Datamonitor FS Event, All Slides

HIGH NOON FOR FINANCIAL SERVICES ?
what the future has in store

thursday, 28 january 2010

09.30
Financial services: A new frontier?
Liz Hartley

10.00
The rise and future of consumer technology
Alex Kwiatkowski

10.30
Coffee

11.00
Financial services: a retail revolution?
Neil Saunders

11.30
20:20 Vision
Liz Hartley

12.00
The future shape of the FS sector
Panel discussion

12.30
Buffet lunch (optional)

Datamonitor Consulting
Financial Services: A New Frontier?

Liz Hartley, Principal Consultant
28th January 2010

The way we were

A lot can happen in a decade…

As we look ahead to where the FS industry will be in 2020, it is worth looking back
at where we were ten years ago at the start of the millennium.

With predictions for the coming decade, how much do we believe? What did we
think would happen in the Noughties? Did our FS dreams come true – or was it all a
nightmare?

Let’s take a trip down memory lane and remind ourselves of where we were and
how far we’ve come – a lot can happen in 10 years!

The way we were

The new millennium dawned

The way we were

Our brands, icons and stories

The way we were

Many tremors, one major earthquake

The way we were

Where are we now?

Markets Channels
A mixed bag of ups and downs Base level of intermediation, but questions
over (investment) advice value
Largely mature markets with strong
penetration levels Branches – and physical outlets - are relevant
and evolving
Overall focus on pricing for risk, rather
than hoovering up market share The internet is critical – >50% online CAs

Equity-linked products out of favour Technology as enabler, from OTG to
comparisons

Customers Competitors
People still shaken by the banking crisis, Focus on internal organisation and
which infected FS as a whole integration for big and small alike

Recession continues to bite finances – Smaller players consolidating for
real and imaginary strength and survival

Greater awareness and interest in FS Occupied with new regulatory era

Empowerment New entrants and divestments

The way we were

The biggest questions

There are many big questions as we look to the short and medium-term future.
Today we’d like to focus on three main areas that are not necessarily new, but
which face a renaissance and could change the rules of engagement:

How real is the threat – and opportunity – posed by new entrants to the
mainstream FS market?

How will consumers and their technologies change and how should the industry
respond?

How should or could FS companies become like retailers?

Part 2
The FS Wild West - will new market entrants put
up a good fight?

The FS Wild West

In search of a new frontier

The Natives

FS Natives have claimed the land for generations. They know the territory, they
know their people, they know their customs. Some tribes are more combative
than others, but it’s generally a peaceful existence, with some cases of inter-
tribe marriage.

The Cowboys

The Cowboys come from a different place. They are searching for new land and
have big plans to find riches. They bring with them new ways and new weapons.
The Cowboys are big, strong and not always friendly.

The FS Wild West

Who are the Cowboys?

The FS Wild West - Tesco

What will it do?
• Range will relaunch with current accounts
• Not revolutionary
• Complexity coming

• Improved pricing accuracy
• Reward new and existing customers
• Market share and growth

•In-store facilities
• No branch acquisition
•Strong online presence

• Multiple store promotion points
• Clubcard magazine push
• More focused campaigns

• 15m Clubcarders and 6m most loyal
• All socio-demographics
• New customers welcome

The FS Wild West – Tesco

How will it win?

• Customer insight data
• Thinks like a retailer, • Individual communications
• Multiple formats
• Customer-led • Better pricing and selection
• Engaged via shopping
• Proposition wanted • Many touch points
• Location, location, location
• Innovative, not complacent • Reinforces grocery
• Frequency of visits
• Simple, transparent, fair • Rewards, not penalisation
• Time, timing, opportunity
• Serious yet flexible • Cross-selling
• Quick scale potential


What are the potential pitfalls?

• Backlash • Consumer inertia
• Planning permission • Rival offers
• Election, uncertainty
• Big Brother Britain • Market saturation
• Grocery scrutiny
• Competition fears • Brand stretch
• Compliance costs
• A stretch too far? • Core distractions
• Activism
• Too good to be
true?


How much business will it win?

Within 3-5 years of launch, Tesco Bank will have 1.5% market share of current
accounts, nudging it into the top 10

Potential for launching a Tesco Finest Current Account – further opportunities to drive value and peripheral
products, such as travel insurance

Increased focus on cross-selling, awareness and incentives will drive GI share in home and motor in
particular

Wider product range across cards and savings will be popular – expect debit cards to reach 1m

Complex products, such as mortgages and life insurance will be a difficult sell – appetite, appeal and advice
are all required but questioned. We anticipate limited take up

The FS Wild West – Virgin

What will it do?
• Wide and full product range
• Building on Virgin Money offering & acquired books
• Own architecture and partnerships

• Price competitive
• Best buy tables
• Niche

• Direct proposition will be reinvigorated
• Branch network will be bought
• Scope is to be seen – perhaps in H2?

• Major rebranding
• Cross-promotion
• Comparisons, best buy tables, sports sponsorship

• Revamped team
• Buying in customers
• Virgin consumer is growing up


How will it win?

• Simplicity
• Unconventional • Strong brand • Acquisitions
• Innovation • Group backers • Impatience
• Technology-led? • Innovative • Physical presence
• Wider product range • Risk takers • Buying in skills
• Partnerships • Socially responsible



• Will we forget? • Foreign spoiler?
• Branson’s fun • Will we acquiesce? • Others buy up?
• 200 businesses • Will brand fit? • Consumer inertia
• Brand refreshment • Quality of purchase? • Unknown factors



A fraction too early to call

Virgin will buy in market share to significantly increase its ranking, but the size of this will depend very largely
on how its M&A plans unfold

Product range will be fuller than existing Virgin Money offering

Expect to see greater share of the cards market through cross-selling

Greater focus on cross-selling and benefits, e.g. airmiles

Question: will Virgin Bank be around in 2020?

The FS Wild West – Metro Bank

What will it do?
• Manageability of core products
• Possibly instant issuance
• Banking only – no insurance?

• £4bn in assets and revenues over £150m within 5 years
• Prices not competitive
•‘ No stupid fees’

• 200 outlets by 2020
• Non-traditional operating hours
• Real focus on service and convenience

• Love Your Bank
• Internet-based promotion and ‘connectivity’
• Mascot?

• Vernon Hill and Anthony Thomson
• Mass market with a premium edge – BURPs
• Cult following?


How will it win?

• Outlets not
• Fast food thinking
branches
• Engagement • Convenience is key
• Quick and strong
• Service focus • Simple range
• ‘No stupid hours’
• Encourage stay • Smiles
• Children and pets
• No sales goals • Instant issuance
• Freebies!
• Fairness • All equal
• Penny arcades


How will it win?



• Consumer inertia
• Unsophisticated
• Gimmicks • Slow to build scale
• Expect strong web
• Lost in translation • London saturation
• Domain unsold
• Foreign aversion • Points easily copied
• Range too limited
• McBank? • Price isn’t right?



Growth will be limited by branch numbers – expect less than 0.5% market
share of current accounts in 5 years

Aim of 12 branches in 2 years – could expect network to be as large as Northern Rock’s by year 5

Market share won’t really trouble the biggest players – customer losses would each be small, and building
societies in the regions are unlikely to be hit

Big name brands are likely to see customer defection – especially those with premier focus

However, by 2020, things could be very different with 200 branches – expect up to 1.5% share (current
equivalent)

Small but perfectly formed – a medium term acquisition target?

The FS Wild West

The secret weapon – don’t think like a bank

Along with several other names, these 3 key players clearly believe there is
space and profit in the market and that they can win business by being
different.
The difference boils down to the core concept of not being like a typical FS player, but instead acting like a
retailer.

The question now, is who do we think will lose out, who will survive, and who will thrive in the decade ahead.

If you win when your customers lose, then you’re leaving the door open for
someone else to come in and champion the consumer
Frances Frei

A Bloody Battle?

Assessing new player strengths: climate
The current climate is challenging in many respects, but has
opened a wide window for new entrants

Impact rating on FS market
The banking crisis – 25% who lost trust and 10% who maintained trust are
1 2 3 4 5
very likely to look for alternative providers; 10% likely to change current account
provider now. Low impact High impact


Distractions - With so much market upheaval, established players are focusing 1 2 3 4 5
on internal (re)organisations, regulation, risk and repair. Low impact High impact

Acceptance - Commoditized products are popular, with Tesco and M&S cards
1 2 3 4 5
winning top spots in C-Sat survey, but 3 big bank brands in bottom 5. Buying car
Low impact High impact
insurance is like picking washing powder.

A Bloody Battle?

Assessing new player strengths: agility
Being a new entrant provides a clean slate


Historical ties – No legacy issues or infrastructures. It also means being able to 1 2 3 4 5
design the ideal proposition. Low impact High impact

Strategic partnerships – Expansion and best-in-class products and services
1 2 3 4 5
without creating a bulky organisation.


New technology - Core systems can be bought read-made and off-the-shelf. 1 2 3 4 5
Sophistication of CRM has also increased.

A Bloody Battle?

Assessing new player strengths: reach
Targeting customers well is a core strength


Customer analytics – Listening to customers, building a proposition around 1 2 3 4 5
them and continually revisiting this to stay ‘in tune’ and ‘on message’ will be a
key differentiator and trump card.

Network reach –Being more than a bank will help increase customer appeal
1 2 3 4 5
and incentivisation. Multiple format design and channel mix will maximise
customer reach.

A Bloody Battle?

Assessing new player weaknesses: risks
There are a number of risks involved in setting up a new bank

1 2 3 4 5
IT capacity – Will new players judge correctly the capacity they will need?

Reverse brand damage –The more products and services, the greater the risk
1 2 3 4 5
potential probability.

New staff integration – Possible parent – adolescent relationship could be
1 2 3 4 5
uneasy and shifting to a new way of thinking could be a challenge.


Financial complexity – financial intelligence is quite low and this could prompt
1 2 3 4 5
a series of ‘money basics’ products, or require partnerships.


Funding – Anyone wanting a serious slice of the mortgage pie will need to play 1 2 3 4 5
in the funding markets. Low impact High impact

A Bloody Battle?

Assessing new player weaknesses: timing
There’s a hub of activity now, but has the window shut?


Market maturity – An FS Premier League developed. Is there space for new 1 2 3 4 5
players? Low impact High impact


Timing – Has the horse bolted? Likelihood of using big banks for FS matters 1 2 3 4 5
dropped from 59% to 49%, big insurers from 22% to 15%, supermarkets from
16% to 11% and trusted retailers from 15% to 12%.

Inertia - The greatest hurdle. While 87% shop around for car insurance, just 1 2 3 4 5

6% switch bank accounts.. Low impact High impact

A Bloody Battle?

What do the smoke signals tell us?

Big brand insurers
Third parties
Enablers
Tech providers
Tech-friendly players

Big banks
Building societies
Insurers
Investment providers

Late entrants
Smaller advisers
Old brands spun off

A Bloody Battle?

A revolution isn’t coming
How different the US would look if the Natives had held out!

The Natives are too strong and powerful for the Cowboys to break their
stranglehold
The battle will be long and quiet, but not bloody
Some Natives will prosper by forging new friendships with the Cowboys
Over time, the Natives will learn new tricks from the Cowboys, but by and large
they will remain in power and not much will change in the decade ahead

The Cowboys are new in town and it will take a long time for them to find their feet
and favour
Their weapons will be successful, but won’t revolutionise the market in the early
years
They’ll find a small corner of land to live in happily

Evolution or Revolution? The
Evolution or Revolution? The
Rise and Future of Consumer
Rise and Future of Consumer
Technology in Financial
Technology in Financial Services
Services
Alex Kwiatkowski, Principal Analyst, Financial Services Technology

28th January 2010

37 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.

Sadly, not all technological concepts become reality


From Hollywood to the home

Video conferencing
and smart cards

Interactive, multi-
channel television


Content, communication and collaboration

Home Mobile IM & SM

*selected examples

Consumer technology crossover into work environment

Increase efficiency Improve service


Different degrees of technological adoption: video

CONSUMER

Web-based video content Personal communication

>25bn videos viewed in August 2009 Two-way, real-time conversations

Passive channel for advertising >25% of calls via video

vs.
CORPORATE
Video isn’t ‘new for 2010’

Deployment of video conferencing equipment over past decade

Implementation in no way guaranteed or translated into frequent usage


The influence of technology on financial services

Customers expect high levels Institutions need to
of service, and want to be maximize the revenue
treated as individuals generation potential of all
channels

Process
Institutions need to replace
Institutions must ensure that product silos with a process-
staff aren’t left out when new Innovation
centric view
technologies are introduced
People
Technology

New technologies bring
opportunities, but also risks

Generations X and Y entered
the market as technology-
Channel integration faces the
savvy consumers, with
challenge of back-end silos
increased demands


The decade-old vision…

Seamless, multi-
channel interaction
between a
customer & their
financial services
institution

Increased customer
Single view of the
satisfaction and
customer across all
loyalty / advocacy, CRM financial products
resulting in
and services
additional revenue

Carefully targeted
cross-selling & up-
selling of suitable
products & services


…versus the reality of 2010

Additional channels
have been
introduced, but
communication silos
remain in many
financial institutions

Improving
satisfaction & A consistent single
increasing loyalty view of the customer
slid down the list of across multiple
priorities, but channels has yet to
reconnecting with be universally
customers is a key achieved
objective in 2010

Institutions found
guilty of
irresponsible lending
(causing
impairments) &
cross-selling
unsuitable products


Fluctuating customer satisfaction priorities…

4.0
How important are the following goals to your company in 2007?
General Business Themes
3.5
Rating of importance (1-4, 4 = highest)

3.0

2.5

2.0

1.5

1.0
Increase customer Increase revenues Decrease costs Align with regulatory/ Expand product or Improve relationships
satisfaction industry standards service line with suppliers

Source: Datamonitor – European Retail Banking Technology Spending Strategies 2007


…and the adverse impact of the financial crisis… n = 108

4.0
Please rate the importance of the following objectives to your IT investment
strategy in 2009 (general business).
1-Not an objective, 4-top priority objective

(Rate 1-4, where 1 is ‘not an objective’ and 4 is ‘top priority objective’)
3.5

3.0 2.93 2.88
2.74 2.70
2.54
2.5 2.39

2.0

1.5

1.0
Cut costs Raise efficiency Increase revenues Increase customer Achieve or Improve supplier
satisfaction maintain relationships
regulatory
compliance
Source: Datamonitor – European Retail Banking Technology Spending Strategies 2009


…has undermined consumer trust in FS providers

The Datamonitor Trust Process

rs
Ex

to
Communication
te

ac
rn

F
al

al
rn
Fa

Credibility – organisational
Financial Service Provider

te
ct

Ex
or

reputation and knowledge
s

Credibility

Mutual Interest – shared
values and interests

Consumer
Past Mutual
Experience Interest
Reliability – organisational
TRUST ability to deliver promises

Risk Assessment – as
performed by both FS
Risk
Reliability provider and customer
Assessment

Past Experience – influence
rs

Ex
of previous interactions
to

te
ac

rn
F

al
al

Interaction F ac
rn
te

to
Ex

rs


Trust levels have waned
I trust the entire banking industry I trust my primary bank
Level of trust, where 1 = lowest level of trust

4.5

4.0
and 5 = highest level of trust

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0
s

y
il
na

lia

K
a

n
ly
a

n
e

ce
en

SA
az
nd

an

pa
ai
or
si
di

U

Ita
ra

an
hi

ed
us

Sp
In

U
Br
ap

m
rla

Ja
st
C

Fr
Sw
R

er
ng

Au
he

G
Si
et
N

Country
Source: Datamonitor – Financial Services Consumer Insight Survey 2009


Reconnecting with customers is key once more n = 100
4.00
Please rate the importance of the following objectives to your IT investment
strategy in 2010 (general business).
3.50 (Rate 1-4, where 1 is ‘not an objective’ and 4 is ‘top priority objective’)

3.14 3.15
3.00
3.00 2.92
2.77
2.57
2.50

2.00

1.50

1.00

0.50

0.00
Cut costs Raise efficiency Increase revenues Increase customer Improve supplier Achieve or maintain
Source: Datamonitor – European Retail Banking Technology Spending Strategies 2010 satisfaction relationships compliance


IT investment in channels to support new technologies
60

Which are the most important business areas that you are increasing IT investment in during 2010?
50%
50 49%
48%
47%

41%
40 39%
37%
36%

31%
30%
30

20

10

0
Branches Online Mobile Call centres Product Product Operations Compliance Back office Payments
banking development administration and risk support
Source: Datamonitor – European Retail Banking Technology Spending Strategies 2010 functions management n = 100


Social media now comes into play
The area with strong
potential for re-
engaging consumers
is through the use of
social media, which is
a viable, credible
channel for both uni-
and bi-directional
interaction.

FS providers tapping
into new tools can
engage both
stakeholders and
consumers and make
the institution more
personal and
interactive

Reactive?
Proactive?

Placing social media in context to other channels

How does a branch-
based advisor know
Branches
when a customer has
interacted via social
Outbound media? Service

Social Online Mobile
Serving the needs
of the next generation
media banking banking
of customers

Sales Inbound

Contact
How does a ‘traditional’
contact centre handle
centres
interaction via social
media?


Second Life: a warning from history

September 2005 – Wells Fargo is the first bank
with a presence in Second Life

December 2005 – Wells Fargo leaves Second December 2006 – ABN Amro becomes first
Life, moving its Stagecoach Island to Active European bank in Second Life
Worlds due to inadequacies with Second Life
March 2008 – ABN Amro leaves Second Life, and
explores use of Active Worlds for internal
communication only (behind its own firewall)

February 2007 – ING Bank launches
website and blog to get users involved in
November 2007 – Westpac creates presence on “Maintenance and investment
building Our Virtual Holland on Second Life
Second Life for employee induction purposes costs were too expensive”
February 2008 – ING closes its Second Former CTO, Westpac
March 2009 – Westpac abandons Second Life in
Life activities
response to poor user uptake

*Selected examples


Institutions must not forget the basics

Research indicates that consumers want a
financial services provider that:
treats each person as an individual, consistently;
is responsive to queries and requests for
information;
is fair in its dealings with them;
explains products and charges clearly and
transparently;
has IT systems that are capable of supporting
seamless transactions, across all channels;
doesn’t deny the existence of new technologies
and concepts;
can distinguish between gimmickry and
usefulness when it comes to deploying new
technologies.

Looking ahead to 2020


Contact

Alex Kwiatkowski
Principal Analyst, Financial Services Technology
alex.kwiatkowski@ovum.com
t: +44 207 551 9371
m: +44 7825 266931
twitter: alexkwiatkowski


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The facts of this report are believed to be correct at the time of
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findings, conclusions and recommendations that Ovum delivers
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may subsequently prove to be incorrect.

HIGH NOON FOR FINANCIAL SERVICES ?
what the future has in store

thursday, 28 january 2010

The future of financial services
A retail revolution?

Today’s agenda
What we’ll talk about

the story changing the where
so far consumer responses next?

The story so far

Not revolutionary

1985 1997 1997

1.4% 0.5% 1.7%

The story so far

Selective entry

Current a/c

Mortgages

Savings

Personal lending

Insurance

Credit cards

The story so far

Unfavourable conditions

Mass market approach

Customer inertia

Stability of sector

You don’t go south until you have to

The story so far

The need to diversify

Average annual growth rate of retail spending

+8.3%

+5.9%
+5.5%
+4.5%

+2.7%
+1.8%

1984 - 1988 1989 - 1993 1994 - 1997 1999 -2003 2004 - 2008 2009 - 2013

Changing consumer

Consumers are fragmented

Changing consumer

Consumers are fragmented

Yesterday’s consumer Today’s consumer

Act your age! You’re as old as you feel!

Birth, marriage, kids, death Birth, anything goes, death

Bottom, Middle, Top Hi-lo

Gender identity Gender complexity

No mass market

Changing consumer

Consumers are saturated

Early 70s Early 00s

Vehicle models 140 260

Personal computer models 0 400

Software titles 0 250,000

Milk types 4 19

Pain relief pills 17 141

Women’s hosiery styles 5 90

Running shoe styles 5 285

Changing consumer

Consumers are pressured

Confused

Bombarded Pressured

Harried Overloaded

Changing consumer

Consumers are demanding

The responses

Rule 1: segmentation of the offer

The retail way

The responses


A banking model

is this real segmentation?

The responses


The rules for proper segmentation

Traditional demographics don’t work
identify Must understand needs

Calculate value of segments
quantify Calculate profitability of segment

Reaching physically
target Reaching emotionally

Solutions not products/services
build Segment champion – eliminate silos

The responses

Rule 2: declutter

Retail findings: change in consumers views on range (1999 to 2009)

+6.9 -5.4
% pts % pts

Important to provide an Important to have a wide
edited range of what I want range with lots of choice

The responses

Rule 2: declutter

The concept of edited choice

Marks & Spencer Crew Clothing
Croydon Bristol

The responses

Rule 2: declutter

The rules for proper location editing

One size fits all not appropriate
locate Requirements differ

Profiles differ dramatically
profile Demand driven

Competition is local
competitors Local responses required

Multi-format model
fit offer Clear communication of messages

The responses

Rule 3: brand building

Rules for brand building

Attention deficit Attention grabbing

Jaded consumer Innovation / newness

Scarcity of time Value for time

The responses


The importance of brand differentiation

The responses


Examples from retailing

Organising thoughts Don’t communicate, engage Keep it simple

The responses

Rule 4: satisfaction

Critical differences

Banks Retailers

Switching low Switching high

Switching difficult Switching easy

Inertia Active

Less choice Extensive choice

The responses


Satisfaction levels with credit cards

The banks The retailers

60% 70%

Source: Which?

The responses


Customer centricity

Customer Operations Offer Customer

The responses


The death of disintermediation?

The responses

Putting it together

Segmented consumers Segment and target offers

Saturated consumers Right offer in the right place

Confused consumers Create strong brand identity and empathy

Demanding consumers Customer centricity

Where next?

Will retailers succeed?

Positives Negatives

Customer exposure Weak buying power

Marketing opportunities More complex skills

Store networks Infrastructure constraints

Trusted brands Tarnished halo

Where next?

The future

Yesterday Tomorrow

Insulated Exposed

Mainstream matters Niches count

Institutions Brands

Services Solutions

Neil Saunders
Verdict Consulting, 119 Farringdon Road, London EC1R 3DA
0207 551 9419 | neils@verdict.co.uk

Datamonitor Consulting
20:20 Vision

Liz Hartley, Principal Consultant
28th January 2010

Rose tinted glasses?

Our markets in 2000

Advances on credit cards and consumer credit totalled £160bn

Mortgages lending gross advances reached £119bn

Deposits were worth £599bn and total investments £1,297bn

Personal general insurance gross written premiums topped £15bn


What Did We Know?
What did we think we knew? What were our universal truths?

• Price is king - UK consumers are price-driven, above all other factors,
seeking the lowest fees and the best returns

• Switching behaviour is weak - Inertia is a significant factor, especially in
banking

• Satisfaction levels are satisfactory - Dissatisfaction does not lead to major
behavioural change

• Professional advice is followed – First opinions are accepted and acted
upon

• Money is secure – The UK financial industry is an ‘institution’. It is
respectable, trusted, solid, indestructible


What Did We Know?
What did we know about consumer behaviour?

• Consumers make rational decisions – People act in their own best, long-
term interests

• Myopic view of financial future – Short-sighted and near-term ‘vision’, not
interested in broader, longer field views

• Demographic complexities dictate financial behaviours – Age and income
labels are the principle determinants of how people use and buy FS products
and services

Future Gazing

Our market predictions – did we guess right?
Over the last 10 years, Datamonitor and the industry generally, have tried to decode
the future and forecast the big events:

A banking storm would hit and major heads would roll

The internet would become an important channel for distribution, service and communication

Non-traditional players would increasingly figure on the FS landscape

M&A would be limited by competition rules and an FS Premiership would emerge

Aggregators would make a bit of noise

Mobile banking and iTv would take off

Mortgages were sexy

FS would be customer centric

Future Gazing

Our FS world has changed and is evolving

Future Gazing

Consumers and customers are changing

The Datamonitor Group is keeping track of how consumers’ lives, attitudes,
values and behaviours are changing and what this means for our clients

Recession After Recovery - holistic view of how consumers are thinking and acting in the post-
recession world

Financial Services Consumer Insight – focused and innovative insight into FS consumers

Verdict’s UK Consumer Satisfaction Index and How Britain Shops – monitoring where, when
and how we spend our money

Customized consumer insight – helping clients understand their unique world

Future Gazing

Demographic indicators are limiting

Future Gazing

New communications needs from C&C consumers

Consumers who pay more attention now to
bank literature than before the crunch

Future Gazing

Cross-sales are generally weak

Future Gazing

Recession-proof are largely indifferent on price

Future Gazing

Higher twitchiness among RP and Conscientious

Future Gazing

Our markets now

Advances on credit cards and consumer credit totalled £160bn
In 2008 this had risen to £193bn

Mortgages lending gross advances reached £119bn
Gross advances totalled £261bn in 2008 after even bigger highs

Deposits were worth £599bn and total investments £1,297bn
Deposits reached £949bn, with total S&I at £1,562bn at 2008 end

Personal general insurance gross written premiums topped £15bn
The PGI market had grown to £19bn in 2008

Future Gazing

The world ahead
What do we know now? Where are we going?

• Price is king - UK consumers are price-driven, above all other factors, seeking the lowest
fees and the best returns – Price is a very important factor for all, but it is not everything to
everyone; base level of competitive price needed, but it is not the sole choice driver

• Switching behaviour is weak - Inertia is a significant factor, especially in banking – Switching
is likely to experience a short-term spike, but will rapidly settle back down

• Satisfaction levels are satisfactory - Dissatisfaction does not lead to major behavioural
change – There will not be a FS satisfaction revolution from consumers or industry;
consumers have greater awareness and realistic expectations

• Professional advice is followed – First opinions are accepted and acted upon – The
perception of the value of advice has been rocked in the medium-short term and it’s up to
the industry to rescue itself

• Money is secure – The UK financial industry is an ‘institution’. It is respectable, trusted,
solid, indestructible – Notion of security has been smashed and could take 10 years or a
generation to repair

Future Gazing

The world ahead
What might we know about consumer behaviour?

• Consumers make rational decisions – People act in their own best, long-term interests –
Consumers are frequently irrational and do not have perfect information

• Myopic view of financial future – Short-sighted and near-term ‘vision’, not interested in
broader, longer field views – Myopia has worsened and consumers are thinking more about
the immediate and short-term future, with access and control being critical factors

• Demographic complexities dictate financial behaviours – Age and income labels are the
principle determinants of how people use and buy FS products and services – Attitudes - not
demographics - dictate behaviours

The New World

Many ingredients in the FS melting pot

Ongoing negative PR

General election Competition concerns

Technological capabilities Capital adequacy

Role of FSA Business stability

Consumer debt and risk Foreign FS policy

Financial intelligence Consumer empowerment

The New World

What will our world look like? Markets mixed

Advances on credit cards and consumer credit will dip and then
reach £181bn by 2013

Mortgages lending gross advances set to climb back up to £247bn

Deposits will grow to £1,185bn, with total S&I at £2,244bn by 2013

Personal general insurance gross written premiums will recover
quickly and reach £29bn

The New World

What will our world look like? Channel challenges

The New World

What will our world look like? Peer pressure

The New World

What will our world look like? People power

The New World

What will our world look like?
Are we fussing over nothing?
Are simplified products the only way forward?

Will consumers be more discerning?
Will anything change?

What will generation Y do?
Will consumer-centrism take hold?
Can a one-size-fits-all model continue tomorrow?

How will your organisation react?
How important will price be? Will some big names disappear?

Is there a future for brokers and financial advisors?

Will consumer technology revolutionise the way we do FS business?

OVER TO YOU
the future shape of the fs sector

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Datamonitor FS Event, All Slides

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