The Geography of Banking · Prepared by: Ian Goodliffe, Consulting Partner, CACI Limited Date issued: November 2014 The Geography of Banking 2014-2020 . 2 Introduction /1 Banking

Prepared for: The Financial Services Forum Annual Members’ Conference Prepared by: Ian Goodliffe, Consulting Partner, CACI Limited Date issued: November 2014

The Geography of Banking 2014-2020

2

Introduction /1

Banking is evolving as a result of societal and technological changes and this means the branch footprint needs to be transformed to remain relevant

3

Introduction /2

Branches will still be important as "brand anchors", but branches won't be needed everywhere. Those branches that are required will need to change their format, purpose and location

4

Introduction /3

However, the pace of change isn't equal across the country, as the biggest driver of consumer behaviour is demographic and this obviously varies from town to town

5

Introduction /4

Trust me, I’m a Geographer!

6

Consumers are Changing

7

What is Available?

Channel Impact – how consumers are changing their behaviour due to economic, social and technological trends – and the impact this will have on “banking in the future”

We start with individual-level behavioural forecasts to predict how customers will change their behaviour by 2020

We also know where they live, work and shop, so we can then assess how this will affect local branches and whole towns, cities and regions – which all adds up to the UK

The outcome is an effective way of optimising future investment across channels

8

Channel Impact Structure

GFK FRS CACI Fresco Channel Impact Base Dataset

Recommendation

The CACI/GFK forecasts have been

validated against a range of published sources, including Futures Foundation,

Accenture and Deloitte and our own

Clients (Banks).

• Current trends • Channel

behaviour

• Channel behaviour by Fresco Segments

• Channel use forecasts to 2020

• Strategic multichannel recommendations

9

Forecasts – Current Account Management

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mobile

Device

10

Forecasts – Current Account Management

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Internet:

Computer

11

Segment 7 “High Income Professional”

% of individuals using each channel to manage their current account(s)

63%

70% 13% 2

01

4

branch visits a

year 5 53%

50% 78% 2020

branch visits a

year 2

will open a new current account this

year

7%

12

of High Income Professionals hold a current

account

99.0% Segment 11 “Road to Retirement”

74%

39%

4%

2014

branch visits a

year 12 72%

47%

53%

20

20

branch visits a

year 9

will open a new current account this

year

4%

% of individuals using each channel to manage their current account(s)

13

Segment 7 “High Income Professional”

% of new savings accounts coming via each channel

Annual new savings deposits

is typically worth £17k

2014 2020 38%

53%

9% 4%

18%

78%

£4.1bn

£2.9bn £0.7bn

£0.4bn £1.6bn

£6.8bn

Assumes an annual growth rate of 1.95% (source: CACI MDG)

£7.7bn £8.8bn

14

Segment 11 “Road to Retirement” Annual new

savings deposits is typically

worth £10k

2014 2020 59%

31%

10% 6%

36%

58% £2.8bn

£5.4bn

£0.9bn

£3.6bn

£0.6bn

£5.9bn

Assumes an annual growth rate of 1.5% (source: CACI MDG)

% of new savings accounts coming via each channel

£9.1bn £10.1bn

15

Segment Evolution: Current Account Management (volume of transactions)

2014 1 Still At Home

2 Starting Out

3 Rising Metropolitans

4 Poorer Parents

5 Working Singles & Couples

6 Home-Owning Families

7 High Income Professionals

8 Older Working Families

9 Mid-Life Social Renters

10 Asset Rich Greys

11 Road To Retirement

12 Low Income Elderly

16

Segment Evolution: Current Account Management (volume of transactions)

2020 1 Still At Home

2 Starting Out

3 Rising Metropolitans

4 Poorer Parents

5 Working Singles & Couples

6 Home-Owning Families

7 High Income Professionals

8 Older Working Families

9 Mid-Life Social Renters

10 Asset Rich Greys

11 Road To Retirement

12 Low Income Elderly

07. High Income Professionals

Chorleywood 28.7%

Esher 28.8%

East Horsley 28.6%

11. Road to Retirement

Benllech 50.0%

Braemar 53.3%

Tighnabruaich 45.1%

19

Places are Changing

20

What is Available?

Financial Footprint – where consumers “shop” for FS products 12.5 million new accounts (branch only), 11,575 branches,

2950 centres Master Score – UK ranking of all cities, towns, suburbs and

villages with a banking presence We can trend population change and branch sales

performance and forecast how consumers’ shopping, working and leisure habits will affect high street footfall by 2020

The outcome is an effective way of locating future branches as part of a multichannel distribution strategy

21

Master Score Structure

Financial Centre

Footfall New Accounts opened in Branch

Value of Savings, Mortgages &

Loans

• Any destination with 1+ FS branch

• Classed according to urban hierarchy

• The number of people available to “buy” in each centre

• Sum of Current Accounts, Savings, Mortgages & Loans – branch ONLY

• Total balances (£) held by each adult/household in the catchment

Footfall is a balanced measure of:

Residential Population

Workforce Population

Shopping Population

22

Master Score – Centre Rank/Gains Chart 2014

Market Coverage # Centres Required

10% 19

20% 50

30% 96

40% 162

50% 251

60% 369

70% 532

80% 773

90% 1181

100% 2943

23


Market Coverage # Centres Required

10% 19

20% 50

30% 96

40% 162

50% 251

60% 369

70% 532

80% 773

90% 1181

100% 2943

X

800 Centres = 81% Coverage

X

1 2 Zone 1: MUST be in Performance Index 5

Zone 2: OUGHT to be in Performance Index 2

Zone 3: DON’T NEED to be in Performance Index 1

(subject to local considerations)

3


24


25

Master Score – Centre Rank/Gains Chart 2014 - 2020

Based on:

Trend analysis of Branch Sales (actual) 2009-2014

Central & Local Government Population Forecasts 2014-2020

CACI Property Pipeline (in association with Estates Gazette)

26


Market Coverage # Centres Required (Delta from 2014)

10% 15 -4

20% 38 -12

30% 70 -26

40% 112 -50

50% 178 -73

60% 267 -102

70% 388 -144

80% 562 -211

90% 959 -222

100% 2633 -310

27


Market Coverage # Centres Required (Delta from 2014)

10% 15 -4

20% 38 -12

30% 70 -26

40% 112 -50

50% 178 -73

60% 267 -102

70% 388 -144

80% 562 -211

90% 959 -222

100% 2633 -310

X


X

1 2 3


Zone 1: MUST be in Performance Index 7

Zone 2: OUGHT to be in Performance Index 4

Zone 3: DON’T NEED to be in Performance Index 1

(subject to local considerations)

28

2020 Coverage Map*

*= modified to ensure 80% in each country England: 543 Wales: 39 Scotland: 81 Northern Ireland: 20 TOTAL: 683

29

Distribution of Branches by 2020 Zone

Ranked on number of Zone 3 branches (August 2014) Zone 1 + Zone 2 = 683 Centres

30

Centre Segmentation

31

What is Available?

Centre Segments – combines elements from both Master Score and Channel Impact to deliver a segmentation of the UK’s Financial Centres

We also add age and economic health indicators to understand the opportunity and profile of each centre

We are finding this an ideal solution to support branch format planning for 2020

32

Centre Segments Structure

Master Score

Channel Impact Age Profile Centre “Health”

• Also includes urban-rural hierarchy

• Also includes commuting patterns

• Buying and Managing Accounts – channel preference 2020

• Focus on key age groups:

• 20-24 • 65+

• Combination of a range of local economic factors Health is a balanced measure of:

Disposable Income

Retail mix and quality

Branch and shop closures

Unemployment (and change)

Population Growth

33

Centre Segments

Segment Description Count % Footfall

Regional Hubs The largest centres in the UK, with a young urban population. Lower affluence, but healthy because of their size 15 11%

Affluent Urban Centres

Wealthy areas of towns and cities, with a young to middle-aged footfall, and a healthier outlook in terms of local decline

201 6%

Bustling Metropolitans

Ranging from smaller suburbs through to larger cities, young urban catchments of below-average income 742 28%

Thriving Towns & Cities

Strong and healthy centres, that although not excessively affluent nor necessarily large, have come out of the downturn in reasonably good shape

250 29%

Semi-Rural Prosperity Affluent towns and villages outside of cities, often with high proportions of commuters 231 3%

Struggling Communities

Centres, often smaller towns or modest suburbs, that have struggled through the economic downturn. Low affluence, and a tendency toward younger demographics

602 9%

Mature Wealth Towns (often rural) or areas of cities with high proportions of older individuals with high levels of affluence 580 8%

Older Hardship Centres (often rural) where there is a prevalence of low-affluence, older individuals 404 6%

34

Savings is the value of the total market (all channels) of savings stock (source: CACI’s CSDB, Dec13). Weighted footfall is a blend of residential, worker and shopper footfall

Size and Affluence

35

Health Indicators – Mortgage Values

Average mortgage value calculated from one year’s new business (source: CACI’s MMDB, Jan13-Dec13)

36

Health Indicators – Population Change

Population growth include natural growth, migration, and forecast catchment changes due to retail and residential developments (Sources: CACI’s Population Projections and CACI’s Centre Futures, 2013-2018)

37

Centre Segments: Potential Branch Formats

Segment Description Count % Footfall

Regional Hubs The largest centres in the UK, with a young urban population. Lower affluence, but healthy because of their size 15 11%

Affluent Urban Centres

Wealthy areas of towns and cities, with a young to middle-aged footfall, and a healthier outlook in terms of local decline

201 6%


Ranging from smaller suburbs through to larger cities, young urban catchments of below-average income 742 28%

Thriving Towns & Cities

Strong and healthy centres, that although not excessively affluent nor necessarily large, have come out of the downturn in reasonably good shape

250 29%

Semi-Rural Prosperity Affluent towns and villages outside of cities, often with high proportions of commuters 231 3%


Centres, often smaller towns or modest suburbs, that have struggled through the economic downturn. Low affluence, and a tendency toward younger demographics

602 9%

Mature Wealth Towns (often rural) or areas of cities with high proportions of older individuals with high levels of affluence 580 8%

Older Hardship Centres (often rural) where there is a prevalence of low-affluence, older individuals 404 6%

Flagship Manned Advice Centre Convenience Service Centre Full Service Branch Full Service Branch/Agent Exit/Low cost leave-behind Manned Service Branch/Agent Exit

38

Worked Example

39

What does this mean for a city like Leeds?

Between 2014-2020 in the Leeds Urban Market: Overall adult population will grow by 5.1% (544k-574k) Overall market for FS core products* will grow by 9.4% (473k-518k) Branch-based market for FS core products will decline by 39%

(182k-112k) Non-branch channels will account for 68% of the total market in

2020 (44% in 2014) Branch visits will decline by 40% We therefore estimate that the “need” for a branch in the Leeds

Market will decline by 35%

*= FS Core Products Current Accounts Savings Investments Credit Cards Insurance (GI/LI) Mortgages Pensions Personal Loans

40

62 BANK branches in Leeds (to say nothing about the 44 Retail Banks & B.Socs)

16

10

10

9

7

10 Other Banks

http://www.ybonline.co.uk/

http://www.lloydsbank.com/

41

40 BANK branches in Leeds by 2020 (assumes all change is EQUAL across Brands)

10.5

6.5

6.5

5.85

4.5

6.5 Other Banks

http://www.ybonline.co.uk/

http://www.lloydsbank.com/

42

Where should the Branches be in Leeds?

Size Affluence Health

G A G

Leeds City Centre

Regional Hub

Zone 1


r R r

Armley


Zone 3


A A A

Zone 2

Headingley



A a A

Horsforth


Zone 2


R g A

Moortown

Affluent Urban Centre

Zone 3


A R A

Cross Gates


Zone 2


A R r

Morley


Zone 2


A R A

Pudsey


Zone 2

43

Where should the Branches be in Leeds?


G A G

Leeds City Centre

Regional Hub

Zone 1


r R r

Armley


Zone 3


A A A

Zone 2

Headingley



A a A

Horsforth


Zone 2


R g A

Moortown

Affluent Urban Centre

Zone 3


A R A

Cross Gates


Zone 2


A R r

Morley


Zone 2


A R A

Pudsey


Zone 2

Flagship

Service Centre

Service Centre

Advice Centre

Exit

Low-cost Format

Low-cost Format

Exit

44

Branch to the Future

11,500

7,700

2014 2020

branches

branches

increase in UK

population

3% increase in

UK FS market

9%

decrease in

branch sales

37% decrease in

branch visits

35% increase in

mobile txns

400%

Documents

The Geography of Banking · Prepared by: Ian Goodliffe, Consulting Partner, CACI Limited Date issued: November 2014 The Geography of Banking 2014-2020 . 2 Introduction /1 Banking