Non-Traditional Players in Retail Banking: The Customer Opportunity

Non-Traditional Players in Retail Banking: The Customer Opportunity published by Datamonitor in December, 2009. This report consists of 86 pages and the price starts from US $ 4495.

Introduction

Abstract

Introduction

The financial crisis has had a huge impact upon the banking world. Many established banks have been weakened, subject to tougher regulation, and suffering from diminished trust. This has created an opening for non-traditional providers to move in and take advantage of their stronger reputations. However, they also need to be aware of obstacles, such as customer inertia, that stand in their way.

Scope of this research

• Strengths that can provide non-traditional entrants with a competitive edge over established banks, such as expertise in customer analytics.
• Weaknesses that such providers need to deal with, such as high levels of customer inertia and the difficulties faced in selling advice-led products.
• Opportunities that will benefit these institutions, for example technological developments lowering the costs of entry.
• Threats that exist to the wellbeing of new, non-traditional providers, such as lack of expertise in the provision of financial services.

Research and analysis highlights

Expertise in database management and customer analytics gives supermarkets and other retailers a competitive advantage over the banks when it comes to marketing products and services.

Non-traditional providers will find it extremely difficult to overcome the high degree of inertia in the current account market.

Not having launched operations in the immediate aftermath of the banking crisis means that prospective entrants may have missed their best window of opportunity to win over disaffected customers.

Key reasons to purchase this research

• Presents case studies of providers who have already entered, or are in the process of entering, the financial services industry.
• Highlights the main strengths that new entrants to retail banking can exploit, as well as the weaknesses they need to contend with.
• Discusses the opportunities that exist in the market for non-traditional providers, and the threats to their prospects for success.

Table of Contents

OVERVIEW

• Catalyst
• Summary
• Methodology

EXECUTIVE SUMMARY

• Datamonitor concludes that new providers will have only a limited impact on the market
• Non-traditional players seeking to enter the banking market face mixed prospects
  • Recent history does not provide cause for much optimism in relation to new entrants
  • New players can take a number of steps to increase their chances of success
  • There are several measures that established banks can take to combat the threat from new providers

• The case for non-traditional players
  • The banking crisis has greatly diminished the public' s trust in established banks
  • Retailers have proved themselves to be extremely proficient at exploiting their customer databases
  • Outside factors have combined to leave the established banks in a weakened state
  • Advances in technology have reduced some of the costs of entry

• The case against non-traditional players
  • Customer acquisition could prove tricky for new providers
  • Lack of expertise and experience could prove to be the undoing of market entrants
  • The future climate may not be as amenable to new entrants
  • Existing banks will work hard to defend their market share

INTRODUCTION

• The banking crisis has created an ideal climate for new entrants
  • Non-traditional players have catered to a niche market for a long time
  • Until now, market conditions have conspired against the emergence of new providers
  • The lack of trust in the banking industry has created an opportunity for new entrants untarnished by the crisis

THE FUTURE DECODED

• Strengths
  • Several non-traditional providers have already successfully branched out into financial services
  • Stand-alone providers
  • Strategic partnerships
  • The banking crisis has created a more conducive environment for new players to win business
  • New providers are well-placed to exploit existing customer databases
  • Retailers can exploit existing customer loyalty schemes to market financial products
  • Retailers can reach potential customers through a variety of channels

• Weaknesses
  • Staff acquisition costs can be very high
  • Retailers will struggle to offer mortgages and other complex products
  • Customer acquisition may prove problematic for retailers wishing to enter the current account market
  • IT infrastructures may be unable to cope with unforeseen problems
  • Marketing and positioning a new bank could prove extremely challenging

• Opportunities
  • External factors are leaving existing banks vulnerable to new competitors
  • The provision of bank accounts will create golden opportunities for cross-selling
  • Off-the-shelf IT systems allow new entrants to start infrastructure from scratch
  • New entrants can recruit staff that have been made redundant by the banks
  • Restrictions on bank lending leaves the field open to new providers

• Threats
  • Market conditions could change between announcement to launch and the launch itself
  • Banking operations may act as a drain on the core finances of the parent company
  • New providers may come unstuck if they diversify into non-core business activities
  • Companies have encountered problems in the past when branching out into new areas
  • The reputation of an organization' s core business may be damaged in the event of problems with its banking operation
  • Problems at a retailer' s core business may jeopardize the success of its banking arm
  • Established players may try to make life difficult for new entrants
  • Public concern may mount that the parent company will be too big or powerful
  • Their small size may leave new entrants vulnerable to market downturn
  • New banks may be unable to offer a full range of products and services
  • Tensions may arise over corporate culture

APPENDIX

• Supplementary data
• Definitions
  • Aggregator site
  • Asset Protection Scheme (APS)
  • Prepayment card

• Methodology
• Further reading
• Ask the analyst
• Datamonitor consulting
• Disclaimer

TABLES

• Table: New providers at a glance
• Table: Tesco outlets in the UK, as of November 2009
• Table: Impact of fall in trust with primary bank on likelihood to investigate other banks
• Table: Current account market share in the UK
• Table: Products consumers are willing to purchase from supermarkets
• Table: Impact of fall in trust with banking industry on likelihood to shop around for financial products
• Table: Extent of fall in trust in banking industry
• Table: Customer satisfaction with credit card providers
• Table: Popularity of non-financial providers for financial products
• Table: Extent of trust in financial institutions (rated on five-point scale)
• Table: ING Direct: savings rates and deposits
• Table: Extent of cross-selling
• Table: Change in availability of credit over time
• Table: Nationwide Consumer Confidence Index 2004 - 2009
• Table: HBOS: value of total deposits over 2004-2009

FIGURES

• Figure: Consumers with diminished trust in their main bank are willing to look elsewhere
• Figure: Sainsbury' s is using its Nectar loyalty scheme to entice customers
• Figure: Current account market share is concentrated in very few hands
• Figure: Only a minority claim they are willing to purchase financial products from supermarkets
• Figure: Consumers with diminished trust in their main bank are willing to look elsewhere
• Figure: There is a strong link between falling levels of trust in industry and likelihood to shop elsewhere
• Figure: Consumer trust in banks has been badly hit, especially in the US and northern Europe
• Figure: Tesco already offers a wide array of financial products and services
• Figure: As well as having an online presence, Tesco also offers in-store banking facilities
• Figure: Alior is the largest ever bank launch in Polish history
• Figure: The US fashion retailer Nordstrom offers full banking to its customers
• Figure: Through its Greenbee brand, John Lewis markets a wide range of insurance policies
• Figure: O2 has recently introduced two new payment cards
• Figure: Customer satisfaction with credit card providers is much higher for non-bank institutions
• Figure: Sainsbury' s is using its Nectar loyalty scheme to entice customers
• Figure: Tesco has effectively integrated its credit card into its wider loyalty program
• Figure: Is this an appropriate environment in which to sell mortgages and pensions?
• Figure: Current account market share is concentrated in very few hands
• Figure: Non-financial providers currently hold limited appeal for consumers
• Figure: Only a minority claim they are willing to purchase financial products from supermarkets
• Figure: Banks still enjoy levels of trust comparable to other organizations, in the UK and globally
• Figure: ING Direct: When saving doesn' t feel so good
• Figure: Tesco Compare has failed to make inroads into the price comparison market
• Figure: RBS could be forced to sell off its branches in England
• Figure: Across all markets, the current account drives cross-selling of other products
• Figure: There has been a severe contraction in the availability of secured and unsecured credit
• Figure: Deposits held at HBOS fell in 2008, along with consumer confidence
• Figure: Prudential sold Egg to Citi in 2007, having failed to make a success of the venture
• Figure: Marks & Spencer' s Lifestore concept failed to attract customers in sufficient numbers
• Figure: National Savings & Investments prominently emphasizes its 100% Treasury-backed guarantee
• Figure: Abbey is launching a fee-free bank account for its mortgage holders

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