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MAPS PERSONAL BANKING : APRIL 2003
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This report covers: deposits and investments, high street banks, former building societies, mutual building societies, supermarkets, post offices, insurance companies,'borrow to buy' mentality,personal banking,credit,consumer credit,long term, insurance, investments, borrowing,mortgages, mortgage lending,in-store banking,m-banking,telephone banking, the internet, television banking,ATMs,debit card purchases, debit cards,personal loans, overdrafts, supermarket banks, internet-only banks,interest rates, universal bank,

Companies covered include: Abbbey National, Alliance & Leicester, Barclays, Bradford & Bingley, HBOS, HSBC, Lloyds TSB, Northern Rock, Royal Bank of Scotland,

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TABLE OF CONTENTS

Executive Summary 7
1. Introduction 9
Personal Banking Overview 9
DEFINITION 10
REPORT OBJECTIVES 10
RESEARCH 10
2. Strategic Overview 11
MARKET DYNAMICS 11
Deposits and Investments 11
Borrowing 11
MARKET SECTORS 11
High-Street Banks and Former Building Societies 12
Mutual Building Societies 12
Supermarkets 12
Post Offices 13
Insurance Companies 13
MARKET STATUS 13
Employment 14
Table 1: Number of Staff Employed in Major UK Banks (BBA Members) and Building Societies, 1997-2001 15
Current Issues 15
Table 2: 'Borrow-to-Buy' Mentality — Attitudes Towards Credit ( percent), 1989 and 2002 16
MARKET SIZE 17
Table 3: The UK Personal Banking Market by Value (£m), 1998-2002 17
Market Sector Growth 18
DISTRIBUTION 19
COMPETITIVE STRUCTURE 19
Table 4: Major British Banking Groups and Personal Banking Subsidiaries, 2002 20
ADVERTISING 20
Table 5: Main Media Advertising Expenditure on General Banking Services by Banking and Financial-Services Companies (£000), Years Ending September 2001 and 2002 21
Online Banking 23
THE CONSUMER 23
Consumer Credit 24
Customer Relations 24
MARKET FORECASTS 24
Table 6: The Forecast UK Personal Banking Market by Value (£m), 2003-2007 25
3. Deposits and Investments 26
RETAIL DEPOSITS AND CASH MANAGEMENT 26
Background 26
Market Size 26
Table 7: Accounts Held in Great Britain by Type ( percent of households), †2000/2001 27
Figure 1: Accounts Held in Great Britain by Type ( percent of households), 2000/2001 27
Consumer Trends 28
New Developments 28
Traditional Challengers 29
New Challengers 29
LONG-TERM INSURANCE AND INVESTMENTS 30
Background 30
Market Size 31
Consumer Trends 31
Personal Pensions 31
Stakeholder Pensions 31
Investments 32
RISK MANAGEMENT 32
Distribution 32
4. Borrowing 33
BACKGROUND 33
Table 8: Types of Credit Used and Average Amounts Owed per Household ( percent and £), 1989 and 2002 33
MORTGAGES 34
Market Size 34
Table 9: UK Net Mortgage Lending by Value (£m), 1997-2001 35
Market Trends 35
Table 10: Banks' Share of Net Mortgage Lending ( percent), 1997-2001 36
CONSUMER CREDIT 36
Market Size 36
Table 11: UK Net Lending for Consumer Credit by Value (£m), 1996-2001 37
Table 12: Number of Credit/Charge Cards in Issue and Number of Cardholders (million), 1997-2001 38
Market Trends 38
The Future 39
5. Distribution Channels 40
BACKGROUND 40
HIGH-STREET BRANCHES 40
UNIVERSAL BANK 42
IN-STORE 42
TELEPHONE 43
Table 13: Number of Accounts Accessible by Telephone (000), 1997-2001 43
M-BANKING 43
THE INTERNET 43
TELEVISION 44
ATMs 44
Table 14: Usage of the UK ATM Network (number and million), 1998-2002 45
DEBIT CARDS 46
Table 15: Debit Card Purchases in the UK: UK-Issued Cards by Volume (million), 1998-2002 46
6. An International Perspective 47
THE GLOBAL MARKET 47
Table 16: Top Ten European Countries by Total Banking Assets (ebn), 1997-2001 47
mARKET DEVELOPMENTS 48
US 48
France 49
Germany 49
EUROPEAN ISSUES 49
Regulation 49
The Euro 50
7. PEST Analysis 51
POLITICAL FACToRS 51
ECONOMIC FACTORS 52
SOCIAL FACTORS 52
TECHNOLOGICAL FACTORS 53
8. Consumer Dynamics 54
CONSUMER RESEARCH 54
Table 17: Summary of Personal Banking Experiences ( percent of respondents), 2003 54
Usage of Bank Accounts (Table 18) 56
Current and Instant-Access Accounts (S1) 56
Long-Term Savings Accounts (S2) 56
Table 18: Usage of Bank Accounts ( percent of respondents), 2003 57
Credit Cards and Personal Loans (Table 19) 59
Credit Cards (S3) 59
Personal Loans (S4) 59
Table 19: Credit Cards and Personal Loans ( percent of respondents), 2003 61
Overdrafts and Mortgages (Table 20) 63
Overdrafts (S5) 63
Mortgages (S6) 63
Table 20: Overdrafts and Mortgages ( percent of respondents), 2003 65
Managed Investments (Table 21) 67
Table 21: Managed Investments ( percent of respondents), 2003 68
Customer Loyalty (Table 22) 70
Investigating Better Deals (S8) 70
Use of One Banks for All Personal Banking Services (S9) 70
Table 22: Customer Loyalty ( percent of respondents), 2003 71
Branch and Online Banking (Table 23) 73
Table 23: Branch and Online Banking ( percent of respondents), 2003 74
Use of Telephone and Television Banking (Table 24) 76
Telephone Banking (S12) 76
Television Banking (S13) 76
Table 24: Use of Telephone and Television Banking ( percent of respondents), 2003 77
Supermarket and Internet-Only Banks (Table 25) 79
Supermarket Banks (S14) 79
Internet-Only Banks (S15) 79
Table 25: Supermarket and Internet-Only Banks ( percent of respondents), 2003 80
Consumer Awareness (Table 26) 82
Interest Rates (S16) 82
Universal Bank (S17) 82
Table 26: Consumer Awareness ( percent of respondents), 2003 83
9. Company Profiles 85
ABBEY NATIONAL PLC 85
Corporate Strategy 85
Strengths and Weaknesses 85
Distribution 86
Profitability 86
ALLIANCE & LEICESTER PLC 86
Corporate Strategy 86
Strengths and Weaknesses 87
Distribution 87
Profitability 87
BARCLAYS PLC 88
Corporate Strategy 88
Distribution 88
Profitability 89
BRADFORD & BINGLEY PLC 89
Corporate Strategy 89
Strengths and Weaknesses 89
Profitability 90
HBOS PLC 90
Corporate Strategy 90
Appointments 90
Profitability 91
HSBC Bank PLC 91
Corporate Strategy 91
Profitability 91
LLOYDS TSB Group PLC 92
Corporate Strategy 92
Strengths and Weaknesses 92
Appointments 92
Distribution 92
Profitability 92
NORTHERN ROCK PLC 93
Corporate Strategy 93
Distribution 93
Profitability 93
The ROYAL BANK OF SCOTLAND PLC 93
Corporate Strategy 93
Distribution 94
Profitability 94
10. The Future 95
STRATEGY 95
Corporate Activity 95
Staffing 96
Retailer Issues 96
Consumers 96
Distribution Channels 97
Online Banking 97
Borrowing 98
Demographic Changes 98
MARKET FORECASTS 99
Table 27: The Forecast UK Personal Banking Market by Value (£bn), 2003-2007 99
Figure 2: The Forecast UK Personal Banking Market by Value (£bn), 2003-2007 99
12. Further Sources 100
Associations 100
Publications 101
General Sources 101
Bonnier Information Sources 101
Government and Official Sources 102

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EXECUTIVE SUMMARY

Personal banking is no longer a market exclusively occupied by banks. Major insurance companies, such as Prudential (which formed the subsidiary online bank Egg), Norwich Union and Legal & General, have started to compete with high-street banking names for personal loans, savings and mortgages. The supermarkets are also significant competitors — Tesco Personal Finance has over 2 million customers, and Sainsbury's Bank is close behind.
Although consumers are being offered basic banking services from an ever-growing range of providers, the banks have broadened their reach. The major insurers may have attempted to take a slice of the retail banks' profits with their new ventures, but the banks have responded by aggressively entering the insurance market, where they have made considerable inroads. Banks are now engaged in a multitude of markets — in addition to providing current and saving accounts, loans and mortgages, they have developed as investment managers, insurers and pensions providers. They have become much more than just banks — they are financial-services organisations aiming to provide their customer with a one-stop-shop for all their financial needs.
Whether this will continue to be the case, however, remains to be seen. 'Bancassurance', which refers to the provision of insurance alongside other banking services, may have been the strategy of choice until 2002. However, current trends suggest an alternative route. All sectors of the personal banking market are facing margin pressure, due to the large number of competitors. As a response, joint ventures, which exploit the expertise of insurers as product manufacturers and the skills of the banks as distributors — while minimising the risks to both — are likely to rise in prominence.
The personal banking market has been revolutionised by technological developments. Improvements in back-office systems and the effects of the Internet have both broadened and intensified competition, and expanded the scope of retail banking activities.
By radically reducing cost-barriers to entry, the Internet has facilitated the development of a new wave of online institutions able to provide highly-competitive interest rates on deposit balances and loans. These lean, technologically-advanced companies are responsive and innovative in their approach.
However, they are not set to challenge the profitability of the traditional banks. The Internet-bank Egg (79 percent owned by Prudential) is the only successful new entrant not owned by a banking organisation. The traditional players have responded to developments by investing heavily in their own technology, and research suggests that organisations that can offer multiple distribution channels are most likely to prosper in future. All the major banking groups provide their customers with Internet access to their account information, defusing one of the key selling points of the original Internet banks. This has forced the new entrants to compete on price alone — a strategy that continues to win them new customers, but will ultimately limit their capacity for expansion. For customers without large credit or debit balances, attractive interest rates do not compensate for the convenience of a traditional bank which provides branches, call centres and online services.
Competition has stimulated technological innovation, and has also encouraged banks to reassess their product ranges. HBOS has challenged established approaches to the marketing of current accounts, by offering reduced price holidays and travel insurance to their customers. Integrated bank accounts are being offered by an increasing number of competitors, allowing consumers to reduce the interest payable on their mortgages, by offsetting their current and savings balances against the total borrowed.
The pace of development in the personal banking sector is unlikely to slow. However, it is likely to be affected by a weak international economy, an over-inflated housing market, and an ageing population. Insurers face insolvency as a result of falling stock markets, and of investment decisions made on the basis of inadequate calculations of life expectancy. Any significant rise in unemployment or interest rates threatens the stability of the banking system — the average British consumer now carries a higher level of debt than at any time in history. Analysts predict that the housing market, which has proved so lucrative for mortgage lenders, will not be able to sustain its upward trajectory much beyond 2003.
Personal banking has recently enjoyed a period of profitability, innovation and change. The next years (2003 to 2007), however, could prove to be among the most difficult in the market's history.

Text © 2003 MAPS

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Last updated by Amanda Porteous June 2003