Financial Services Organisations on the Internet - Market Assessment 2005

This report analyses the development of personal online financial services in the UK and their outlook for the future. Retail banking remains the most important sector of the market, with an estimated 20 million users at the end of 2004. Other areas with relatively high levels of penetration in terms of online customers include personal loans, building societies and general insurance. However, the Internet has yet to make any significant impact in areas such as pensions and mortgages, where, given the complicated nature of the products, consumers still prefer face-to-face contact with providers. Meanwhile, the independent investment sector has experienced a decline in terms of volume, which mirrors the fall in stock markets that has taken place since 2000; despite the rally that has taken place over the past 2 years
(since 2003), UK shares remain well below the peak they reached in 1999.

Take-up of online financial services is clearly related to the proportion of homes with access to the Internet. In the final quarter of 2004, 52% of UK households (12.6 million) could access the Internet from home, compared with only 9% (2.2 million) in the final quarter of 1998, according to National Statistics data. The increasing penetration of broadband Internet access is also likely to boost demand for online financial services. By April 2005, more than 5 million people in Great Britain had broadband access. It is likely that more than half of all Internet users in the UK will be on a broadband connection
by 2006 or 2007. British Telecommunications (BT) has already stated that, by summer 2005, 99.6% of British homes will be connected to exchanges capable of providing broadband Internet access.

Security is probably the main barrier the industry faces in persuading more consumers to go online. There have certainly been many instances of breaches of security. `Phishing' attacks, which typically use fake versions of bank websites to grab login details of customers, boomed during 2004. Many household names have been the subject of security scares, so the growing level of consumer concern is unsurprising. Research specifically commissioned for this report found that security is an issue that concerns almost six out of ten adults, and could deter around four in ten people from managing their finances online. Furthermore, approximately half of all 45 to 54 year-olds — who are generally among the wealthiest members of society and are therefore the prime target of financial-services organisations — are so concerned about online security and identify fraud that these issues would prevent them from managing their finances online.

In terms of future prospects, this report predicts that overall demand for online financial services will continue to increase at a healthy rate over the next
5 years (to 2009). However, growth in key sectors such as online banking is expected to slow as the market matures, while the state of the economy between 2005 and 2009 is likely to have a negative impact on demand for products such as consumer loans. According to this report significant growth in the pensions and life insurance sector is not expected, due to the complicated nature of these products. There also seems to be little prospect of the stock market picking up so sharply that investors will flood back to independent online brokers or to stocks and shares individual savings accounts (ISAs). Meanwhile, demand for mortgages is likely to be affected by stagnation in the housing market over the next few years. However, the general insurance sector should continue to fare well.

It is believed that security will continue to be a key issue restricting take-up. The fact that many consumers are reluctant to trust their finances to the Internet is likely to limit the growth of online banking, in particular.

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Executive Summary

1. Introduction

BACKGROUND
DEFINITION

2. Strategic Overview

MARKET DYNAMICS AND SEGMENTATION

Market Sectors
Retail Banking
Loan Providers
Building Societies
General Insurance
Mortgage Providers
Financial Advisers
Independent Investment (Brokers and Funds Supermarkets)
Pensions and Life Insurance

The Current Status of the Market
Retail Banking
Loan Providers
Building Societies
General Insurance
Mortgage Providers
Table 1: Loans for House Purchases (£m), 1999-2004
Financial Advisers
Independent Investment (Brokers and Funds Supermarkets)
Pensions and Life Insurance
Total Industry Value and Growth
Table 2: Estimated Total Number of UK Users of Financial Services on the Internet by Sector (million users), 2000-2004
Figure 1: Estimated Total Number of UK Users of Financial Services on the Internet (million users), 2000-2004

The Largest Sector
The Sector with the Highest Growth Rate
The Sector with the Lowest Growth Rate
The Smallest Sector

DISTRIBUTION

COMPETITIVE STRUCTURE
Retail Banking
Loan Providers
Building Societies
General Insurance
Mortgage Providers
Financial Advisers
Independent Investment (Brokers and Funds Supermarkets)
Table 3: Net Sales of Individual Savings Accounts (stocks and shares) by Value (£m), 2000-2004
Pensions and Life Insurance

ADVERTISING

THE CONSUMER
Who is the Consumer?
Factors Affecting the Consumer
Gross Domestic Product
Table 4: UK Gross Domestic Product at Annual Chain-Linked Prices (£m), 2000-2004
Unemployment
Table 5: Actual Number of Unemployed Persons (million), 2000-2004
Household Disposable Income
Table 6: Household Disposable Income per Capita (£), 1999-2003
Inflation
Table 7: UK Rate of Inflation (%), 2000-2004

MARKET FORECASTS
Table 8: Forecast Total Number of UK Users of Financial Services on the Internet (million users), 2005-2009

3. Retail Banking

BACKGROUND

MARKET SIZE
Table 9: Number of Major British Banking Groups' Individual Bank Accounts and Accessibility by Computer and by Telephone (000 accounts), 1999-2003

CONSUMER TRENDS
Table 10: Profile and Penetration for Using the Internet for Banking (% of respondents who use the Internet for managing all or some of their finances), 2005
Table 11: Penetration for Holding a Main Current Account at a Bank/Building Society That Provides an Internet Banking Service, and Use of That Service (% of respondents), 2003/2004

MARKETING ACTIVITY

ADVERTISING
Online Banking
Table 12: Main Media Advertising Expenditure on Online Banking Services by Brand (£000), Years Ending March 2004 and 2005
Online Savings Accounts
Table 13: Main Media Advertising Expenditure on Online Savings Accounts by Brand (£000), Years Ending March 2004 and 2005

DISTRIBUTION

4. Loan Providers

BACKGROUND

MARKET SIZE
Table 14: Estimated Number of UK Users of Loan Providers' Services on the Internet (million users and %), 2000-2004
Figure 2: Estimated Number of UK Users of Loan Providers' Services on the Internet (million users), 2000-2004

CONSUMER TRENDS
Table 15: Penetration for Arranging Loans by Telephone and on the Internet (% of respondents), 2003/2004

MARKETING ACTIVITY

ADVERTISING
Table 16: Main Media Advertising Expenditure on Online Personal Loans by Brand (£000), Years Ending March 2004 and 2005

DISTRIBUTION

5. Building Societies

BACKGROUND
MARKET SIZE
Table 17: Estimated Number of UK Users of Building Societies' Services on the Internet (million users and %), 2000-2004
Figure 3: Estimated Number of UK Users of Building Societies' Services on the Internet (million users), 2000-2004

MARKET SHARES
Table 18: Leading UK Building Societies by Mortgage Balance Outstanding and Estimated Share of the Total Mortgage Market (£bn and %), 2003

CONSUMER TRENDS

MARKETING ACTIVITY

ADVERTISING

DISTRIBUTION
Table 19: Number of Branches Operated by Building Societies in the UK and Number of Borrowers (actual numbers and 000), 1999-2003

6. General Insurance

BACKGROUND

MARKET SIZE
Table 20: The UK General Insurance Market by Net Written Premiums (£m), 1999-2004
Table 21: Estimated Number of UK Users of General Insurance Services on the Internet (million users and %), 2000-2004
Figure 4: Estimated Number of UK Users of General Insurance Services on the Internet (million users), 2000-2004

CONSUMER TRENDS
Buildings and Contents Insurance
Table 22: Penetration for Buildings Insurance by Sales Channel (% of respondents), 2003/2004
Table 23: Penetration for Contents Insurance by Sales Channel (% of respondents), 2003/2004
Motor Insurance
Table 24: Penetration for Car Insurance by Type of Policy (% of respondents), 2003/2004
Table 25: Penetration for Car Insurance by Sales Channel (% of respondents), 2003/2004
Use of the Internet to Buy Insurance
Table 26: Profile and Penetration for Using the Internet to Buy Insurance (% of all respondents), 2005

MARKETING ACTIVITY

ADVERTISING
Table 27: Main Media Advertising Expenditure on Online Insurance (£000), Years Ending March 2004 and 2005

DISTRIBUTION

7. Mortgage Providers

BACKGROUND

MARKET SIZE
Table 28: Leading UK Mortgage Providers by Mortgage Balance Outstanding and Estimated Share of Total Mortgage Market (£bn and %), 2003
Table 29: Estimated Number of UK Users of Mortgage Providers' Services on the Internet (million users and %), 2000-2004
Figure 5: Estimated Number of UK Users of Mortgage Providers' Services on the Internet (million users), 2000-2004

CONSUMER TRENDS
Table 30: Penetration for Arranging a Mortgage by Telephone and on the Internet (% of respondents), 2003/2004

MARKETING ACTIVITY

ADVERTISING

DISTRIBUTION

8. Financial Advisers

BACKGROUND

MARKET SIZE
Table 31: Estimated Number of UK Users of Financial Advisers' Services on the Internet (million users and %), 2000-2004
Figure 6: Estimated Number of UK Users of Financial Advisers' Services on the Internet (million users), 2000-2004

CONSUMER TRENDS
Table 32: Penetration for Obtaining Financial Advice by Telephone and on the Internet (% of respondents), 2003/2004

MARKETING ACTIVITY

ADVERTISING

DISTRIBUTION

9. Independent Investment

BACKGROUND

MARKET SIZE
Table 33: Estimated Number of UK Users of Independent Investment Services on the Internet (million users and %), 2000-2004
Figure 7: Estimated Number of UK Users of Independent Investment Services on the Internet (million users), 2000-2004

CONSUMER TRENDS
Table 34: Profile and Penetration for Using the Internet for Savings and Investments (% of respondents who use the Internet for managing all or some of their finances), 2005

MARKETING ACTIVITY

ADVERTISING

DISTRIBUTION

10. Pensions and Life Insurance

BACKGROUND

MARKET SIZE
Table 35: Estimated Number of UK Users of Pensions and Life Insurance Services on the Internet (million users and %), 2000-2004
Figure 8: Estimated Number of UK Users of Pensions and Life Insurance Services on the Internet (million users), 2000-2004

CONSUMER TRENDS

MARKETING ACTIVITY

ADVERTISING

DISTRIBUTION

11. An International Perspective

MARKET DEVELOPMENTS
The US
Europe
Table 36: Percentage of Households That Have Internet Access at Home by European Country, 2002-2004
The Global Market

THE COMPETITIVE ENVIRONMENT

12. PEST Analysis

POLITICAL FACTORS
ECONOMIC FACTORS
SOCIAL FACTORS
TECHNOLOGICAL FACTORS

13. Consumer Dynamics

OVERVIEW

PENETRATION OF FINANCIAL SERVICES
Table 37: Penetration of Financial Services by Type of Service — All Accounts, Current Accounts and Deposit Savings Accounts (% of respondents), 2003/2004
Table 38: Penetration of Financial Services by Type of Service — Individual and Joint Current Accounts With and Without Cheque Books (% of respondents), 2003-2004
Table 39: Penetration of Financial Services by Type of Service — Instant Access and Notice/Term Accounts (% of respondents), 2003/2004

REASONS FOR CHOOSING A PARTICULAR BANK OR BUILDING SOCIETY
Table 40: Most Important Reason for Bank/Building Society Choice — Advertising, Company Reputation, Counter Staff/Personal Service, Interest Rates and Introductory Offers (% of respondents), 2003/2004
Table 41: Most Important Reason for Bank/Building Society Choice — Locality, Loyalty Scheme, Overdraft Charges and Personal Experience (% of respondents), 2003/2004
Table 42: Most Important Reason for Bank/Building Society Choice — Range of Services, Recommendation and Telephone/Internet Banking Facilities (% of respondents), 2003/2004

CONSUMER ATTITUDES TOWARDS ONLINE FINANCIAL SERVICES
Table 43: Profile and Penetration for Using the Internet for Managing All or Some Personal Finances (% of all respondents), 2005
Table 44: Profile and Penetration for Concern About the Question of Security Online and Identity Fraud (% of all respondents), 2005
Table 45: Profile and Penetration for Being Sufficiently Bothered About the Issue of Security Online and Identity Fraud to be Deterred from Managing Personal Finances Online (% of all respondents), 2005
Table 46: Profile and Penetration for Preferring to Deal With a Person Face to Face (% of all respondents), 2005
Table 47: Profile and Penetration for Being Happy With the Service in Terms of Cost (% of respondents who use the Internet for managing all or some of their finances), 2005
Table 48: Profile and Penetration for Being Happy With the Service in Terms of Convenience (% of respondents who use the Internet for managing all or some of their finances), 2005
Table 49: Profile and Penetration for Being Happy With the Level of Service Given to Online Customers (% of respondents who use the Internet for managing all or some of their finances), 2005
14. Company Profiles

INTRODUCTION

ABBEY NATIONAL PLC
Corporate Strategy
Strengths and Weaknesses
New Product Development
Brand Development
Innovations
Research
Appointments
Advertising
Profitability
Table 50: Financial Results for Abbey National PLC (£000 and %), Years Ending 31st December 2001-2003
Future Company Developments

ALLIANCE & LEICESTER PLC
Corporate Strategy
Strengths and Weaknesses
New Product Development
Brand Development
Innovations
Research
Appointments
Advertising
Profitability
Table 51: Financial Results for Alliance & Leicester PLC (£000 and %), Years Ending 31st December 2002-2004
Future Company Developments

BARCLAYS PLC
Corporate Strategy
Strengths and Weaknesses
New Product Development
Brand Development
Innovations
Research
Appointments
Advertising
Profitability
Table 52: Financial Results for Barclays PLC (£000 and %), Years Ending 31st December 2001-2003
Future Company Developments

THE CO-OPERATIVE BANK PLC
Corporate Strategy
Strengths and Weaknesses
New Product Development
Brand Development
Innovations
Research
Appointments
Advertising
Profitability
Table 53: Financial Results for The Co-operative Bank PLC (£000 and %), Years Ending 11th January 2003, 10th January 2004 and 8th January 2005
Future Company Developments

HBOS PLC
Corporate Strategy
Strengths and Weaknesses
New Product Development
Brand Development
Innovations
Research
Appointments
Advertising
Profitability
Table 54: Financial Results for HBOS PLC (£000 and %), Years Ending 31st December 2002-2004
Future Company Developments

HSBC HOLDINGS PLC/HSBC BANK PLC
Corporate Strategy
Strengths and Weaknesses
New Product Development
Brand Development
Innovations
Research
Appointments
Advertising
Profitability
Table 55: Financial Results for HSBC Bank PLC (£000 and %), Years Ending 31st December 2001-2003
Future Company Developments

LLOYDS TSB GROUP PLC
Corporate Strategy
Strengths and Weaknesses
New Product Development
Brand Development
Innovations
Research
Appointments
Advertising
Profitability
Table 56: Financial Results for Lloyds TSB Group PLC (£000 and %), Years Ending 31st December 2002-2004
Future Company Developments

NATIONWIDE BUILDING SOCIETY
Corporate Strategy
Strengths and Weaknesses
New Product Development
Brand Development
Innovations
Research
Appointments
Advertising
Profitability
Future Company Developments

PRUDENTIAL PLC
Corporate Strategy
Strengths and Weaknesses
New Product Development
Brand Development
Innovations
Research
Appointments
Advertising
Profitability
Table 57: Financial Results for Prudential PLC (£000 and %), Years Ending 31st December 2002-2004
Table 58: Financial Results for Egg PLC (£000 and %), Years Ending 31st December 2001-2003
Future Company Developments

THE ROYAL BANK OF SCOTLAND GROUP PLC
Corporate Strategy
Strengths and Weaknesses
New Product Development
Brand Development
Innovations
Research
Appointments
Advertising
Profitability
Table 59: Financial Results for The Royal Bank of Scotland Group PLC (£000 and %), Years Ending 31st December 2002-2004
Future Company Developments

15. The Future

MARKET FORECASTS
Table 60: Forecast Total Number of UK Users of Financial Services on the Internet by Sector (million users), 2005-2009
Figure 9: Forecast Total Number of UK Users of Financial Services on the Internet (million users), 2005-2009

THE ECONOMY
Table 61: Forecast UK Growth in Gross Domestic Product in Real Terms (%), 2005-2009
Table 62: Forecast UK Rate of Inflation (%), 2005-2009
Table 63: Forecast Actual Number of Unemployed Persons (million), 2005-2009

SECURITY

DEMOGRAPHICS
Table 64: Projected UK Population by Age (000), 2002, 2006 and 2011

MERGERS AND ACQUISTIONS

16. Further Sources

Associations
Publications
General Sources
Government Publications
Other Sources
Bonnier Information Sources

- Abbey National Plc
- Alliance & Leicester Plc
- Barclays Plc
- The Co-operative Bank Plc
- HBOS Plc
- HSBC Holdings Plc/HSBC Bank Plc
- LLyods TSB Group Plc
- Nationwide Building Society
- Prudential Plc
- The Royal Bank of Scotland Group Plc