Packaged, Premium and Current Accounts - UK

Published by: Mintel International Group Ltd.

Published: Jun. 1, 2008 - 115 Pages

Table of Contents

Issues in the Market

Key points

Product definitions

Scope of this report

Market in Brief

The long-term market has grown alongside the population

Figure 1: Estimated number of current accounts in the UK, 2002-07

Overdraft fees are high on the agenda…

…with other developments also influencing the market

The continued rise of online banking

Figure 2: The number of personal customers registered for telephone and Internet banking, and the number of transactions, 2002-06

RBS is closing the gap on Lloyds TSB

Figure 3: Current account market share, March 2006-August 2007

A mature market serving many niche segments…

Figure 4: Current accounts distribution, by provider, April 2008

…with plenty of innovation within the marketplace

Cross-selling remains pivotal

Figure 5: Cross-holding of other products with main current account provider, April 2008

Internal Market Environment

Key points

The debate over unarranged overdraft fees

The verdict is in from the High Court test case

Refunds of overdraft charges to date

Figure 6: Unarranged overdraft fees refunded by the big five high street banks, 2007

The new and improved Banking Code

Increased switcher mentality?

Cross-selling remains key…

…particularly for savings accounts and credit cards

Figure 7: Cross-holding of other products with main current account provider, April 2008

Accessibility and visibility are key

Broader Market Environment

Key points

The impact of the credit crunch

Consumer confidence has plummeted

Figure 8: Consumer confidence, by sector, Q3/Q4 2002-Q1/Q2 2008

A slight rise in financially active consumers

PDI is forecast to grow

Figure 9: PDI, consumer expenditure and savings, 2003-13

Growing Internet penetration

Figure 10: British Internet penetration at home/work/study or elsewhere, 2001-07

Competitive Context

Key points

Is the mattress the real competitor?

Basic bank accounts

Figure 11: Number of basic bank accounts in operation in the UK, 2003-07

SWOT Analysis

Figure 12: Current account market SWOT analysis

Trade Perspective

The not-so-popular subject of unarranged overdraft fees

The blurred area of premium and packaged accounts

The use of switching incentives

The growth of packaged accounts…

…and an increased switching mentality

Tied product propositions look set to grow

The impact of the credit crunch

Future trends and prospects

Market Size and Forecast

Key points

Multiple current account ownership is declining…

Figure 13: Number of current accounts held by individuals and estimated total number of current accounts in the UK, Jan 2006-Sep 2007

…causing the total number of accounts to drop in 2007

Figure 14: Estimated number of current accounts in the UK, 2002-07

Individual bank account numbers have increased steadily…

Figure 15: Number of individual bank accounts (MBBG only), 2001-06

…as have deposits into individual bank accounts

Figure 16: Deposits into individual bank accounts (MBBG only), 2001-06

Overdraft usage has continued to increase

Figure 17: Overdraft advances to individuals and individual trusts (MBBG only), 2001-06

Market forecast

Scenario A: optimistic forecast

Figure 18: Number of current accounts in the UK: Scenario A - optimistic forecast, 2003-13

Scenario B: pessimistic forecast

Figure 19: Number of current accounts in the UK: Scenario B - pessimistic forecast, 2003-13

Overall forecast of current account market size

Figure 20: Forecast scenarios for the estimated number of current accounts in the UK, 2003-13

Factors used in this forecast

Market Segmentation

Key points

A very diverse market that is highly segmented

Figure 21: Current accounts distribution, by provider, April 2008

Differences between various types of current accounts

Figure 22: Distinguishing features of various types of current accounts, May 2008

Packaged accounts have become a key area of focus…

Figure 23: Type of (main) current account held by consumers, April 2008

…which is likely to continue in the future

Market Share

Key points

RBS has closed the gap on Lloyds TSB

Figure 24: Current account market share, March 2006-August 2007

A different perspective on market share

Figure 25: Market share, by main financial services provider, 2007 and 2008

Companies and Products

Key points

Switching incentives are rife

Some have already changed their overdraft charging structure

The impact of the OFT investigation into overdraft charges

Scenario 1: The end of free banking in the UK

Scenario 2: Migrating people to fee-charging packaged accounts

Scenario 3: Reducing credit interest rates/increasing account fees and charges

Competitive developments within the marketplace

Other peripheral market developments

Brand Communication and Promotion

Key points

Current accounts are a surprisingly low area of adspend…

Figure 26: Financial services advertising expenditure, by category, 2003-07

…but student and packaged account advertising has grown

Figure 27: Current account (and related) advertsising expenditure, by sub-category, 2003-07

Lloyds TSB leads the pack on current account advertising

Figure 28: Current/packaged account advertising expenditure, by provider, 2003-07

A varied media mix for current account advertising

Figure 29: Current/packaged account advertising expenditure, by media type, 2003-07

The Consumer: Product Ownership

Key points

Current accounts have very high penetration

Figure 46: Ownership of various financial products and services, April 2008

One in eight have a premium or packaged current account

Figure 47: Type of (main) current account held by consumers, April 2008

Only 13% of 18-24s have a young person’s or student account

Figure 48: Type of (main) current account held by consumers, by gender, age, socio-economic group and marital status, April 2008

Packaged and premium accounts popular with ABs

Savings accounts are easily cross-sold

Figure 49: Cross-holding of other products with main current account provider, April 2008

Room for improvement?

A fifth have four or more products with their current account provider

Figure 50: Number of products held with main current account provider, April 2008

Cross-holdings of high-value customers

Figure 51: Cross-holdings of high-value customers (defined as those who hold four or more additional products with their main current account provider), April 2008

Cross-holdings of customers with fewer with-brand products

Figure 52: Cross-holdings of all current account customers, by total number of additional products held with main current account provider, April 2008

ABs are likely to have more cross-holdings

Figure 53: Total number of additional products held with main current account provider, by socio-economic group, April 2008

Multiple account ownership is common

Figure 54: Current account ownership, Oct 2006-Sep 2007

A relatively small market for new sales

Figure 55: Current account openings, Oct 2006-Sep 2007

Interest rates and reputation are important considerations

Figure 56: Important factors when choosing a current account provider, Oct 2006-Sep 2007

The Consumer: Switching Behaviour and Packaged Accounts

Key points

Poor customer service is the top switching incentive…

Figure 57: Factors encouraging consumers to switch their current account, April 2008

…with cash incentives to switch also proving effective…

…although another third of consumers would not be persuaded

Women less inclined to switch

Figure 58: Factors encouraging consumers to switch their current account, by gender, age, socio-economic group, lifestage, gross annual household income and household tenure, April 2008

Elderly customers are more loyal

Interest rate-sensitivity declines with age

Wealthy individuals want service, the poor don’t really care

Customers with many cross-holdings are more sensitive to service

Figure 59: Factors encouraging consumers to switch their current account, by the number of other products held with their main current account provider, April 2008

Customers with large cross-holdings are less inclined to switch

Figure 60: Attitudes towards switching, by the number of additional products held with main current account provider, April 2008

Packaged accounts or a packaged rip-off?

Figure 61: Consumer attitudes towards packaged and premium current accounts, April 2008

Most that have a packaged account don’t use many of the benefits

Men are more resistant to packaged accounts

Figure 62: Consumer attitudes towards packaged and premium current accounts, by gender, age, socio-economic group, marital status, working status, gross annual household income, and ACORN group April 2008

Older consumers are least resistant to fee-paying accounts

Are packaged accounts more suited to affluent individuals?

Customers with more cross-holdings may be an easier upsell

Figure 63: Consumer attitudes towards packaged and premium current accounts, by the number of additional products held with their main current account provider, April 2008

Better interest rates and interest-free overdraft are appealing

Figure 64: Appeal of value-added benfits included within packaged and premium current accounts, April 2008

Men are more influenced by better interest rates

Figure 65: Appeal of value-added benfits included within packaged and premium current accounts, by gender, age, socio-economic group, lifestage and newspaper readership, April 2008

Younger people like the idea of an interest-free overdraft

ABs find better rates on other financial products more appealing

Popular tabloid readers like the idea of an interest-free overdraft

Additional observations

Customers with larger cross-holdings find packaged account benefits more appealing

Figure 66: Appeal of value-added benfits included within packaged and premium current accounts, by number of additional products held with main current account provider, April 2008

Appendix - The Consumer: Product Ownership

Figure 75: Type of current account held by consumers, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008

Figure 76: Total number of additional products held with main current account provider, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, media usage and supermarket usage, April 2008

Appendix - The Consumer: Switching Behaviour and Packaged Accounts

Figure 77: Factors encouraging consumers to switch their current account, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008, Table 1 of 2

Figure 78: Factors encouraging consumers to switch their current account, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008, Table 2 of 2

Figure 79: Consumer attitudes towards packaged and premium current accounts, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008

Figure 80: Appeal of value-added benfits included within packaged and premium current accounts, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008, Table 1 of 2

Figure 81: Appeal of value-added benfits included within packaged and premium current accounts, by gender, age, socio-economic group, marital status, lifestage, presence of children, Mintel’s Special Groups, working status, household income, tenure, region, ACORN category, media usage, supermarket usage, household size, car ownership, detailed lifestage groups, age/socio-economic group and education level, April 2008, Table 2 of 2

Abstract

The current account market is a mature market, but one that is highly segmented, having diversified over the years to cover many niche consumer segments. Since the OFT announced it was to launch an investigation into unarranged overdraft fees back in 2006, banks have seen a swathe of customers seeking to reclaim unarranged overdraft fees incurred in the past. Furthermore, having received an unfavourable verdict in the High Court test case, providers are bracing themselves for what looks like an inevitable cap on overdraft fees. This, at a time when the credit crunch is already making life difficult for the high street banks, is limiting the potential for cross-selling lending products to current account holders.

The key challenge facing the market is how to respond to the mooted cap on overdraft fees. This report examines ways in which firms might seek to make up lost revenue, with possibilities ranging from an end to free banking to an increased drive to sell added-value accounts. This latter approach is likely to prove particularly fruitful - and, as such, in 2008 Mintel has amalgamated its once-separate Current Accounts and Premium and Packaged Accounts reports.

This report examines key influences on the market, such as consumer confidence and personal disposable income. Alternatives to standard current accounts are presented, as well as a SWOT analysis of the overall market conditions. The main players in the market are looked at in terms of new product launches, innovation in the market and the range of products they offer. An estimation of market size and the future growth is presented as well as a breakdown of competitor market shares and advertising expenditure. Finally, extensive consumer research looks in detail at ownership of and attitudes towards current accounts.

Key report themes:

• The OFT investigation into unarranged overdraft fees and the recent High Court test case ruling.
• The potential implications of a cap being imposed on unarranged overdraft fees.
• The growth of packaged accounts and the criticism surrounding the true value they offer.
• Consumer switching behaviour and the use of incentives and dedicated switching teams.
• The growth of other niche segments such as migrant worker and Islamic bank accounts.
• The pivotal role of the current account customer base as an effective cross-selling platform.

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