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A series of presentations in 116 slides from Data Monitor, Ovum and Verdict Consulting reviewing the new entrants into the banking industry: Tesco, Virgin and Metro Banks; the future consumer …

A series of presentations in 116 slides from Data Monitor, Ovum and Verdict Consulting reviewing the new entrants into the banking industry: Tesco, Virgin and Metro Banks; the future consumer technologies in banking; the consumer's view of the world; and a view of the future. The presentations were made at an event for Data Monitor's clients in January 2010. Slides provided by Data Monitor to the FSClub with thanks.

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  • 1. HIGH NOON FOR FINANCIAL SERVICES ? what the future has in store thursday, 28 january 2010
  • 2. 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)
  • 3. Datamonitor Consulting Financial Services: A New Frontier? Liz Hartley, Principal Consultant 28th January 2010
  • 4. Part 1 The way we were
  • 5. 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!
  • 6. The way we were The new millennium dawned
  • 7. The way we were Our brands, icons and stories
  • 8. The way we were Many tremors, one major earthquake
  • 9. 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
  • 10. 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?
  • 11. Part 2 The FS Wild West - will new market entrants put up a good fight?
  • 12. 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.
  • 13. The FS Wild West Who are the Cowboys?
  • 14. 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
  • 15. 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
  • 16. The FS Wild West – Tesco 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?
  • 17. The FS Wild West – Tesco 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
  • 18. 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
  • 19. The FS Wild West – Virgin 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
  • 20. The FS Wild West – Virgin What are the potential pitfalls? • 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
  • 21. The FS Wild West – Virgin How much business will it win? 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?
  • 22. 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?
  • 23. The FS Wild West – Metro Bank 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
  • 24. The FS Wild West – Metro Bank How will it win?
  • 25. The FS Wild West – Metro Bank What are the potential pitfalls? • 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?
  • 26. The FS Wild West – Metro Bank How much business will it win? 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?
  • 27. 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
  • 28. Part 4 A Bloody Battle?
  • 29. 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 Impact rating on FS market 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 Impact rating on FS market 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.
  • 30. A Bloody Battle? Assessing new player strengths: agility Being a new entrant provides a clean slate Impact rating on FS market 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 Impact rating on FS market Strategic partnerships – Expansion and best-in-class products and services 1 2 3 4 5 without creating a bulky organisation. Low impact High impact Impact rating on FS market New technology - Core systems can be bought read-made and off-the-shelf. 1 2 3 4 5 Sophistication of CRM has also increased. Low impact High impact
  • 31. A Bloody Battle? Assessing new player strengths: reach Targeting customers well is a core strength Impact rating on FS market 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 Low impact High impact key differentiator and trump card. Impact rating on FS market 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 Low impact High impact customer reach.
  • 32. A Bloody Battle? Assessing new player weaknesses: risks There are a number of risks involved in setting up a new bank Impact rating on FS market 1 2 3 4 5 IT capacity – Will new players judge correctly the capacity they will need? Low impact High impact Impact rating on FS market Reverse brand damage –The more products and services, the greater the risk 1 2 3 4 5 potential probability. Low impact High impact Impact rating on FS market 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. Low impact High impact Impact rating on FS market 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. Low impact High impact Impact rating on FS market 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
  • 33. A Bloody Battle? Assessing new player weaknesses: timing There’s a hub of activity now, but has the window shut? Impact rating on FS market Market maturity – An FS Premier League developed. Is there space for new 1 2 3 4 5 players? Low impact High impact Impact rating on FS market 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 Low impact High impact 16% to 11% and trusted retailers from 15% to 12%. Impact rating on FS market 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
  • 34. 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
  • 35. 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
  • 36. 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.
  • 37. Sadly, not all technological concepts become reality 38 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 38. From Hollywood to the home Video conferencing and smart cards Interactive, multi- channel television 39 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 39. Content, communication and collaboration Home Mobile IM & SM *selected examples 40 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 40. Consumer technology crossover into work environment Increase efficiency Improve service 41 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 41. 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 42 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 42. 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 43 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 43. 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 44 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 44. …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 45 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 45. 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 46 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 46. …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 47 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 47. …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 48 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 48. 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 49 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 49. 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 50 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 50. 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 51 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 51. 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? 52 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 52. 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? 53 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 53. 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 54 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 54. 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. 55 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 55. Looking ahead to 2020 56 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 56. Contact Alex Kwiatkowski Principal Analyst, Financial Services Technology alex.kwiatkowski@ovum.com t: +44 207 551 9371 m: +44 7825 266931 twitter: alexkwiatkowski 57 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 57. Disclaimer All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Ovum. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Ovum delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Ovum can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect. 58 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 58. HIGH NOON FOR FINANCIAL SERVICES ? what the future has in store thursday, 28 january 2010 59 © Copyright Ovum. All rights reserved. Ovum is part of the Datamonitor Group.
  • 59. The future of financial services A retail revolution?
  • 60. Today’s agenda What we’ll talk about the story changing the where so far consumer responses next?
  • 61. part 1 the story so far
  • 62. The story so far Not revolutionary 1985 1997 1997 1.4% 0.5% 1.7%
  • 63. The story so far Selective entry Current a/c Mortgages Savings Personal lending Insurance Credit cards
  • 64. The story so far Unfavourable conditions Mass market approach Customer inertia Stability of sector You don’t go south until you have to
  • 65. 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
  • 66. part 2 changing consumer
  • 67. Changing consumer Consumers are fragmented
  • 68. 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
  • 69. 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
  • 70. Changing consumer Consumers are pressured Confused Bombarded Pressured Harried Overloaded
  • 71. Changing consumer Consumers are demanding
  • 72. part 3 the responses
  • 73. The responses Rule 1: segmentation of the offer The retail way
  • 74. The responses Rule 1: segmentation of the offer A banking model is this real segmentation?
  • 75. The responses Rule 1: segmentation of the offer 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
  • 76. 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
  • 77. The responses Rule 2: declutter The concept of edited choice Marks & Spencer Crew Clothing Croydon Bristol
  • 78. 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
  • 79. The responses Rule 3: brand building Rules for brand building Attention deficit Attention grabbing Jaded consumer Innovation / newness Scarcity of time Value for time
  • 80. The responses Rule 3: brand building The importance of brand differentiation
  • 81. The responses Rule 3: brand building Examples from retailing Organising thoughts Don’t communicate, engage Keep it simple
  • 82. The responses Rule 4: satisfaction Critical differences Banks Retailers Switching low Switching high Switching difficult Switching easy Inertia Active Less choice Extensive choice
  • 83. The responses Rule 4: satisfaction Satisfaction levels with credit cards The banks The retailers 60% 70% Source: Which?
  • 84. The responses Rule 4: satisfaction Customer centricity Customer Operations Offer Customer
  • 85. The responses Rule 4: satisfaction The death of disintermediation?
  • 86. 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
  • 87. part 4 where next?
  • 88. 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
  • 89. Where next? The future Yesterday Tomorrow Insulated Exposed Mainstream matters Niches count Institutions Brands Services Solutions
  • 90. Neil Saunders Verdict Consulting, 119 Farringdon Road, London EC1R 3DA 0207 551 9419 | neils@verdict.co.uk
  • 91. Datamonitor Consulting 20:20 Vision Liz Hartley, Principal Consultant 28th January 2010
  • 92. Part 1 Rose tinted glasses?
  • 93. 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
  • 94. Rose tinted glasses? 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
  • 95. Rose tinted glasses? 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
  • 96. Part 2 Future Gazing
  • 97. 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
  • 98. Future Gazing Our FS world has changed and is evolving
  • 99. 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
  • 100. Future Gazing Demographic indicators are limiting
  • 101. Future Gazing New communications needs from C&C consumers Consumers who pay more attention now to bank literature than before the crunch
  • 102. Future Gazing Cross-sales are generally weak
  • 103. Future Gazing Recession-proof are largely indifferent on price
  • 104. Future Gazing Higher twitchiness among RP and Conscientious
  • 105. 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
  • 106. 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
  • 107. 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
  • 108. Part 3 The New World
  • 109. 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
  • 110. 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
  • 111. The New World What will our world look like? Channel challenges
  • 112. The New World What will our world look like? Peer pressure
  • 113. The New World What will our world look like? People power
  • 114. 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?
  • 115. OVER TO YOU the future shape of the fs sector panel session

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