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Keeping you connected to today’s UK financial services market
Welcome to the eighthedition of viewpoint,Harris Interactive’s UKfinancial servicesnewsletter.
Arguably, over the next two tothree years the UK PersonalCurrent/Bank Account market isgoing to face its biggest shakeup since the introduction of‘free banking’ in the 1980s.
In this edition of viewpoint weinvestigate how the sway ofpublic opinion alongside thefinancial crisis brought legislativechange, gauge the true threat ofboth the challengers and newentrants, and consider how ‘freebanking’ has stifled bothconsumer engagement andswitching.
Legislative change - the impact ofnegative public opinionThere can be no doubt that PersonalCurrent Accounts (PCAs) play anextremely important role in everydayconsumers’ lives, both rationally andemotionally. When some of thebanks aggressively raised theirunauthorised overdraft charges byapproximately 50% back in 20051
who could have known where itwould lead?
First customers started to complainand James Coney of the Money Mailhighlighted the issue in a series ofarticles. Websites such as ‘This isMoney’ and ‘moneysavingexpert.com’then started producingstraightforward guides and complainttemplate letters for customers tofollow and as the media’s interestdeepened the burden grew on thecourts and the Financial OmbudsmanService.
Some of the banks started to handmoney back to customers, eithersettling straightaway or failing tocontest court cases in the fear ofsetting a precedent. As publicopinion intensified, it was no surprise
that the OFT launched a review of themarket.
The resulting 2008 report identified anumber of concerns, in particulararound the complexity and lack ofcontrol consumers had withunarranged overdraft charges.Although the banks went on to wintheir case in the Supreme Court, theruling still left open a number ofquestions around the transparency ofcharges and fees (‘free banking’) andswitching.
After the financial crisis, thegovernment established theIndependent Commission onBanking2 (ICB) to makerecommendations on how the marketshould be reformed to promotefinancial stability as well ascompetition. As part of this process,the ICB recommended a 7 dayswitching process (due to belaunched in September) alongsiderecommendations to improve thetransparency of fees and chargesthereby helping to overcome some ofthe original concerns of the OFT.
For more information on our financial services research practice visit:| www.harrisinteractive.co.uk PAGE 1
ISSUE 8 - March 2013
viewpoint
This edition was researched andwritten by Philip Brooks, Director,
Financial Services [email protected]
Bank Accounts - A New Order
Issue 8 | March 2013
For more information on our financial services research practice visit: www.harrisinteractive.co.uk | PAGE 2
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The threat of challengers andnew entrantsSo once we have a morestraightforward switching processand tell people ONCE a year howmuch their bank account has costthem, alongside increasedcompetition – the market willresolve itself right?
I wish it was so simple.
Our own Harris Poll shows that just6% either opened a bank account forthe first time or switched theiraccount in the last 12 months andjust 11% of all account holders saythey are likely to switch in the next12 months. This is on the back ofthe high profile RBS and NatWestservice failures and new scandalssuch as LIBOR and moneylaundering.
Although Metro and M&S haveentered the market, it is fair to saythat the last three years have been abit of a hiatus as we all eagerly awaitthe ‘branch sell offs’ and the arrivalof both Tesco and Branson,especially if Virgin Money managesto pick up the RBS branches.
What is clear is that consumers arealso waiting for change. AlongsideNationwide and the Co-operative,our research indicates that VirginMoney will be very strong indeedand Tesco will hold their own,particularly when you considerneither has a product to switch toyet!
Significant proportions of thoselikely to switch would also considerSainsbury’s (11%) and John Lewis(8%). If this appetite grows then
other, well known ‘trusted’consumer brands could enter thefray – who next – Apple? Google?One thing all of their successindicates is that a swelling numberof consumers are looking forsomething different.
What does ‘different’ look like?It is fair to say there is littledifference between the majority ofbank accounts on offer. Some mayargue for the Santander 123 accountand clearly it does appear to havehad some impact, but ultimately thekey differences come down to
perceptions of both service andbrand. It is on both these countsthat the challengers and newentrants will continue to threatenthe establishment.
We all know the industry has animage problem, but ultimately it isup to each organisation tounderstand how they can benefitfrom the current state of play and itis clear that the majority ofchallenger and new entrants havethe brand positioning which allowsthem to do this.
Q: If you were looking to switch... which of the following companies wouldyou consider?Q: If you were looking to switch... which of the following companies wouldyou most likely switch to?
Santander
Nationwide
Santander
Nationwide
The Co-operative The Co-operative
HSBC HSBC
Virgin Money Virgin Money
Barclays Barclays
Lloyds TSBLloyds TSB
NatWest NatWest
First Direct
Tesco Tesco
First Direct
6
9
8
5
3
6
5
4
3
3
10
10
12
8
5
7
9
2
2
6
7
10
10
9
8
9
7
7
15
13
9
13
16
12
9
14
14
10
14
20
15
15
13
15
13
13
10
10
25
23
21
21
21
19
18
16
16
16
Most likely toswitch to Would consider
Most likely toswitch toWould consider
Allaccou
ntho
lders(1662)
Allaccou
ntho
lderslikelyto
switch(203)
8
11
Issue 8 | March 2013
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The diagram below shows the brandterritory occupied by the traditionalbanks and the challengers. As canbe seen, the challenger banksalready occupy the area of the mapthat matters most i.e. actingresponsibly, treating customersfairly, trustworthy, excellent serviceand demonstrating they really careabout customers. All theseattributes are what we callconscious drivers, i.e. attributeswhich both consumers tell us areimportant and are also statisticallyimportant in driving choice withinthe market.
The challenger banks are also knownfor being ethical, relevant to you
personally and a good fit of how yousee yourself – these are attributeswe call latent motivators, i.e.attributes which the statistics tell usare important but in consumers’minds they have less of an impact.
In stark comparison, the onlyattributes of any note whichtraditional banks stand for arefriendly and knowledgeable staff.We call both these attributes ‘Top ofmind needs’ as consumers say theyare important to them, but thestatistics tell us they have less of animpact upon choice. All the otherattributes the traditional banksstand for are deemed to have alower importance, particularly
considering human interactions andbranch visits are declining.
So clearly, the challengers have thebehaviours and the values that thepublic desire – they have apersonality and are creating adifferentiation in the market. Aslong as they keep pace withtechnology, their greatest challengewill not be developing an appealingproposition, it will be actuallymotivating people to switch andchange behaviour.
Encouraging switching andgreater engagementIt is fair to say that consumers todayhave a greater opportunity toengage with their finances more
Conscious driverLatent motivatorsTop of mind needsLower importance
Behaviours
Values
Channel
MarketPresence
Support local communities
Influential
Hear a lot about them
Leading company
Offer a wide range ofproducts and services
Large branch network
Strong online presence
Up-to-date
Innovative
Good fit with how youthink of yourself
Relevant to you personally
Ethical
Act responsiblyGood value
Treat their customers fairly
TrustworthyExcellent service
Really care about theircustomers
Staff are friendly
Staff are knowledgeable
Traditional Banks
Challengers
Traditional vs. Challenger Banks
Derived importance (leverage)Stat
edim
port
ance
(des
ireab
ility
)
Issue 8 | March 2013
For more information on our financial services research practice visit: www.harrisinteractive.co.uk | PAGE 4
viewpointthan ever before, the growth inonline banking and now mobile iscertainly testament to that.
However, do consumers really takethe time to fully evaluate theirbanking needs or do consumerssimply accept the service levels andbenefits they get from their bankwithout ever challenging orcomparing them?
Given how historically low switchinghas been within the market (just halfof us have ever switched), I thinkthere is certainly a strong argumentfor apathy and the old adage thatpeople don’t value what they don’tpay for. So how can we get morecustomers more engaged with theiraccount and potentially encouragemore to switch?
Making small changes to theswitching process or showing howmuch customers have paid every 12months will have little impact.Portable account numbers isanother nice idea in theory, butfundamentally impractical given theassociated IT implications and cost.
Organisations clearly need todevelop compelling propositionsthat meet consumers’ rational andemotional needs, but given the lowlevels of engagement consumershave with the sector I believe themarket would truly benefit from amore radical stimulus that will speedup change.
Free banking is a “dangerousmyth”When Andrew Bailey, then executivedirector of the Bank of England,described ‘free banking’ (free if incredit) as “a dangerous myth”3 it
certainly set the cat amongst thepigeons and whilst his terminologymay have alarmed some I do believeif we really wanted to encouragegreater levels of engagement andincreased levels of competition thenending ‘free banking’ could prove tobe the true ‘disruption’ the sectorneeds.
As indicated in our latest Harris Poll,the ‘free banking’ system stiflescompetition. If every bank chargedfor a bank account, 38% of all
account holders agree they wouldbe more likely to switch with afurther 25% somewhat agreeing.
The biggest benefit of removing‘free banking’ is not the increasedlevels of ‘claimed’ switching it’s thefact that almost two-thirds agreethat they would pay more attentionto service levels and benefits they
received from their bank, with afurther 25% somewhat agreeing.Imagine what could be done ifpeople actually had a bank accounttailored to their needs, and whichfitted in with their lifestyle. Imaginethe additional support, at both endsof the market, which could beprovided.
As consumer finances becomeincreasingly complex, the ‘freebanking’ system is fast becomingboth out dated, as well asincreasingly unfair.
The current system clearlydisadvantages those on low incomesand those who struggle to managetheir finances, but the system wasnever designed to consider theirneeds. Back in the 1980s customerslike these were less likely to have abank account in the first place andcredit was much harder to attain.
Continued from page 3...
38%At least Agree
63%At least Agree
Strongly Agree Agree Somewhat Agree
If every bank charged for a currentaccount I would be more likely toswitch
If every bank charged for a currentaccount I would pay more attentionto the service levels and benefits Ireceived
25
25 31
3221
17
For more information on our financial services research practice visit: www.harrisinteractive.co.uk | PAGE 5
Issue 8 | March 2013
viewpointDesign new products andservicesWhilst it may sound strange to saycharging would be a fairer system, itwould at least mean that moreproducts and services would bedesigned around different customersegment needs and concerns ratherthan the range that we have today.
For example, research by both SocialFinance4 and Consumer Focus5
uncovered consumers concerns with‘charges’ and having ‘a lack ofcontrol’ when payments are made.
If you are a shift worker or casuallabourer automated payments /direct debits can be a lot moredifficult to manage, especially if theyvary from month to month.
Although there is no doubt the basicbank account (BBA) has been asuccess story, growing significantlysince 1998 and now accounting for20% of all bank accounts, they stilldo not meet the needs of those whostruggle with budgeting as accountholders are still penalised/chargedfor unpaid items.
An alternative to the BBA is a ‘JamJar’ account. A ‘Jam Jar’ accounthelps account holders to stay on topof their finances by effectivelysplitting their money into twoaccounts – one for bills andpayments, the other for spending.
Account holders also benefit fromthe support of Money Managerswho identify potential problems aswell as providing ongoing advice andsupport on budgeting. However,perhaps the biggest benefit of thissort of account is that there are nofees for unpaid items.
The major disadvantage of course isthat quite rightly a fee needs to becharged. Unfortunately the current‘free banking’ system and the lack oftransparency of fees and charges,means that many consumers whowould benefit struggle to see thevalue of this type of account.Similar issues exist at the other endof the market as well with peopleholding significant sums in theirbank account which could beearning interest.
A step too farRemoving ‘free banking’ wouldcertainly open up the market, aswell as help ensure consumers holdmore suitable products and services.In reality, however, it would causeuproar and politically it is too hot forthe regulator to handle. Just look atsome of the comments made on areport written by Phillip Inman ofthe Guardian6. Though from aconsumer perspective, is it anyworse than what is happening to theLloyds TSB customers because ofProject Verde; where customers arebeing ‘forced’ to switch withoutreally being given a choice?
Our latest Harris Poll also helps todemonstrate a similar sentiment as41% of account holders agree thatthe current funding system is fair,with a further 37% somewhatagreeing and just 23% disagreeing.
Interestingly, as propensity to use anoverdraft facility increases the moredisenfranchised people become withthe current system. Amongst thosewho never go overdrawn, 47% agreethe current system is fair comparedto just 27% of those who areoverdrawn most months.
Ending ‘free banking’ is probably astep too far, therefore we need toimprove the transparency of feesand charges in other ways. Layingout what a bank account has costonce a year in my mind does not gofar enough.
We must continuously strive toimprove the knowledge andunderstanding of customers, doingour best to ensure they are beingtreated fairly. Even if that’s justbuilding upon what is already inplace for example, why onlycommunicate their total costs andfees once a year? Why not quarterlyor monthly, i.e. as a reminder whynot state the ‘average’ monthly costover the last 12 months alongsidethe total cost?
In the same statement, marketingmessages can be placed thatrecommend more suitable accountsfor them based on their bankinghabits. At least this way we areproviding people with theinformation and hopefully educatingthem, so they can make an informedchoice rather than continuing totrade on their lack of understanding.
Strongly Agree Agree Somewhat Agree
41%At least Agree
The current system for fundingcurrent accounts is fair?
37
26
15
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Issue 8 | March 2013
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For further information related to this article, such as the background data, or to suggest new topics forinclusion please email [email protected] or call +44 (0)161 242 1360
Links to referenced articles:
1. A timeline of the bankcharges fight
2. The Financial Services(Banking Reform) Bill
3. Free banking a dangerousmyth, says Bank official
4. Extending the use of Jam Jaraccounts in the UK
5. The Best of British Banking
6. This call to ending freebanking is an insult
This edition was researched andwritten by Philip Brooks, Director,
Financial Services [email protected]
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Q: If you were looking to switch your primary bank/current account, whywould you be most likely to select?
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I feel they care more about theircustomers, other banks these daysare just out for their own gain
Because they are a stable, globalbank. They are offering a goodpromotion on their 123 currentaccounts, with cashback againstregular household bills
Because it has a good offer on theircashback current account
They are local and mutual
Highly recommended and goodinternet banking
Trusted brand, new and potential tobe innovative in their approach tocustomers
Image of quality and (unlike anyother bank to date) a reputation forcustomer service
Big company and seems veryreliable
Familiar, local, everywhere,accessible online, UK company
Co-operative, Likely to switch
N&P, Extremely likely to switch
First Direct, Likely to switch
Virgin Money, Likely to switch
John Lewis, Quite likely to switch
Santander, Likely to switch
Santander, Unsure
HSBC, Quite likely to switch
Barclays, Likely to switch
Good consistent policies andcustomer service
Nationwide, Very likely
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