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MAPS Customer Services in Financial Organisations : July 2003

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This report covers: Customer Services in Financial Organisations,

Companies covered include: Abbey National, Bradford & Bingley, EGG, HBOS, HSBC Holdings, Nationwide,

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Table of Contents
Executive Summary
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TABLE OF CONTENTS

Executive Summary 8

1. Introduction 9

BACKGROUND 9

DEFINITION 9

2. Strategic Overview 10

MARKET DYNAMICS AND SEGMENTATION 10

Current Status of the Market 10

Total Industry Value and Growth 10

Table 1: Private-Sector Deposits in UK Banks by Value (£m and index 1998=100), 1998-2002 11

Table 2: Deposits in UK Building Societies by Value (£m and index 1998=100), 1998-2002 11

Table 3: UK Long-Term Insurance Premium Income† by Net Written Premiums by Value (£m and index 1998=100), 1998-2002 12

Table 4: UK General Insurance Net Written Premiums by UK Risks Net Written Premiums by Value (£m and index 1998=100), 1998-2002 12

The Largest Sector 13

The Market with the Highest Growth Rate 13

The Market with the Lowest Growth Rate 13

DISTRIBUTION 13

Table 5: Turnover of the Top 20 Independent Financial Advisers in the UK (£m and index 1998=100), 1998-2002 14

COMPETITIVE STRUCTURE 14

Table 6: Long-Term Insurance Business by Source of New Regular Premiums ( percent), 1998-2002 15

ADVERTISING 15

THE CONSUMER 15

Economic Trends 15

Table 7: UK Economic Indicators ( percent, £m and index 1995=100), 1998-2002 16

Consumer Survey 16

The Banking Code 17

MARKET FORECASTS 17

3. Banks 19

MARKET SIZE 19

Market Share 19

Table 8: Top Nine Banks by Loans and Advances to Customers (£m), 2001 19

CONSUMER TRENDS 20

Attitudes Towards Counter Staff 20

Attitudes Towards the Bank Manager 20

Attitudes Towards Changing Banks 21

MARKETING ACTIVITY 21

ADVERTISING 22

Table 9: Main Media Advertising Expenditure on General Banking Services (£000), Year Ending December 2002 22

DISTRIBUTION 24

Branch Distribution 24

Table 10: The Branch Networks of the MBBG in Great Britain and Building Societies in the UK (number and index 1998=100), 1998-2002 25

ATMs 26

Account Aggregation 26

Electronic Banking and Customer Relationship Management 28

4. Building Societies 29

MARKET SIZE 29

Market Share 29

Table 11: Top Five Building Societies by Assets (£m), 2001 29

CONSUMER TRENDS 30

Attitudes Towards Building Society Staff 30

MARKETING ACTIVITY 31

ADVERTISING 31

Table 12: Main Media Advertising Expenditure by Building Societies (£000), Year Ending December 2002 31

DISTRIBUTION 31

Table 13: The Branch Networks of the MBBG in Great Britain and Building Societies in the UK (number and index 1998=100), 1998-2002 32

5. Insurance Companies 34

MARKET CONDITIONS 34

Table 14: Standard & Poor's Credit Rating of Life Insurers' Financial Strength, 25th March 2003 35

MARKET SHARES 36

Life Insurers 36

Table 15: Largest Ten Life Insurers in the UK by New Direct Annual Premium Equivalent (£m and percent), End 2000 36

General Insurers 37

Table 16: Largest UK General Insurers by Total World Premium Income (£m), 2000 38

CONSUMER TRENDS 38

MARKETING ACTIVITY 39

ADVERTISING 40

General Insurance 40

Table 17: Main Media Advertising on General Insurance (£000), Year Ending December 2002 40

Life Insurance 42

Table 18: Main Media Advertising Expenditure on Life Insurance (£000), Year Ending December 2002 42

DISTRIBUTION 43

REGULATIONS 43

6. Independent Financial Advisers 45

MARKET SHARES 45

Table 19: The Top Ten Independent Financial Advisers in the UK by Turnover (£m), 2001 45

Table 20: The Top Ten Independent Financial Adviser Networks by Sales Size, Turnover and Appointed Representatives (number and £m), 2003 46

Table 21: Number of Independent Financial Advisers in the UK, 1998-2002 47

CONSUMER TRENDS 47

Attitudes Towards Independent Financial Advisers 48

MARKETING ACTIVITY 48

ADVERTISING 48

Table 22: Main Media Advertising Expenditure on Independent Financial Advice (£000), Year Ending December 2002 48

DISTRIBUTION 50

Table 23: Number of Branches Belonging to Leading Independent Financial Advisers, 2002 50

7. Automated Teller Machines 51

MARKET SIZE 51

Table 24: Number of Cash Dispensers and Automated Teller Machines of the MBBG in Great Britain (number and index 1998=100), 1998-2002 51

CONSUMER TRENDS 52

MARKETING ACTIVITY 53

ADVERTISING 54

DISTRIBUTION 54

8. Call Centres 55

BACKGROUND 55

MARKET SIZE 55

Table 25: Number of Bank Accounts Accessible by Telephone and Computer (000 and index 1998=100), 1998-2002 56

CONSUMER TRENDS 56

Call Centre Staff Training 57

MARKETING ACTIVITY 58

ADVERTISING 58

Table 26: Main Media Advertising Expenditure on Direct Financial Services (£000), Year Ending December 2002 58

DISTRIBUTION 599. Internet Sites 61

MARKET SIZE 61

Table 27: Number of Bank Accounts Accessible by Telephone and Computer (000 and index 1998=100), 1998-2002 61

CONSUMER TRENDS 62

Attitudes Towards Internet Sites 62

MARKETING ACTIVITY 63

ADVERTISING 63

Table 28: Main Media Advertising Expenditure on Online Financial Services, Banking and Life Insurance (£000), Year Ending December 2002 63

DISTRIBUTION 64

10. An International Perspective 66

ONLINE BANKING IN EUROPE 66

ACCOUNT AGGREGATION: THE US EXPERIENCE 67

EUROPEAN BANKING DISTRIBUTION CHANNELS 67

EUROPEAN BANKS: CUSTOMER LOYALTY 67

11. PEST Analysis 68

POLITICAL FACTORS 68

ECONOMIC FACTORS 69

SOCIAL FACTORS 69

TECHNOLOGICAL FACTORS 70

12. Consumer Dynamics 72

OVERVIEW 72

Table 29: Overview of Results ( percent of respondents), 2002 73

ATTITUDES TOWARDS STAFF AND ATMS 74

"I Value The Efficiency Of Service More Than Friendly Staff" 74

"I Value The Friendliness Of Staff More Than Efficiency" 75

Table 30: Values Placed on the Friendliness of Staff and Efficiency ( percent of respondents), 2002 76

"I Am Happy If Staff Make An Effort To Correct Their Mistakes" 78

"I Prefer To Get My Money From A `Hole In The Wall'" 78

Table 31: Attitudes Towards Staff Making Mistakes and Preference for ATMs ( percent of respondents), 2002 80

OPINIONS OF CALL-CENTRE STAFF AND WEBSITES 82

"I Feel Confident That Staff In Call Centres Are Well Trained To Help Me" 82

"I Feel Confident That Financial Organisation Internet Sites Will Answer My Questions" 83

Table 32: Attitudes Towards Call-Centre Staff and Financial Organisations' Websites ( percent of respondents), 2002 84

DISCUSSING FINANCIAL AFFAIRS WITH COUNTER STAFF AND BANK MANAGERS 86

"I Like To Discuss My Financial Affairs With Counter Staff" 86

"I Need To Talk To A Proper Bank Manager When I Have A Problem" 86

Table 33: Preference for Talking to Counter Staff and the Bank Manager ( percent of respondents), 2002 88

INDEPENDENT FINANCIAL ADVISERS AND BANK STAFF 90

"I Believe That An Independent Financial Adviser Is Well Trained In Answering My Questions" 90

"I Think Bank Staff Are Well Trained To Answer My Questions" 90

Table 34: Attitudes Towards the Training of Independent Financial Advisers and Bank Staff ( percent of respondents), 2002 92

ATTITUDES TOWARDS BUILDING SOCIETY STAFF AND FINANCIAL ORGANISATIONS 94

"I Think Building Society Staff Are Well Trained To Answer My Questions" 94

"I Don't Think Financial Organisations Care About Their Customers" 94

Table 35: Attitudes Towards Building Society Staff and Financial Organisations ( percent of respondents), 2002 96

"Financial Organisations Don't Understand My Financial Concerns" 98

"I Would Like Financial Organisations To Offer Me Special Services Suitable To My Lifestyle Before I Ask Them" 98

Table 36: Lack of Understanding by Financial Organisations and Offering Services Suitable to Lifestyles ( percent of respondents), 2002 100

"I Would Like Financial Organisations To Offer Me Special Services Suitable To My Personal Circumstances" 102

"Financial Organisations Charge Too Much For The Level Of Service They Provide" 102

Table 37: Financial Organisations Should Offer Special Services and Charges are too High ( percent of respondents), 2002 104

FREE BASIC SERVICE AND CHANGING BANKS 106

"I Only Want A Basic Service From A Financial Organisation, But Free" 106

"If I Were Rich, I Would Change My Bank For One That Knew How To Look After My Affairs" 106

Table 38: Attitudes Towards a Free Basic Service and Changing Banks if Wealthy ( percent of respondents), 2002 108

13. Company Profiles 110

ABBEY NATIONAL PLC 110

Corporate Strategy 110

Strengths and Weaknesses 110

New Product Development 111

Brand Development 111

Innovations 111

Appointments 111

Distribution 111

Profitability 111

Future Company Developments 112

BRADFORD & BINGLEY PLC 112

Corporate Strategy 112

Strengths and Weaknesses 112

Innovations 112

Advertising 113

Distribution 113

Profitability 113

Future Company Developments 113

EGG PLC 113

Corporate Strategy 113

Strengths and Weaknesses 113

New Product Development 114

Brand Development 115

Innovations 115

Advertising 115

Distribution 116

Profitability 116

Future Company Developments 116

HBOS PLC 116

Corporate Strategy 116

Strengths and Weaknesses 116

New Product Development 117

Brand Development 117

Innovations 117

Appointments 118

Advertising 118

Distribution 118

Profitability 119

Future Company Developments 119

HSBC Holdings PLC 119

Corporate Strategy 119

Strengths and Weaknesses 119

Brand Development 120

Innovations 120

Appointments 120

Advertising 120

Distribution 121

Profitability 121

Future Company Developments 121

NATIONWIDE 121

Corporate Strategy 121

Strengths and Weaknesses 121

New Product Development 122

Innovations 122

New Research 122

Advertising 122

Distribution 123

Profitability 123

14. The Future 124

MARKET SIZE 124

Table 39: The Forecast Turnover of the Top 20 Independent Financial Advisers in the UK (£m and index 2003=100), 2003-2007 124

Table 40: Forecast Long-Term Insurance Business by Source of New Regular Premiums ( percent), 2003-2007 125

Table 41: Forecast Private-Sector Deposits in UK Banks by Value (£m and index 2003=100), 2003-2007 125

Table 42: Forecast Number of Bank Branches of the MBBG in Great Britain (number and index 2003=100), 2003-2007 126

Table 43: Forecast Deposits in UK Building Societies by Value (£m and index 2003=100), 2003-2007 126

Table 44: Forecast UK Long-Term Insurance Premium Income† by Net Written Premiums by Value (£m and index 2003=100), 2003-2007 127

Table 45: Forecast UK General Insurance Net Written Premiums by UK Risks Net Written Premiums by Value (£m and index 2003=100), 2003-2007 128

NEW DEVELOPMENTS 128

The Economy 131

Table 46: The Forecast Economy ( percent, £m and index 1995=100), 2003-2007 131

SUPPLIER ISSUES 133

Barriers to Entry 133

Regulations 133

MARKET DYNAMICS 133

Political Factors 133

Economic Factors 135

Social Factors 135

Technological Factors 135

15. Further Sources 137

Trade Associations 137

General Sources 138

Bonnier Information Sources 138

Government Sources 139

Other Sources 140

EXECUTIVE SUMMARY

Banks are the largest financial-services sector in the UK, with building societies providing a small secondary role. The life insurance sector is important, although in 2003 this sector, which is shrinking, is in crisis. General insurance exists because it is necessary, rather than as an opportunity to make profit.

Financial advice is provided by financial advisers, whose working environment is about to change. The main channels by which financial institutions deliver customer services are through branches, call centres, automated teller machines (ATMs), credit- or debit-card systems and online delivery.

While the major banks have consolidated and become bancassurers (owning insurance companies as well) the insurers have become banks. This form of diversification means that insurance company capital can be used more efficiently, but with so much cross-ownership a stock market crash affects any bank that has an insurance subsidiary.

The nature of customer service differs between the different sectors. Customers find banks efficient and friendly, because they like to meet people in the branches. They like building societies even more, although they possibly do not realise that building societies have atrophied in numbers.

Customers are less keen on insurance companies, which have few branches and sales representatives. For them, the independent financial adviser (IFA) channel is the source of customer service. IFAs are accepted by customers, but not enthusiastically. IFAs are perceived to be motivated by fees rather than by the best outcome for the client. Customers are even less happy about the new distribution channels and much prefer to talk to someone in person.

Financial services are increasingly controlled by the Financial Services Authority (FSA), which was set up to cover the entire industry, with some exceptions. The FSA has a remit to take the customer's point of view, and its insistence on greater transparency, particularly over fees, is likely to enhance competition within the industry. The mis-selling of financial investment products hastened this development, because it became clear that financial-services representatives could easily persuade customers to buy inappropriate investments.

The fall of the stock market has introduced extra volatility to the industry, raising strong queries over the future of with-profits policies in a world where stock prices appear to govern almost all financial instruments.

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Last updated by Amanda Porteous August 2003