Consumer Banking: Are we at a Tipping Point?

Dan Weeks


A decade on from the global financial crisis, times are tough for companies operating in the UK consumer banking sector. The interest rate cycle shows no signs of turning; indeed, while the Bank of England left rates unchanged at its policy meeting in November, two officials voted for an immediate cut. Profitability is under pressure against an industry-wide backdrop of very low interest rates (relative to historic levels), intense competition and rapid changes in technology. What is the outlook for consumer banking under these conditions? How can banks continue to play a role as rapid changes in technology contribute to shifts across the industry? The Financial Services Forum gathered a panel of industry experts to discuss these issues.

The changing consumer banking landscape
• Competition is wiping out 3% of industry-wide net interest income and margins are disappearing.
• Mortgage rates are highly competitive and rates on personal loans are showing the effect of increased competition.
• The best rates on mortgages are now equal to or falling below the highest savings rates.
• Credit card growth is stalling.
• Banks are nearing the point at which they will have to start charging to take deposits.
• The banking industry still needs to spend large sums of money to improve and replace legacy computer systems.

The impact of technology
• Open banking is spreading in the UK; this is part of a wider move towards an increasingly digital society.
• Building close, loyal customer relationships is key in the digital landscape, given that switching accounts between banks has become simpler and faster.
• The five building blocks for developing customer relationships are product quality, value, sharing, customer closeness and brand magnetism.
• Customer closeness and brand magnetism have the most impact on spending per customer.
• Developing customer closeness is the industry’s largest challenge, but also represents the greatest opportunity; customer rewards and personalisation are potential approaches.
• Banks’ ability to react and adapt is key.
• As more business moves to digital platforms, banks need to realise that incorporating third party products can add value.
• The customer experience is becoming increasingly important, as consumers value their time above brand loyalty.

What the customers think
• Older, wealthier customers are adopting digital banking, not just younger, more technically savvy consumers.
• Customer inertia is the leading obstacle.
• Consumers are seeking an exchange of value and are willing to share their data if the motivation for doing so is relevant, timely and simple.

Thank you to our speakers:

Alastair Pegg, Former Marketing Director, The Co-operative Bank (Chair)
Jonathan Tyce, Senior Banks Analyst, Bloomberg Intelligence
Richard Gaze, New Business Director, Motif
Huw Davies, Ecosystem Development Director, The Open Banking Implementation Initiative
Alan Walsh, Former Head of Networks and Partnerships, Bud
Kevin Mountford, CEO, Raisin UK
Brian Brown, Head of Insight – Banking and General Insurance, Defaqto
Paul Kenny, Director, Retail Finance Benchmarking, CACI

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