The UK retail banking sector has been resilient despite COVID-19. Residential mortgages and retail deposits showed weaker compound annual growth rates (CAGR) than comparable markets, although consumer credit lending recorded stronger CAGRs for both credit cards and personal loans than comparable markets (with the exception of Germany). The UK has witnessed a double threat to the economy in the form of uncertainty and external shocks caused by the 2016 Brexit referendum and the COVID-19 pandemic.
The UK retail banking market research report explores the key trends in the UK retail banking sector and offers insight into consumer preferences and changes in behavior regarding financial services providers. It also examines channel preferences and covers overall satisfaction and importance levels of the main banking attributes. In addition, the report analyzes cross-selling opportunities by looking at customer tenures and areas of dissatisfaction.
What was the impact of COVID-19 on the UK retail banking market?
Since 2015 only Barclays, NatWest, and The Co-operative Bank have been able to decrease their cost/income ratios. All other providers covered saw costs rise relative to income. This was particularly true in 2020 due to the impact of non-performing loans, losses, and provisions as a result of COVID-19 as well as increased investment in digital channels and technology as bank operating models underwent one of the most significant periods of evolution they have ever faced.
COVID-19 and associated lockdown measures accelerated the shift in use and preference for digital channels as branch closures were implemented. In the UK these effects were particularly pronounced, specifically during Q1 and Q2 2020, as branch services closed or began operating on a reduced-hours basis. As customers had no option but to switch to using digital banking channels, many likely realized how antiquated incumbent legacy channels and products are. In recent years, a digital gap has been emerging between digital challengers and incumbent banks. The ease of signup and functionality offered by alternative providers showcased a new type of banking to UK customers – a factor that has likely contributed to preference rates moving away from traditional banks in favor of alternative providers. While the strong shift in preference can be attributed to the pandemic, it is likely that such trends will persist over the long term as rates of internet and smartphone penetration in the UK continue to rise, favoring digital providers.
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Which are the key providers in the UK retail banking market?
The key providers in the UK retail banking market are traditional banks & building societies, digital-only banks, digital wallets, big tech companies, digital investment platforms, telecommunications companies, new digital service providers, retailers/supermarkets, and a financial intermediary.
Traditional banks and building societies have seen a significant shift in preference for their services, such gains have not been taken advantage of by digital-only banks, digital wallet providers, and big tech companies, which are widely considered the three most likely types of provider to challenge incumbents for the primary account relationship. Despite being the best resourced and positioned challengers to threaten incumbents, preference for their services has not increased as many would have expected.
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Who are the key disruptors in the UK retail banking market?
The key disruptors in the UK retail banking market are Starling Bank, Monzo, and Revolut.
Starling Bank was founded in 2014 by Anne Boden, a veteran banker with around 40 years of experience in the industry. Starling’s main aim is to create the best current account in the world – a consequence of the founder deciding she could offer a better service to customers and beat incumbents at the same time. Unlike Monzo, which has moved towards a big tech approach to branding, Starling has placed greater emphasis on generating a degree of respectability in line with incumbents.
Monzo was originally founded as Mondo in 2015 by Tom Blomfield and a team who met while working at Starling Bank. In February 2016,
Headquartered in London, Revolut was founded in 2015 by Nikolay Storonsky and Vlad Yatsenko. It has shifted from being a fintech that predominantly focused on offering currency exchange to a financial super app now offering debit cards, virtual cards, Apple Pay, interest-bearing Vaults, commission-free stock trading, cryptocurrency trading, commodities, and other services, with a full retail banking suite expected to be available within the next 24 months.
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UK retail banking market overview
|Key providers||Traditional Banks & Building Societies, Digital-Only Banks, Digital Wallets, Big Tech Companies, Digital Investment Platforms, Telecommunications Companies, New Digital Service Providers, Retailers/Supermarkets, and A Financial Intermediary|
|Key disruptors||Starling Bank, Monzo, and Revolut|
- GlobalData’s 2021 Financial Services Consumer Survey found that the preference for current accounts from traditional providers in the UK declined by 12 percentage points (pp) compared to the previous year.
- Banks have prioritized the elements of service customers rank as most important, but greater attention should be paid to offering competitive prices and loyalty rewards as these are areas digital challengers thrive in.
- Between 2020 and 2021 online channels saw a 3pp decrease in use, while mobile channels saw a 3pp increase.
Reasons to Buy
- Understand and analyze UK mortgage, deposit, and lending market trends based on present and forecast growth up to 2025.
- Analyze data from GlobalData’s 2021 Financial Services Consumer Survey by looking at consumer preferences and behaviors in the UK retail banking market.
- Identify critical data points for customer retention and acquisition through three core areas in banking: financial services provider preference and movements, digital and alternative channel preferences, and cross-selling opportunities based on tenure and satisfaction levels.
Coventry Building Society
The Co-Operative Bank
Table of Contents
Table of Contents
1. Executive Summary
1.1 Growth in consumer credit balances has slowed
1.2 UK consumers’ preference for incumbents has decreased
2. Key Facts
3. Market Environment
3.1 Market balances
4. Macroeconomic Environment
4.1 GDP and unemployment
5. Competitor Environment
5.1 Retail deposits: The market share held by the top five decreased from 66% in 2010 to 58% in 2020
5.2 Residential mortgages: Market share concentration among the top five decreased from 69% in 2010 to 65% in 2020
5.3 Credit cards: Market share concentration among the top five increased from 56% in 2010 to 57% in 2020
5.4 Personal loans: Market share among the top five settled at 36% in 2020 – the same as in 2010
5.5 COVID-19 has made it possible for banks to make efficiencies, but these have increased short-term costs
6. Survey Insights
6.1 Retail banking provider preference is beginning to shift from incumbents to alternative providers
6.2 UK consumers prefer traditional providers due to their better levels of service and branch networks
6.3 The preference for alternatives is driven by better rates/ rewards and superior digital banking functionality
6.4 The COVID-19 pandemic drove an increase in fraud
6.5 UK banks have attempted to prioritize the attributes of service that customers rank as most important
6.6 UK banks must perfect the ability to resolve minor and regular banking problems
6.7 Cross-selling is correlated with high rates of customer satisfaction and tenure
7.1 Starling Bank
8.1 Abbreviations and acronyms
8.3 Further reading
List of Figures
List of Figures
Figure 1: Residential mortgage and retail deposit balances have increased year on year since 2010, with deposits increasing most in 2020 due to COVID-19
Figure 2: Consumer credit balances have followed a similar trajectory since 2010, although personal loan balances far exceed credit card balances
Figure 3: Retail deposit and residential mortgage growth will be lower than in comparable markets
Figure 4: GDP is set to have grown in 2021 as vaccination programs allowed for reopening and recovery
Figure 5: Inflation is expected to increase and peak in 2022, with forecasted wage growth unlikely to keep up
Figure 6: Retail deposits market share quarterly growth, 2017-21
Figure 7: Residential mortgages market share quarterly growth, 2017-21
Figure 8: Credit cards market share quarterly growth, 2017-21
Figure 9: Personal loans market share quarterly growth, 2017-21
Figure 10: Cost/income ratios, 2015-20
Figure 11: Preference for a transaction/savings account from financial intermediaries and retailers/supermarkets grew most in the UK between 2020 and 2021
Figure 12: A decline in preference for traditional providers has been seen globally
Figure 13: In terms of transaction/savings accounts from traditional providers, a decline in preference was witnessed across all UK age groups – especially 18-24-year-olds
Figure 14: Better overall levels of service is the top reason for choosing a traditional provider, but trust in incumbents is also a key factor
Figure 15: Better rates and rewards is the top reason for preferring alternatives across all age groups
Figure 16: The key reason consumers prefer alternative providers is better rates and rewards
Figure 17: Card details being stolen online is the most likely reason for being a victim of fraud
Figure 18: Satisfaction across attributes shows that banks in the UK have not been entirely successful in prioritizing the attributes that matter most to customers
Figure 19: Regular branch users are most likely to want an omnichannel experience
Figure 20: When applying for a mortgage, preference for branches is lower in the UK than comparable markets
Figure 21: Proportion of consumers who have been with their financial services provider less than five years
Figure 22: A tenure of five years or longer is when customers are most receptive to cross-selling
Figure 23: Higher rates of cross-selling correlate with higher customer satisfaction across all attributes