Battleground for the Deposit Market

The Future of Big British Banks Battleground for the Deposit Market 1 Foreword ..........................................................................................................................................................3 Index Key Findings ....................................................................................................................................................4 Part 1 – Deposits: The Key Battleground for British Banking Customers .......................................5 Part 2 – Motivations for Switching ...........................................................................................................8 Part 3 – Opportunity for Traditional Lenders ........................................................................................11 2 Why British banks should adopt platform strategies The British banking sector has had a profound This research report examines the next chapter in the impact on the shape of the industry globally. Banks story of British retail banking and looks at how the Foreword founded and domiciled in the UK grew to be among deposit market for savings accounts – including the largest and most influential in the world, and on overnight money accounts, fixed-term deposits the back of their success the City of London became accounts and notice accounts – will become a key a global financial capital. British banks have not battleground for consumers’ hearts and minds. just led the way in terms of size and scale either; It argues that in the long-term, this will make the case many of our institutions have been at the forefront for big banks to adopt a platform model. This is nothing of the technological developments new in the world of commerce; seven of and innovations that radically changed the ten most valuable companies in the how the world banks. The world’s first world today adopt this strategy: Apple, ATM was installed in London more Google, Microsoft, Amazon, Facebook, than 50 years ago, and since this point Tencent, Alibaba. Central to executing our banks have led the charge on this well is a focus on becoming a central numerous technological fronts. hub for their customers’ needs. Ultimately, in this vision of the future, successful Mobile banking has taken innovation banks will expand their own products and in the banking sector to new heights, services to include those of other players. and this has ushered in a new era of If banks don’t lead the way on this, other challenger brands that have pushed companies could step in to fill the void. Mark Davison the major players at every step. While Managing Director for the big banks have maintained their This will be driven by Open Banking, UK & Ireland, Deposit Solutions ascendancy for now, it is fair to say which is already paving the way for the that these agile upstarts have driven further platform model to grow throughout the financial competition and innovation – which has sector. However, in order to bear the fruits of this benefitted the consumer enormously. approach, our banks must actively adopt this as an end goal and formulate their strategies accordingly. 3 Although the Big Six British Banks – Barclays, HSBC, over their current account provider, suggesting deposits NatWest, Lloyds Bank, RBS and Santander – enjoy will be a key battleground for retaining customers in a high degree of loyalty, UK consumers display a far the face of growing competition from the three main Key higher propensity to switch savings account provider neobanks – Monzo, Starling and Revolut. 11 years 63% A fifth 65% is the average amount of of British adults have a of Brits are considering were neutral or disagree time customers have held an savings account with one switching their savings that they are more likely to Findings account with one of the Big of the Big Six Banks account provider in the buy from their primary bank Six British Banks, displaying next 12 months when considering a new a high degree of loyalty financial product, including savings accounts 52% 63% Two thirds are satisfied with their feel a high level of emotional identify getting the highest savings account provider, connection to providers for interest rate as the most compared to 59% for their current, savings or investment important factor when current account provider accounts, compared considering switching to 53% towards others savings account provider 46% 56% 52% 77% say they have moved their would prefer to have find the idea of their primary say Covid-19 has made monthly spending money as few financial providers bank or financial services them more likely to take out into a separate bank as possible provider acting as a market- a savings product with a big account before place, offering access to incumbent bank third-party products, attractive 4 Deposits: The Key Battleground for British Banking Customers The Big Six British Banks – Barclays, HSBC, NatWest, been reluctant to switch providers, which resulted loyds Bank, RBS and Santander – have long dominated in the Independent Commission on Banking (ICB) Part the current and savings account markets, and benefit recommending the launch of a current account from high levels of latent loyalty. Four key factors switching service as long ago as 2011. This is have contributed to the enormous success of these underlined by our figures, which show that large institutions in the deposits business: They have customers of the big high street banks have leveraged their superior scale, long-standing reputation, been with them for an average of 11 years. an illiquid customer base, and first mover advantage to reach a point where a majority of Britons have While the big retail banks are therefore in a position of a current or savings account with them. Based on obvious strength, and have seen off many challenges our sample, four fifths (82%) of British adults have over the years, the tide could be beginning to turn a current account at one of the country’s six biggest on their ascendancy – unless they embrace a new retail banks based on revenues and deposits, and model. Conditions are riper than they have been for three fifths (63%) of British adults have a savings some time for a shift. This is particularly true in the 1 account with one of them. savings account market, due to several factors, including the continued fall in savings account The superior scale of these banks has generated interest rates and lower customer loyalty towards enormous public awareness of their brand propo- big retail banks in this product category. Both of sitions, provided them with the budgets to commit these are explored in further detail in the motivations to massive marketing campaigns, and given them for switching section of this report. a huge physical footprint to the extent that they are commonly referred to as ‘high street’ banks. With While we are still some way away from seeing a this has come a reputation for stability and safety, wholesale shift from the high street banks to other which is one of the most important selling points in brands in the savings market, there is evidence that the retail banking sector and is a topic this report change is in the air here. To start with, customers explores in depth. Furthermore, this market position are a lot more willing to shop around to get the best has been entrenched by a customer base who have possible deal in this market. 5 For 10.7 years customers of the Big Six Banks have had an account with them on average According to our research, British consumers report Although the Bank of England has considered negative How long have you been with your account provider? changing their savings account provider a lot more than rates, low interest rates and poor returns are nothing Excluding those who have the same provider for current their current account provider. Across all institutions, new, and this has not led to large volumes of customers and savings accounts Britons reported changing their current account provider turning their backs on bigger retail banks over the Current account provider 11.5 years an average of once every twelve years, compared to past decade. However, as our research shows, low Savings account provider 7.5 years just seven years for their savings account provider. rates open the door for switching, which nimble and Customers of the Big Six Banks ambitious competitors can Similarly, our research shows 11 years have had an account with them capitalise on. Furthermore, that people are more likely to for 11 years on average due to COVID-19 the overall- Are you likely to switch to a different shop around for new financial economic picture has darkened provider in the next twelve months? products, including savings accounts, with just 35% somewhat and returns in equity markets are less Excluding those who have the same provider for agreeing that they were more likely to buy from their predictable. current and savings accounts primary bank. 65% are either neutral or disagreed Current account provider 16% say yes with the idea – suggesting a low degree of attachment. In summary, while Britain’s high street banks are in Savings account provider 30% say yes a position of strength, and have seen off multiple Finally, our research shows that one in five (20%) challenges over the years, they could be on the cusp Brits are considering switching their savings account of being pushed by non-incumbents. This battle is provider in the next 12 months. This is higher than most likely to play out in the savings deposits market, 82% of British adults have a current account at one of the their likelihood of switching their current account due to the public’s greater willingness to switch here Big Six Banks provider (17%, over the same period). This disparity and external factors like low interest rates. is significantly higher when excluding people who use 1.53% have a savings account with one of the the same bank for both their savings and current 62% Big Six Banks accounts. This cohort are also twice as likely to 0.83% 0.73% switch their savings account (30%) than current 0.56% account (16%) in the next year.

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