The traditional high street banks’ dominance of the finance market is under attack from new entrants that, through the use of new technology, are offering accessibility, competitive rates and customer service to win over consumers.
Although the traditional high street banks still hold a majority share of the market, the building societies, supermarkets and independent credit card companies are working hard to attract “cash-rich time-poor” consumers or convert those looking for a simple, good value banking option. It will not take long for a much more even playing field to emerge.
The success of newcomers that focus on customer service and accessibility is set to continue, helped by a lack of consumer satisfaction with traditional services. New research from consumer information company Claritas has found that 61 per cent of
consumer complaints are due to simple administrative mistakes – either on account charging, payments and withdrawals or standing orders. Going back to basics might be a worthwhile course of action for this industry, but for most banks the chosen strategy is improving customer service.
When it comes to one-to-one contact, 15 per cent of customers feel unsatisfied, nominating poor service, unhelpful staff or simply bad advice as key issues. Interestingly, inconvenient opening hours and branch closures were relatively low down on the list for consumers.
The data shows that the market can now be divided into five distinct groups: traditional high street banks, building societies, online banks, credit card companies, and retailers providing financial services. According to the research, the newcomers have already had significant success by targeting specific consumer groups.
The traditional high street banks have the most indistinct consumer profile. They have a stronghold on the 50- to 65-year-old, empty-nester pre-retirement market. Consumers with annual incomes in excess of &£75,000 are also more likely to use traditional banks.
So despite many of them facing a deluge of criticism and emerging competition over the past decade, the banks still dominate one of the most lucrative sections of the community. However, growing competition has forced many banks to review their business environments and customer service. According to the Claritas data, the banks have shown a commitment to improving their service, and it is predicted that they will spend &£625m on branch renewal by 2005.
The customer profile for building societies is more easily defined and falls into the 35- to 49-year-old age group. Married couples and growing families dominate this group, which is also reasonably affluent with annual incomes in excess of &£30,000. So far, this sector has failed to attract 18- to 24-year-olds. However, several building societies, including the Alliance & Leicester and Abbey National, are understood to be considering new branch formats with the aim of attracting younger people.
The most distinct customer profile belongs to the online banks. They already have significant appeal with the younger age groups, but online banks are well placed to lure the much sought-after graduate market away from the traditional providers.
Certainly those aged 25 to 29 years old are the predominant customer age group for online banks, which could be attributed to their being more comfortable with new technology and feeling less need for one-to-one contact. Interestingly, there is an immediate and sharp drop-off in customers aged 50 and over.
Online banking is dominated by male customers who are more likely to be co-habiting or separated with children aged ten and under. The annual income in this group ranges from &£30,000 to &£75,000.
Credit card companies have a subtly different customer base. They are slightly older than their online counterparts with a typical age range from 25 for 49 years old. Their typical marital status is either co-habiting or divorced and they tend to have children aged 15 or younger. These customers have the lowest income levels compared with the other four banking types – annual salaries range between &£13,500 and &£50,000.
The supermarket giants have made significant inroads into consumer banking and have claimed ownership of the mature market. Although they are relative newcomers to the banking arena, supermarkets now represent about three per cent of the market. Customers are typically aged between 40 and 59 and are married with either a mortgaged property or one that is owned outright. Incomes range between &£25,000 and &£100,000-plus, but are more likely to be at the upper end of the scale.
Supermarkets possess the brand strength that other newcomers to the banking sector find hard to compete with and many, including Marks & Spencer, Tesco and Sainsbury’s, are using their core values from their grocery business – such as trust, accessibility and simplicity – in their financial services to win customers.
Claritas believes that the banking industry will continue to change over the next five years as technologies such as mobile and TV banking further increase consumer choice. In addition, new entrants from overseas that are already making inroads into the UK market are set to change the financial landscape.