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Retail financial services in the EU

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With a few notable exceptions, financial services brands lag behind other consumer products in their international reach. There are barriers to entry such as regulation and substantial …

With a few notable exceptions, financial services brands lag behind other consumer products in their international reach. There are barriers to entry such as regulation and substantial country-by-country differences in usage, purchase channels and consumer attitudes.
Scandinavians have the highest ownership of financial products, whether it is current accounts, insurance, loans, credit cards, mortgages or investments. This contrasts with former communist countries where ownership of financial products is low although strong growth in credit cards and current accounts reveals an appetite to catch up fast.
Can financial services expand beyond state boundaries? Yes, but there will be obstacles. Customer inertia presents a challenge. People do not diligently seek out the best deal, they are slow to switch supplier, and preference for face-to-face transactions benefits existing retail providers.
Buying financial services online is underdeveloped even in the most financially sophisticated countries. In most, including France, Spain and Italy it has barely any traction at all. In contrast, use of the internet to bank and to buy consumer goods is high across much of Europe, and confidence is growing.
The economic situation in the near-term may augur badly for the expansion of financial services across European borders. But eventually that will change and when it does the internet may prove an effective route to market on a scale that will change the buying model and substantially reduce distribution costs.

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  • 1. Retail financialservices in the EU
  • 2. This booklet examines differences in the market for retailfinancial services across the 27 EU countries and considers Introductionthe opportunity to develop pan-European products. With a few notable exceptions, financial Buying financial services online is services brands lag behind other consumer underdeveloped even in the most financially products in their international reach. There sophisticated countries. In most, including are barriers to entry such as regulation and France, Spain and Italy it has barely any substantial country-by-country differences traction at all. In contrast, use of the internet in usage, purchase channels and consumer to bank and to buy consumer goods is high attitudes. across much of Europe, and confidence is growing. Scandinavians have the highest ownership of financial products, whether it is current The economic situation in the near-term accounts, insurance, loans, credit cards, may augur badly for the expansion of mortgages or investments. This contrasts financial services across European borders. with former communist countries where But eventually that will change and when ownership of financial products is low it does the internet may prove an effective although strong growth in credit cards and route to market on a scale that will change current accounts reveals an appetite to catch the buying model and substantially reduce up fast. distribution costs. Can financial services expand beyond state boundaries? Yes, but there will be obstacles. Customer inertia presents a challenge. People do not diligently seek out the best deal, they are slow to switch supplier, and preference for face-to-face transactions benefits existing retail providers.Eurobarometer research – the research wasconducted by TNS Opinion & Social acrossthe 27 EU member states in September2011. 26,856 face-to-face at homeinterviews were conducted.2 Retail financial services in the EU © 2012 TNS 3
  • 3. High penetration Country differencesof financial services are pronouncedUse of basic financial services is high, across the same period. Only 10% own Use of financial products varies widely by communist bloc. Much of the disparity isand rising: 84% of people have a current no financial products and much of this is country and product. Broadly, the ranking explained by the strong correlation betweenaccount, up from 71% in 2005. Credit card a function of age; one-third of those still runs: Scandinavia first, then Northern financial participation and GDP. But it is alsoownership also rose from 34% to 40% studying own no financial products at all. Europe, followed by Southern Europe and the case that Eastern Europe is playing post- finally the countries that once made up the communist catch-up.Ownership of financial products in the EU % Current account 84 Ownership of financial products % Non-life insurance 51 98 Credit card 40 67 59 60 Sweden Life insurance 31 46 Hungary Mortgage 19 19 9 2 Personal loan 13 Current account Credit card Life insurance Shares or bonds Shares or bonds 11 Investment fund 7 None 10Eurobarometer Retail Financial Services report, April 2012 / TNS Opinion & Social.Base: All respondents from 27 EU countries.4 Retail financial services in the EU © 2012 TNS 5
  • 4. Strong growth in less Growth opportunities?developed marketsGrowth in financial services is strongest in Even within the large economies of Western opportunity, in France or elsewhere. Productless mature markets. Germany, for example, Europe there are significant differences ownership levels are what they are for ahas a high ownership of financial products, in product ownership. Penetration of life reason and can be the legacy of culture,so comparatively low levels of purchasing in insurance, for example, ranges from 15% regulation or tax law. However, it does raisethe past 5 years. in Italy to 45% in France. The data tells us the issue of whether low ownership markets Non-life Personal that life insurance is a high priority in France offer growth potential. insurance loanWhich of these products did you but it does not tell us about the commercialpurchase in the last 5 years? % Ownership of financial products % 17% 22% 45 Germany 38 34 UK 27 France 22 Germany 15 15 Italy 12 13 10 7 3 Non-life Personal insurance loan Life insurance Mortgages Investment funds In contrast, Romania has low ownership 91% 86% of financial products but a very high proportion of these products were bought Romania in the last 5 years.Eurobarometer Retail Financial Services report April 2012 / TNS Opinion & Social. Eurobarometer Retail Financial Services report, April 2012 / TNS Opinion & Social.Base: Owners of individual products. Base: all respondents from 27 EU countries.6 Retail financial services in the EU © 2012 TNS 7
  • 5. Many routes to marketAcross the EU as a whole, there remains and high value products. Buying online The EU picture conceals dramatic differences, creating pan-European financial brands thisa strong preference for face-to-face from the provider is relatively insignificant, by country and product. The UK and is not insurmountable but it does presenttransactions regardless of the product. even for straightforward products like a Germany are comparable economies with a layer of complexity that most consumerIntermediaries and advisors are also a credit card. mature financial markets, yet there are very goods do not face.significant force, especially for more complex different routes to market. In the context ofChannel of purchase for products Non-life insurance purchased inbought in last 5 years % last 5 years by channel 1 5 5 15 www 123 456 8 29 789 0 70 64 Directly from provider Through an Direct from Direct from provider face-to-face intermediary provider online by telephone Credit card Mortgage 12 3 6 6 15 GER 48% 36% 12% 3% 43 51 51 18 9% 12% 47% 30% 33 35 UK 22 Investment fund Life insurance Non-life insurance Face-to-face from provider Through intermediaryEurobarometer Retail Financial Services report, April 2012 Online from provider/ TNS Opinion & Social. Eurobarometer Retail Financial Services report, April 2012 / TNS Opinion & Social.Base: all respondents with any financial product. Telephone direct to provider/others Base: all respondents.8 Retail financial services in the EU © 2012 TNS 9
  • 6. Buying online The UK, Netherlands and Scandinavia are the most comfortable buying onlineIt is surprising how little the internet is used lack of access; over half of all adults use theto purchase financial services given that it internet at least once a day and two-thirdsis convenient and allows easy comparison of all adults use the internet at least once 50 % Preferring face-to-face transactionsof competing products. This is not due to a week. Spain Italy 40 wwwBought online % 24 30 Prefer face-to-face transactions EU Average 18 15 20 Denmark 12 France Germany Netherlands UK 5 6 6 10 Confident with online transactions Current Personal Life Investment Credit Non-life Shares or account loan insurance fund card insurance bonds 40 50 60 70 80 90 100 % Confident buying or banking online The internet has enormous potential a good demographic fit with most financial to change the country-based nature of products. In many countries buying online financial services because it obviates the is still not something that everyone feelsComfort levels using the internet vary Custom and practice aside, not everyone need for a retail distribution or a network comfortable with. But this will changesignificantly by country and by product. is confident using the internet and there of intermediaries. Internet usage is more over time, and as it does, financial servicesThe Netherlands, UK and Scandinavia all remains a strong preference for face-to-face likely to be used by those who are better will benefit.score relatively well on internet usage to buy transactions, especially in Southern Europe. educated, more financially literate, andfinancial products online, but even in thesecountries the story is patchy. Eurobarometer Cyber Security report July 2012 / TNS Opinion & Social. Base: all adults online. Questions asked were:Eurobarometer Retail Financial Services report, April 2012 / TNS Opinion & Social. Very confident + fairly confident in ability to use internet for things like banking and buying things online, and prefer toBase: all respondents who purchased any product in last 5 years, 27 EU countries. conduct transaction in person so you can inspect product or ask a real person.10 Retail financial services in the EU © 2012 TNS 11
  • 7. A culture of inertiaThe evidence is clear – we are lethargic when it For financial service providers this is both There are significant differences in the the best value product than those in the 12comes to seeking out best value from financial cloud and silver lining. Happy customers help extent to which people are prepared to shop new member states.products. We do not look around as much as customer retention but for those seeking to around, as the comparison between the UK For example, 55% of those in the original 15we should do, and we are more likely to take expand into new markets, this reduces the and France shows. states said they took the first product theya recommendation from the product provider pool of available customers and increases In general, consumers in the original 15 EU found when obtaining a bank account. Thethan an independent source. We are reluctant acquisition costs. member states are less inclined to seek out figure for the 12 new member states was 45%.to switch provider, happy with both the Whilst there is clearly a greater propensity tocompanies and the services they offer. shop around when considering higher valueInertia rules. items, 21% claim to have taken the first mortgage they considered. Agreeing I took the first credit card I looked at %Agreeing I took the first product 67% of FrenchI looked at % Mortgage 21 Investment fund 26 38% respondents say they took the 26 first product Non-life insurance Shares or bonds 27 of UK respondents they looked at Life insurance 40 say they took Personal loan 42 the first product Credit card 52 they looked at Current account 52Eurobarometer Retail Financial Services report, April 2012 / TNS Opinion & Social. Eurobarometer Retail Financial Services report, April 2012 / TNS Opinion & Social.Base: all respondents who purchased a financial product in the last 5 years. Base: all respondents who purchased a financial product in the last 5 years.12 Retail financial services in the EU © 2012 TNS 13
  • 8. Taking advice Principal source of recommendation for non-life insurance products (eg any insurance other than life) % receiving a recommendationThe most common source of recommendation will be many instances where the product 38% 46% 19%received prior to purchasing a financial provider is a good source of advice, the fact Germany Italy UK*product is the provider that the customer that it is the most common source of advice Intermediary / advisor Friends or family Newspapers, websites orpurchased from. Friends and family are the suggests that the consumer is somewhat other publicationsnext most important, followed by financial passive when it comes to seeking out best *50% received no recommendation at alladvisors. Websites, newspapers and other value from financial products.publications are a poor fourth. Whilst there Principal source of recommendation for a credit card % receiving a recommendationPercentage who received a recommendation fromthe product provider before purchasing the product 49% 68% 17% Investment fund 42 Germany Italy UK* Product provider Product provider Friends or family Personal loan 38 Product provider *57% received no recommendation at all Credit card 35 There is not a simple European overview The ‘buying model’ is, largely, country specific of where consumers seek advice before and product-specific, which helps explain Mortgage 32 purchasing financial products. We can make why financial services has proven resistant to a few sweeping generalisations: the more the globalisation that has become the norm Shares or bonds 31 financially literate countries are more likely to in many other consumer sectors. buy without receiving any recommendations; Current account 29 A comparison of the principal source of friends and family are an important source recommendation for insurance products and of advice in opening a current account Life insurance 21 credit cards across Germany, Italy and the UK (young age profile). But the reality is that the illustrates the broader point. Non-life insurance EU averages conceal a patchwork quilt of 17 differences, by country and by product.Eurobarometer Retail Financial Services report, April 2012 / TNS Opinion & Social. Q. Before you purchased the product did anyone recommend a particular product to you or did you read anyBase: all respondents who purchased a financial product in the last 5 years. recommendations anywhere. Eurobarometer Retail Financial Services report, April 2012 / TNS Opinion & Social.nb. Some people received recommendations from more than one source. Base: product purchased in the last 5 years.14 Retail financial services in the EU © 2012 TNS 15
  • 9. Switching ComplaintsThe consumer’s easy-going attitude to Genuine product satisfaction undoubtedly The overwhelming majority (85%) say that this is not uniform. In the original EU 15,finance is evident in low levels of switching. plays a large part with 85% of respondents they have had no cause to complain about 77% of consumers with a problem willSwitching is highest in Scandinavia and the saying they have never experienced any a financial product or provider. But where complain, compared to just 57% for theUK, but even here the figures do not suggest problem with their financial products or people do experience problems most of us 12 new member states.a tuned-in customer taking advantage of a services. However, it is also indicative of a (73%) are prepared to complain. Howevercompetitive marketplace. marketplace ruled by mass inertia rather than a switched-on consumer. Action taken when encounteringHave not tried to switch in the last 5 years problem with financial product Complained to consumer rights/ Complained to protection organisation friends/family Personal loan Credit card Complained to Complained to 7% 7% complaints handling 90% 88% intermediary or adviser body (e.g ombudsman) 16% 4% Took legal Did not complain 27% 3% action Current account Mortgage 1% 88% 86% 54% Complained to Other product providerEurobarometer Retail Financial Services report, April 2012 / TNS Opinion & Social. Eurobarometer Retail Financial Services report, April 2012 / TNS Opinion & Social.Base: all respondents who have the product mentioned. Base: all respondents who have had a problem.16 Retail financial services in the EU © 2012 TNS 17
  • 10. How TNS can helpAs the world’s leading custom research company, TNS istrusted by major public and private sector organisationsto carry out large-scale research projects, such as theEurobarometer studies for the European Commission.In a market with major regional differences, Our breadth and depth of resource aroundfinancial service brands require partners who the world means that TNS has the expertisecan help them make sense of a complex to help our clients develop precise growthworld. TNS has a deep understanding of the plans, irrespective of their challenge.financial sector, with sector expertise in over To discuss how TNS UK can help your brand50 countries. Which means that each year, contact Jamie Willard,we conduct more financial sector research New Business & Marketing Directorthan anyone else. on +44 (0)20 7656 5303 jamie.willard@tnsglobal.com.Eurobarometer research – the research was conducted byTNS Opinion & Social across the 27 EU member states inSeptember 2011. 26,856 face-to-face at home interviewswere conducted.18 Retail financial services in the EU © 2012 TNS 19
  • 11. About TNS UKTNS UK are part of TNS Global, the world’s biggest research company.TNS delivers precise plans to help our clients grow.Whatever your challenge TNS UK can help:n Innovation & Product Developmentn Brand & Communicationsn Retail & Shoppern Stakeholder Management n Qualitativen AutomotiveAbout EurobarometerTNS Opinion & Social, conducts approximately eight Eurobarometer surveys ayear on behalf of the European Commission. These surveys cover the populationof the respective nationalities of the European Union Member States, resident ineach of the Member States and aged 15 years and over.Certain waves of research also involve surveys conducted in the six candidatecountries (Croatia, Turkey, the Former Yugoslav Republic of Macedonia, Iceland,Montenegro and Serbia), the Turkish Cypriot Community, and Norway.A representative sample of 1000 people is interviewed in each country (1500in Germany; 1300 in the UK; 500 in Luxembourg, the Republic of Cyprus, theTurkish Cypriot Community, Iceland and Malta).In this series:n Cyber crimen Financial services in the EU n Environment & climate changeTNS6 More London Place t +44 (0)20 7656 5294London SE1 2QY www.tnsglobal.comUnited Kingdom Twitter: @tns_uk