Premium, Packaged and Aggregate Account Banking - UK - January 2006

TABLE OF CONTENTS

• Introduction and Abbreviations
• Definitions and report coverage
• Global information and research
• Consumer research
• ACORN
• Abbreviations
• Executive Summary
• Growing acceptance of the Internet and benign economic climate help drive demand
• One in nine current account holders have a packaged account
• High street banks dominate the packaged account market...
• ...but are notably absent from the account aggregation sector
• Travel insurance a near-universal benefit
• Online banking starts to grow in importance
• Significant promotional activity
• Packaged accounts most popular among 25-44s
• Still considerable resistance to paying for day-to-day banking
• Rates and overdrafts key
• Wide usage of online banking
• Future looks good for both products
• Market Factors
• A fairly healthy economy
  • Figure 1: Per capita PDI and consumer expenditure at constant 2000 prices, 2000-10
• Consumer confidence wavers -- but is far from collapsing
  • Figure 2: The five measures comprising the Consumer Confidence Index, Q3 2003-Q3 2005
• Premium and packaged bank accounts
• Banking becomes more tightly segmented
  • Figure 3: Illustration of value-added bank account types
• Socio-economic developments should benefit account providers
  • Figure 4: Size of the UK adult population, by socio-economic group, 2000-10
• 2 million UK residents earning at least £50,000...
  • Figure 5: Income distribution, 2005/06*
• ...but the failure of mass-affluent banking operations must be borne in mind
• Declining loyalty across the whole financial services market...
• ...and the current account market is no different
  • Figure 6: Propensity to switch provider, March 2005
• Packaged accounts have a role to play in turning the tide
• New lifestyle choices add value to banking packages
  • Figure 7: Number of UK and overseas holidays booked, 2000-04
• Annual travel cover growing in popularity
  • Figure 8: Percentage of travel insurance policy sales, by policy type, 1999-2005
• Convenience can be key...
• ...meaning that there is clear scope for bundling financial services products
  • Figure 9: Ownership of selected financial services products, November 2005
• Increasing regulatory burden causes problems for some
• Real value of packaged accounts questioned...
• ...which could lead to consumer mistrust
• Account aggregation
• Internet access on an upwards trend...
  • Figure 10: British Internet penetration at home/work/place of study or elsewhere, 2001-05
• ...while penetration is even higher among the more affluent
  • Figure 11: British Internet penetration, by socio-economic group, August 2005
• Two main models for account aggregators
• Why aggregation?
• Considerable benefits for service providers...
• ...possibly explaining initial hostility from other providers
• Security is the key issue...
• ...although concerns are largely unjustified
• The US experience of account aggregation
• Market Size
• A shift in the make-up of the market for bank accounts
  • Figure 12: Number of UK personal bank accounts (MBBG only), 1998-2004
• Growing current account market...
  • Figure 13: Total number of current accounts in the UK, 1998-2005
• ...with obvious implications for both packaged accounts and account aggregation
• Premium and packaged bank accounts
• Penetration steadily increasing
  • Figure 14: UK current account holders, by account type, 2005
• Packaged account market worth £874 million...
• ...but sales of related products must also be considered
• Account aggregation
• Number of online accounts grows dramatically
  • Figure 15: Proportion of bank accounts accessible through direct channels (MBBG only), 1998-2004
• Some setbacks as a new product finds its feet...
• ...but growth has been rapid in recent years
  • Figure 16: Account aggregation market size, 2003-05
• The entry, or otherwise, of the high street banks will determine future market size...
• ...with one entrant likely to prompt a domino effect
• Key Players
• Packaged and premium accounts
• High street banks compete to offer the most attractive package
• Lloyds TSB still leads the way in market share...
  • Figure 17: Premium and packaged accounts market share, 2005
• ...and in terms of conversion rates
• Account providers
• Alliance & Leicester
• Barclays
• Co-operative Bank/smile
• First Direct
• HSBC
• Lloyds TSB
• Premier
• NatWest
• The Royal Bank of Scotland
• Account aggregation
  • Figure 18: Account aggregation market share, 2005
• Egg (Money Manager)
• First Direct (Internet Banking Plus)
• Moneysupermarket (View My Accounts)
• Products and Fees
• Packaged and premium accounts
• A steady evolution sees banks honing their packaged account offerings...
• ...offering tangible benefits for all concerned
• Consumer preferences match product offerings fairly well
  • Figure 19: Top-rated value-added bank account benefits, November 2005
• Alliance & Leicester repositions its packaged accounts...
• ...but not all banks take a similar approach
• Pricing in loyalty
• Barclays goes some way towards letting customers build their own package
• A wide range of benefits, with travel insurance being the key offering
  • Figure 20: Representative sample of packaged bank accounts, 2005
• Premium banking -- service is the key
  • Figure 21: Representative sample of premium bank accounts, 2005
• Account aggregation
• Similar packages -- but a different emphasis
• Can Egg use aggregation to negate the need to offer current accounts?
• First Direct brings in non-financial accounts
• Distribution and the Internet
• Branch network still dwindling, but the decline has slowed
  • Figure 22: Number of branches, by bank, 1999-2004
• The convenience of online banking starts to tell
  • Figure 23: Number of telephone and online transactions, 2001-04
• Routine transactions dominate online banking
  • Figure 24: Number of online transactions, by transaction type, 2001-04
• Slow decline of the bank branch has had an impact on loyalty...
• ...and given impetus to added-value accounts
• Packaged accounts can also help maintain loyalty
• Advertising and Promotion
• Premium and packaged accounts
• Current account adspend reflects the products' mass-market appeal
  • Figure 25: Standard current account adspend, by outlet type, year to October 2005
• Halifax adspend reflects its determination to increase market share
  • Figure 26: Standard current account adspend, by provider, years to October 2004 and October 2005
• Brand building the key for larger institutions
• Packaged and premium account adspend falls by a third
  • Figure 27: Packaged and premium account adspend, by provider and account, years to October 2004 and October 2005
• Co-operative Bank concentrates on direct mail
• HSBC backs the launch of its first packaged account
• Promotional efforts concentrate on potential savings...
• ...although introductory offers are beginning to find favour
• Account aggregation
• Egg demonstrates a shift in priorities
• First Direct spending more restrained
• Customer acquisition also driven by below-the-line marketing efforts
• The Consumer
• Nearly 40 million consumers have a current account
  • Figure 36: Current account ownership, by main current account provider, by gender, November 2005
• More than one in ten current account holders now have a value-added product
  • Figure 37: Type of current account held, November 2005
• 25-44s are keenest advocates of packaged accounts
  • Figure 38: Type of current account held, by gender, age and socio-economic group, November 2005
• Implications and opportunities
• ABC1 third agers migrate towards added-value accounts
  • Figure 39: Type of current account held, by marital status, lifestage and Mintel's Special Groups, November 2005
• Implications and opportunities
• Londoners favour aggregating their finances
  • Figure 40: Type of current account held, by TV region and ACORN category, November 2005
• Implications and opportunities
• Broadsheet readers ignore the negativity
  • Figure 41: Type of current account held, by new technology usage, newspaper readership, commercial TV viewing and supermarket usage, November 2005
• Implications and opportunities
• Lloyds TSB has the best conversion rate
  • Figure 42: Current account ownership, by type of current account held, November 2005
• Packaged accounts will remain a minority interest
  • Figure 43: Consumer opinions regarding premium and packaged accounts, November 2005
• Men feel that packaged accounts are poor value for money
  • Figure 44: Consumer opinions regarding premium and packaged accounts, by gender, age and socio-economic group, November 2005
• Implications and opportunities
• Pre-/no family lifestagers make use of the benefits on offer
  • Figure 45: Consumer opinions regarding premium and packaged accounts, by marital status, lifestage and working status, November 2005
• Waitrose shoppers are in favour of packaged accounts, or are they?
  • Figure 46: Consumer opinions regarding premium and packaged accounts, by new technology usage, newspaper readership, commercial TV viewing and supermarket usage, November 2005
• Implications and opportunities
• Packaged account holders give only partial endorsement of the product
  • Figure 47: Consumer opinions regarding premium and packaged accounts, by type of account held, November 2005
• The Future
• Packaged and premium accounts
• Still a key area for current account providers...
• ...with considerable room for growth
• Introductory offers to continue to drive customer acquisition...
• ...but could packaged accounts go the way of credit cards?
• Mass customisation to be a realistic option?
• Account aggregation
• Considerable grounds for optimism
• Barriers to entry more about branding than technology
• Will the high street giants enter the market?
• One new entrant likely to spark a wave of launches
• Two-factor verification could allay security fears
• Forecast
• Current account forecast
  • Figure 65: Forecast of the volume of current accounts in the UK, 2005-10
• Factors used in the forecast
• Premium and packaged accounts forecast
  • Figure 66: Proportion of UK current account holders, by account type, 2005
• Scenario-based forecast
• Scenario 1 -- Stable
  • Figure 67: Forecast of the UK current account holders, by account type, Scenario 1, 2005-10
• Scenario 2 -- Optimistic
  • Figure 68: Forecast of the UK current account holders, by account type, Scenario 2, 2005-10
  • Figure 69: Forecast of the proportion of UK current account holders, by account type, 2005 and 2010
• Account aggregation forecast
  • Figure 70: Forecast of the volume of bank accounts accessible through direct channels, 2005-10
• Factors used in the forecast