Do customers just invest based on rate or do they offset this against ease of withdrawal, brand or service?
HEADLINES
- Does the arrival of Marcus (Goldman Sachs’ new online savings account) provide a foretaste of the potential for serious disruption in this space?
- Presumably competitor monitoring has gone up the agenda now that the Bank of England has removed all support schemes
- Do customers just invest based on rate or do they offset this against ease of withdrawal, brand, or service? We all know how unforgiving they are. Beware the wrath of Trustpilot
- Cost of customer acquisition versus quantity of new money
- You might tell us that this as a subject is too tricky to navigate
KEY CHALLENGES
Brexit, monetary policy and political uncertainty are all driving the flight to safety. The combination of unknowns in passporting and exchange rates, fluctuation in interest rates and inflation and changes in taxation/regulation are seeing both financial services and consumers moving away from risk. The industry has seen continued growth in cash reserves and investments with household deposits continuing steady growth from £1.2bn in 2013 to £1.5bn in Dec 2018.
Major areas of focus for the banks and building societies remain rise of interest rates and balancing the impact of positive returns vs inflation, the end of government funding initiatives. Enhanced NSFR requirements and the uncertainty of legislation and regulation in the light of Brexit uncertainty. The industry is seeing an increase in the emergence of platform propositions, stimulation from open banking initiatives supported by technology and API driven distribution.
There is increased competition from financial institutions such as Starling, Monzo and Atom banks, Revolut and N26 as well as banks from other jurisdictions. Supporting industry change is the continued and growing collaboration between incumbents and fintechs.
For savers, they are seeing positives from the rise of interest rates i.e. positive returns vs impact of inflation.
Consumers are saving, but for different reasons and outcomes to those promoted by the mainstream industry, trends see the rise of new savings propositions and Apps e.g. Raisin, Nutmeg, Oak North and Marcus (Goldman Sachs). There is low engagement and loyalty and a move to convenience with a dichotomy between yield vs brand trust, a factor which remains important particularly with switching initiatives. There is a change in attitude/expectations across value-adds, incentives, devices and delivery. In a world where consumers are cash rich and time poor, returns are about more than just rates.
Discussion:
- The rise of the digital promotional transformation market and the market place environment will create new propositions and openings for new contenders
- Hub experiences and tech platform collaboration are defining what customers want, Trends in improved customer experiences, supported by deeper understanding of why people’s interactions are changing, are being led by other industries such as Amazon and Facebook
- Technology trends are remaining slow on cash saving propositions due to low margins, yet customer value is high in this area and it remains an area to watch particularly as new entrants e.g. BBVA grow in the UK
- Comments raised that consumers are looking at cash savings more than investment returns with Brexit given as a significant factor
- Panel propositions such as Raison are offering a wider range of products and benefits vs traditional bank and building society product silo’s
- Personalisation, automated authentication and AI are rising in retail banking but less so in the advisory world where D2C propositions have been slower to evolve due to low volumes of customers
- GDPR is ever present along with the debate on who owns the customer and how this will impact the industry
- Legislation and regulation are being scrutinised carefully to see if changes in laws and dynamics offer risks or opportunities e.g. changes in ISA allowances and PSDII
CONCLUSIONS/SOLUTIONS
Customers want personalisation to fit lifestyles and life stages. As with other Financial Services categories, and as demonstrated in other disrupted industries, consumers are likely to be the key driver of what the future holds for savings accounts.
Banks are sitting on significant cash reserves and the industry is seeing an oversupply of cash vs a demand for credit. With pensions freedoms limited, the industry needs policy changes.
The industry must plan for changes in society with fluctuation in town and city centre footfall, an ageing population and pressures on long term care services. Distribution manufacturing and partnerships supported by growth of technology as an enabler will challenge customers brand loyalty and overcome apathy. This will drive personalisation which in turn will define the types of transactions customers want.
The rise of accessibility, authentication and “findability” will capture attention. However, in this is likely to come from a change in distribution vs traditional product manufacturing models.
Ones to watch for the future are Monzo, Revolut, eBay along with the fintech partnerships such as Clearscore/Raisin and Apple/Goldman Sachs.
