UK Savings 2019: Review, Forecasts, and Future Opportunities

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The UK savings market has been characterized by a mixture of factors during 2019. Lower GDP and higher real wage growth have created a willingness and ability to save. Similarly, uncertainty over Brexit has led to a flight to safety from stocks and shares ISAs into cash ISAs. In terms of Net Promoter Score (NPS), First Direct leads the way, Nationwide has steadily fallen since 2017, and TSB collapsed in 2019. Meanwhile, new entrant Marcus by Goldman Sachs (Marcus) plans to introduce a budgeting and money management app for 2020 for upper emerging and mass affluent consumers. Its well-known brand and market-beating rates will put pressure on smaller banks in the short term and larger incumbents in the long term.

This report provides information and insights on the UK savings market, including details of the recent savings macro market, the competitive environment among incumbent and challenger players, customer behavior and sentiment, an analysis of recent regulatory changes and proposals and a look at the most innovative new players in the savings industry.

Scope

– Total deposit growth is forecast to be half of the preceding five years amid falling APRs.

– Cash ISA growth rates are set to outperform non-cash ISAs for the forecast period (2019-23).

– Sustained growth in average real weekly wages of 2.4% – combined with low growth and a fall in consumer spending – has meant an increased appetite for saving.

– The main savings providers have lost approximately 8% market share to newer rivals since 2012. Their total market share now stands at 67.5% and continues to fall.

Reasons to Buy

– Gain insight at both the micro and macro level of the UK savings market.

– Learn about threats to savings providers, as well as potential opportunities such as new products.

– Assess the latest trends and innovations in UK savings.

– Compare the performance and strategic direction of your firm against competitors.

Marcus by Goldman Sachs
NS&I
Lloyds Banking Group
HSBC
Skipton Building Society
Hargreaves Lansdown
Nutmeg
AJ Bell
Moneybox
Zopa
RateSetter
Quackle
Encash
GraduRates
First Great National
Fruitful
FundingSecure
Santander
Nationwide
Barclays
RBS Group
OakNorth
Monzo
Atom Bank
Charter Savings Bank
One Savings Bank
Shawbrook Bank
Al Rayan Bank
PCF Bank
Bank of London and Middle East
Gatehouse Bank
Ikano Bank
ICICI UK
State Bank of India
Axis Bank
Zenith Bank
QIB UK
Masthaven Bank
Union Bank of India
Nottingham Building Society
Swansea Building Society
Coventry Building Society
Bank of Scotland
Yorkshire Building Society
Halifax
Clydesdale
Ulster Bank
First Trust
Bank of Ireland
Dankse Bank
Virgin Money
Cleo
Plum
Amazon
Facebook
Google
Chip
Oval Money
Squirrel
Tally Money
Raisin
ING
Yolt.

Table of Contents

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. Market summary 2

1.2. Key findings 2

1.3. Critical success factors 2

2. MARKET ENVIRONMENT 8

2.1. Economic conditions have led consumers to save more in spite of falling APRs 8

2.2. Total deposit growth over the forecast period will be half that of the preceding five years 8

2.3. Increased uncertainty has led to a small renaissance for cash ISAs 9

2.4. The cash ISA market is forecast to outperform non-cash ISAs 10

2.5. The outcome of Brexit will heavily influence interest rate policy 11

2.6. The mortgage price war has also led to falling APRs for depositors 12

2.7. Real wage growth has generated higher levels of saving 13

2.8. UK consumers are actively trying to save 14

2.9. Stringent rules and complexity have led banks to avoid lifetime ISAs 15

2.9.1. LISAs will need to change for incumbent banks to take up the product 17

2.10. Innovative finance ISAs face a similar fate to LISAs as P2P lenders experience a difficult year 17

2.10.1. Caution around P2P lending has led to low take-up of innovative finance ISAs 17

2.11. Pension freedom withdrawals remain popular 18

2.11.1. A cocktail of factors has caused the decline of annuities 19

2.11.2. Customers prefer the freedom and liquidity of cash savings over a pension 19

2.11.3. The FCA believes older consumers are being too cautious with their pension savings 19

2.11.4. Banks should explore a gap in the pension savings market 19

3. COMPETITIVE ENVIRONMENT 21

3.1. The market share of the main providers continues to fall 21

3.2. Challenger brands are competing aggressively for new business 22

3.2.1. OakNorth Bank 22

3.2.2. Atom Bank 22

3.2.3. Charter Savings Bank 22

3.2.4. Shawbrook Bank 22

3.2.5. Al Rayan Bank 23

3.2.6. PCF Bank 23

3.2.7. Marcus 23

4. CONSUMER BEHAVIOR 25

4.1. Incumbent banks have closed a third of UK branches in five years 25

4.1.1. Older consumers are least likely to change provider or behavior when affected by closures 27

4.2. First Direct leads customer sentiment while TSB flounders 28

4.2.1. Nationwide is first among the incumbent providers but its NPS has fallen 17 points in two years 28

4.2.2. Support for TSB has collapsed in 2019 29

4.2.3. Low channel satisfaction drags down Santander and Halifax 30

4.3. Assisted saving tools lack support from even keen savers 31

4.4. There are early signs that mobile and IM saving are set to grow 32

5. REGULATORY ENVIRONMENT 33

5.1. The FCA believes savers are being penalized for loyalty 33

5.1.1. A basic savings rate is likely to be detrimental to the savings market 34

5.1.2. Savers and banks could both benefit from a savings account switching service 34

6. INNOVATION 36

6.1. Budgeting and auto-saving features can help consumers save without conscious effort 36

6.1.1. Innovators are using a simple combination of open banking, customer transaction data, and contemporary banking infrastructure 36

6.1.2. Selling financial and other products to customers is innovators’ main revenue source 36

6.2. Cleo has grown the fastest of the innovators 37

6.2.1. As well as its level of insight, Cleo’s big advantage is its social media savvy 37

6.3. Plum has positioned itself for users who want to save without economizing 38

6.3.1. Plum Plus is mandatory for the investment features 39

6.4. Chip customers can earn up to 5% interest 39

6.5. Oval Money offers behavioral budgeting and saving 40

6.5.1. Oval Money’s rules are unlikely to help customers accumulate large, regular savings 41

6.6. Squirrel caters for a niche market 41

6.7. Tally Money threatens banks’ easy access deposits with older, affluent consumers 42

6.7.1. A decade of low interest rates has spawned inflation-protection products 42

6.8. Raisin is expanding across multiple physical and online markets 43

6.9. Incumbent providers have already begun to copy the innovators 43

6.9.1. Santander Wallet 43

6.9.2. Lloyds Banking Group’s Save The Change 43

6.9.3. NatWest’s Mimo 44

6.10. Other innovative news 44

6.10.1. Nationwide PayDay SaveDay 44

6.10.2. Monzo offers salary sorter and budgeting tools 44

7. APPENDIX 46

7.1. Abbreviations and acronyms 46

7.2. Methodology 46

7.2.1. GlobalData’s 2019 Banking and Payments Survey 46

7.3. Secondary sources 46

7.4. Further reading 48

Figures

List of Figures

Figure 1: Cash ISAs are forecast to grow faster than non-ISA deposits over the forecast period 8

Figure 2: For the last 18 months, consumers have made neutral or positive deposits in cash ISAs 9

Figure 3: As both ISA and non-ISA APRs fall, the gap between them widens 10

Figure 4: Cash ISA and non-ISA deposit growth is set to slow over the forecast period 11

Figure 5: Market expectations have varied significantly due to the perceived likelihood of a no-deal Brexit 12

Figure 6: Rates on easy access and fixed-rate bonds have fallen since January 2019 13

Figure 7: Rising real wages and weak growth will lead consumers to save more 14

Figure 8: Low inflation, rising wages, and heightened uncertainty have assisted consumers’ ability to save 15

Figure 9: Skipton Building Society holds the lion’s share of LISA accounts 16

Figure 10: Several P2P lenders have ceased operations in the last few years after their business model failed 18

Figure 11: Lloyds remains dominant, but it has lost 4.4pp market share over the review period 21

Figure 12: Al Rayan Bank offers the best rate for one-year fixed-rate bonds 24

Figure 13: Most incumbent banks have closed hundreds of branches since 2015 26

Figure 14: The majority of customers use digital channels to manage their savings 27

Figure 15: First Direct and Nationwide lead in terms of consumer sentiment 29

Figure 16: Customers exclusively choosing a bank for saving is a useful proxy for a good savings provider 30

Figure 17: Money saving tools are the most popular of the savings features, but still lack support 31

Figure 18: Online banking remains the dominant method for managing a savings account 32

Figure 19: Supply and demand side propositions from the FCA 33

Figure 20: Potential savings account switchers are the same demographic as potential current account switchers 35

Figure 21: The Cleo chatbot has been designed to be witty, informative, and appealing to 20-30 year olds 38

Figure 22: Consumer reviews said they were put off by the constant memes and notifications from Chip 40

Figure 23: Consumers investing in cash have faced a decade of almost constant negative real returns 42

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