Non-Traditional Players in Retail Banking: The Customer Opportunity

Published by: Datamonitor

Published: Dec. 23, 2009

Table of Contents

Overview

Catalyst

Summary

Methodology

Executive Summary

Datamonitor concludes that new providers will have only a limited impact on the market

Non-traditional players seeking to enter the banking market face mixed prospects

The case for non-traditional players

The case against non-traditional players

Introduction

The banking crisis has created an ideal climate for new entrants

The Future Decoded

Strengths

Weaknesses

Opportunities

Threats

APPENDIX

Supplementary data

Definitions

Methodology

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

TABLE OF FIGURES

Figure 1: Consumers with diminished trust in their main bank are willing to look elsewhere

Figure 2: Sainsbury’s is using its Nectar loyalty scheme to entice customers

Figure 3: Current account market share is concentrated in very few hands

Figure 4: Only a minority claim they are willing to purchase financial products from supermarkets

Figure 5: Consumers with diminished trust in their main bank are willing to look elsewhere

Figure 6: There is a strong link between falling levels of trust in industry and likelihood to shop elsewhere

Figure 7: Consumer trust in banks has been badly hit, especially in the US and northern Europe

Figure 8: Tesco already offers a wide array of financial products and services

Figure 9: As well as having an online presence, Tesco also offers in-store banking facilities

Figure 10: Alior is the largest ever bank launch in Polish history

Figure 11: The US fashion retailer Nordstrom offers full banking to its customers

Figure 12: Through its Greenbee brand, John Lewis markets a wide range of insurance policies

Figure 13: O2 has recently introduced two new payment cards

Figure 14: Customer satisfaction with credit card providers is much higher for non-bank institutions

Figure 15: Sainsbury’s is using its Nectar loyalty scheme to entice customers

Figure 16: Tesco has effectively integrated its credit card into its wider loyalty program

Figure 17: Is this an appropriate environment in which to sell mortgages and pensions?

Figure 18: Current account market share is concentrated in very few hands

Figure 19: Non-financial providers currently hold limited appeal for consumers

Figure 20: Only a minority claim they are willing to purchase financial products from supermarkets

Figure 21: Banks still enjoy levels of trust comparable to other organizations, in the UK and globally

Figure 22: ING Direct: When saving doesn’t feel so good

Figure 23: Tesco Compare has failed to make inroads into the price comparison market

Figure 24: RBS could be forced to sell off its branches in England

Figure 25: Across all markets, the current account drives cross-selling of other products

Figure 26: There has been a severe contraction in the availability of secured and unsecured credit

Figure 27: Deposits held at HBOS fell in 2008, along with consumer confidence

Figure 28: Prudential sold Egg to Citi in 2007, having failed to make a success of the venture

Figure 29: Marks & Spencer’s Lifestore concept failed to attract customers in sufficient numbers

Figure 30: National Savings & Investments prominently emphasizes its 100% Treasury-backed guarantee

Figure 31: Abbey is launching a fee-free bank account for its mortgage holders

TABLE OF TABLES

Table 1: New providers at a glance

Table 2: Tesco outlets in the UK, as of November 2009

Table 3: Impact of fall in trust with primary bank on likelihood to investigate other banks

Table 4: Current account market share in the UK

Table 5: Products consumers are willing to purchase from supermarkets

Table 6: Impact of fall in trust with banking industry on likelihood to shop around for financial products

Table 7: Extent of fall in trust in banking industry

Table 8: Customer satisfaction with credit card providers

Table 9: Popularity of non-financial providers for financial products

Table 10: Extent of trust in financial institutions (rated on five-point scale)

Table 11: ING Direct: savings rates and deposits

Table 12: Extent of cross-selling

Table 13: Change in availability of credit over time

Table 14: Nationwide Consumer Confidence Index 2004-2009

Table 15: HBOS: value of total deposits over 2004-2009

Abstract

• Strengths that can provide non-traditional entrants with a competitive edge over established banks, such as expertise in customer analytics.
• Weaknesses that such providers need to deal with, such as high levels of customer inertia and the difficulties faced in selling advice-led products.
• Opportunities that will benefit these institutions, for example technological developments lowering the costs of entry.
• Threats that exist to the wellbeing of new, non-traditional providers, such as lack of expertise in the provision of financial services.

• Presents case studies of providers who have already entered, or are in the process of entering, the financial services industry.
• Highlights the main strengths that new entrants to retail banking can exploit, as well as the weaknesses they need to contend with.
• Discusses the opportunities that exist in the market for non-traditional providers, and the threats to their prospects for success.

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