15 advertising categories within financial services, 2007-08
Lloyds Banking Group has a massive advantage in terms of advertising
Figure 52: Retail banking adspend of selected providers, 2007-08 and H1 2009
Direct mail is the highest area of adspend
Figure 53: Retail banking adspend, by media type, 2008
BRAND ELEMENTS
Key points
 BRAND MAP
Figure 54: Attitudes towards and usage of retail banking brands, September 2009
 BRAND QUALITIES OF RETAIL BANKING BRANDS
Barclays still profit-centric, but also most authoritative
Figure 55: Personalities of various retail banking brands, September 2009
 EXPERIENCE OF RETAIL BANKING BRANDS
Halifax most used, HSBC lags behind
Figure 56: Consumer usage of various retail banking brands, September 2009
 BRAND INTENTIONS FOR RETAIL BANKING BRANDS
Consideration consistent, but First Direct and Tesco less appealing
Figure 57: Consideration of various retail banking brands, September 2009
 BRAND SATISFACTION FOR RETAIL BANKING BRANDS
Nationwide best for satisfaction, big banks have poorer performance
Figure 58: Satisfaction with various retail banking brands, September 2009
 BRAND COMMITMENT TO RETAIL BANKING BRANDS
Lloyds TSB sees firm commitment
Figure 59: Commitment to various retail banking brands, September 2009
 BARCLAYS
What the consumer thinks
Figure 60: Attitudes towards the Barclays brand, September 2009
 FIRST DIRECT
What the consumer thinks
Figure 61: Attitudes towards the First Direct brand, September 2009
 HALIFAX
What the consumer thinks
Figure 62: Attitudes towards the Halifax brand, September 2009
 ABBEY
What the consumer thinks
Figure 63: Attitudes towards the Abbey brand, September 2009
 HSBC
What the consumer thinks
Figure 64: Attitudes towards the HSBC brand, September 2009
 TESCO
What the consumer thinks
Figure 65: Attitudes towards the Tesco brand, September 2009
 NATWEST
What the consumer thinks
Figure 66: Attitudes towards the NatWest brand, September 2009
 THE CO-OPERATIVE BANK
What the consumer thinks
Figure 67: Attitudes towards the Co-operative Bank brand, September 2009
 LLOYDS TSB
What the consumer thinks
Figure 68: Attitudes towards the Lloyds TSB brand, September 2009
 NATIONWIDE
What the consumer thinks
Figure 69: Attitudes towards the Nationwide brand, September 2009
CHANNELS TO MARKET
Key points
Most banks have downsized their branch networks…
Figure 70: Number of branches of selected banks and building societies, 2002-08
… but Santander increased its number of branches by 63% in 2008
The number of ATMs in the UK has steadily increased…
Figure 71: Number of ATMs of selected banks and building societies and in the whole of the UK, 2002-08
… especially those owned by independent operators
Online banking is booming
Figure 72: Number of registered customers, and number of online/telephone banking transactions, by transaction type (MBBGs only), 2002 and 2008
THE CONSUMER – PRODUCT OWNERSHIP
Key points
Nine in ten people in the UK have a current account…
Figure 73: Ownership of financial products, September 2009
… while mortgages and loans are less commonly owned
Young adults are less likely to own financial products
Figure 74: Types of financial products owned, by demographics, September 2009
Higher earners are more likely to own most products
Complex products attract more financially engaged people
Figure 75: Cross-holdings of different financial products, September 2009
Inter-relationships exist between different products
THE CONSUMER – CHOOSING A PROVIDER
Key points
Lloyds Banking Group is a force to be reckoned with
Figure 76: Current account provider, September 2009
The traditional ‘big five’ dominate the younger market
Figure 77: Type of current account provider, by demographics, September 2009
High earners are more likely to use a direct bank
HSBC attracts a lot of young adults…
Figure 78: Leading current account providers, by demographics, September 2009
… who are also affluent and well-educated
Direct banks have the highest level of customer satisfaction
Figure 79: Leading current account providers, by attitudes towards banks and current accounts, September 2009
THE CONSUMER – CROSS-SELLING
Key points
Savings accounts are the most common cross-holding
Figure 80: Other financial products held with current account provider, September 2009
Men are more likely to have other products with their main bank…
Figure 81: Other financial products held with current account provider, by demographics, September 2009
… as are ABs, but not because they are apathetic
Savings accounts have the highest cross-sales penetration
Figure 82: Penetration rates of cross-selling other financial products to existing current account customers, September 2009
Despite being a small market, loans are a key cross-sale product
Which banks are best at cross-selling?
Figure 83: Proportion of people who hold other financial products wuth their current account provider, by individual brand, September 2009
THE CONSUMER – ATTITUDES TOWARDS PROVIDERS
Key points
Most people are happy with their current account provider…
Figure 84: Attitudes towards banks and current accounts, September 2009
…but are they delighted?
The introduction of charges could destroy inertia
Older people are less likely to be considering switching
Figure 85: Attitudes towards banks and current accounts, by demographics, September 2009
ABs are more difficult to please
People with cross-holdings are more loyal and less likely to switch
Figure 86: Attitudes towards banks and current accounts by, financial products held with current account provider, September 2009
Loan customers are keen to get a grip on their finances
THE CONSUMER – TARGET GROUPS
Key points
Am I Bovverd’s are uninterested and apathetic
Figure 87: Target groups, by attitudes towards banks and current accounts, September 2009
Engaged Loyalists are happy with their bank
Likely Switchers have very low customer satisfaction
Prudence Bearers may have been hard hit by the recession
Engaged Loyalists are more likely to be men
Figure 88: Target groups, by demographics (profile format), September 2009
Avoid 25-34-year-olds – they’re Likely Switchers
Engaged Loyalists own the widest range of financial products…
Figure 89: Financial products owned and those held with current account provider, by target groups, September 2009
… and hold more products with their current account provider
Likely Switchers are most likely to bank with Barclays
Figure 90: Bank with which current account is, by target groups, September 2009
APPENDIX – THE CONSUMER
Figure 91: Financial products owned, by demographics, September 2009
Figure 92: Financial products owned, by demographics, September 2009 (continued)
Figure 93: Cross-holdings of different financial products, September 2009
Figure 94: Cross-holdings of different financial products, September 2009 (continued)
Figure 95: Type of current account provider, by demographics, September 2009
Figure 96: Current account provider, by demographics, September 2009
Figure 97: Proportion of people who hold other finaincial products wuth their current account provider, by individual brand, september 2009
Figure 98: Other financial products held with current account provider, by demographics, September 2009
Figure 99: Financial product owners that hold their product with their current account provider, September 2009
Figure 100: Financial product owners that hold their product with their current account provider, September 2009 (continued)
Figure 101: Attitudes towards banks and current accounts, September 2009
Figure 102: Attitudes towards banks and current accounts, September 2009 (continued)
Figure 103: Target groups, by demographics (profile format), September 2009
APPENDIX – THE REGULATORY ENVIRONMENT
 RETAIL DISTRIBUTION REVIEW
Splitting sales and advice
Figure 104: Proposed regulatory landscape, 2012
From commission to fees
Possible extension to non-investment markets
 TREATING CUSTOMERS FAIRLY
 CREDITOR INSURANCE
CAB, Office of Fair Trading and Competition Commission investigations
Severe restrictions place on the sale of policies
 CONSUMER CREDIT ACT 2006
 BANKING CODE REVISIONS

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