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United Kingdom Retail Banking Market - Growth, Trends, Covid-19 Impact, and Forecast (2021 - 2026)

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  • 150 Pages
  • October 2021
  • Region: United Kingdom
  • Mordor Intelligence
  • ID: 5458944

The retail banking industry in the United Kingdom is being driven by powerful forces, creating an imperative for change. The landscape will change significantly in response to the evolving forces of customer expectations, regulatory requirements, new competitors, technology, demographics, and shifting economics. Banks need to decide what they want to embrace from impact and change. Staying the same is not an option for banks. They need to explore different retail banking trends to be agile and open. Banks must address challenges and retool to win in 2020. They must develop strategies that can keep up with the changing retail banking landscape and integrate changes in markets, customers, risk regulation, operations while implementing a large real-world scale change.

The financial services sector contributed GBP 132 billion to the UK economy, 6.9% of total economic output. The sector was largest in London, where half of the sector's output was generated. The UK financial services sector was the ninth-largest in the OECD in 2019 by its proportion of national economic output.

Retail banking, also known as consumer banking, is the provision of services by a bank to individual consumers. Services offered include savings and checking accounts, mortgages, personal loans, and debit/credit cards. The UK retail banking sector is being transformed by a range of powerful forces. The economic environment continues to bring uncertainty; regulatory requirements are evolving; customers are demanding greater personalization combined with excellent customer service; and, at the same time, technological innovation is challenging traditional business and delivery models while ushering in a further set of challenging competitors.

Against this backdrop, banks must rethink their real estate. Branch networks will need to be further rationalized and repurposed, despite the sensitivities that such moves bring. Back office functions will need to be seen as more integral to a successful banking operation than they have perhaps been to date. Meanwhile, head office functions will need to be reviewed in terms of cost, regulatory compliance, and may be subject to relocation. Furthermore, as the fortunes of retail banks become more dependent upon innovation and technological delivery, they will need to access and accommodate non-traditional tech and creative talent, and this will force change in both location and working environment.

Key Market Trends

Customer Centricity and Simplification

Historically, banks have been product-led, but shifting customer demands require them to now reconsider their focus. Critically, banks are becoming forward-thinking rather than reactive and are anticipating customer requirements as a whole. Alongside this, greater importance is being placed on considering the customer’s interaction with the business via multiple channels, whether that is online, mobile, or in-store. Banks are designing products that respond to the customer’s financial condition and are giving them the tools to manage their personal finances. With particular reference to organizational design, the chief operating officer’s role has become central to enabling this change in business strategy. Retail banks are increasingly seeking out COOs that can go beyond the nuts and bolts of managing centralized infrastructure in favor of leaders that can design a targeted operating model with customer-centricity at its core.

In 2020, there will be increasing work to refine the banking organizational structure through the continued centralization of core operations. Where product releases have in the past remained reliant on traditional “waterfall” practices, agile methodologies will take advantage of rapid deployment into live, real-time environments.

A redesign of the bank’s operating model requires more than a structural change. It must also be complemented with a change in mindset. Adopting a culture of agile working will enable a “minimalized banking” environment that prioritizes simplified processes, smaller teams, and shorter projects.

As automated technologies have developed to streamline what would have previously been manual tasks, banks are relieving teams of old technology and time-consuming processes by becoming digitally enabled and API-driven. This will be especially pertinent with processes such as credit scoring and underwriting, which can be sped up from a few days to just a few minutes.

Next-generation Banking Automation

Automation is a key tool for retail banking in the coming years. Next-generation banking automation will enable banks and credit unions to use sophisticated workflows to execute complex processes. Artificial intelligence and technological advancements will render better management of banking services executed at lower operational costs. AI, data analytics, and machine learning will enable a better customer experience and help to effectively process the large volumes of data going through the banking system. Stricter data regulations, the demand for innovation, the need for instantaneous information, optimal customer experience, and faster approvals all call for a rapid digital transformation within the sector. On average, a digital bank with decent technological processes is operating at a 10-15% lower cost-to-income ratio than traditional incumbent banks. According to the Autonomous Research Forecasts, by 2030, AI technologies should help reduce operating costs by 22%.

Deploying automation in retail banking further renders benefits like:

Intelligent bots: Adopting RPAs (robotic process automation) makes bots intelligent, which offers significant benefits to the KYC/AML processes. Intelligent automation helps digitize high volumes of documents and data, making it easier to be extracted, indexed, and uploaded into a KYC (Know Your Customer) /AML (Anti-Money Laundering) compliance system quickly assess risk without any human intervention required. RPAs can further be leveraged to help retail customers manage account opening applications, accelerate payment authorizations, and set up standing instructions for automated payments. One such example is Citi Smart Match which leverages AI and machine learning technologies to help increase the efficiency and automation of the cash application process of matching open invoices to payments.

AI for Data Analytics: Banks will further deploy AI to leverage big data and offer customers personalized services. AI can analyze customer profiles, web data, and past interactions to provide product recommendations and other personalized suggestions upon fetching data from multiple sources. BBVA, a Spanish multinational bank, analyzes contextual customer data via its Bconomy app to offer relevant content and product suggestions to their bank customers.

With open banking gaining traction, we are inching toward open finance and open data to create more connected and data-driven consumer experiences. An extension of open banking data-sharing principles, open finance refers to enabling customer data access to third-party providers across a broader range of financial sectors and products, including savings and investments. The FCA in the United Kingdom is in the early stages of making the shift to open finance. Moreover, 2021 can expect to see further adoption of open banking and a move by global regulators towards opening their own versions of open finance post careful observations of developments in the United Kingdom. Open banking and intelligence platform Moneyhub’s COO, Dan Scholey, expressed continued interest in unlocking transformative potential and constantly innovating in the space across the United Kingdom and its wider European clients. Open Banking Implementation Entity (OBIE), created by CMA to oversee Open Banking regulations, announced that the number of open banking-powered product users has more than doubled since January 2020 to roughly 2 million.

Competitive Landscape

The report covers the major international players operating in the UK retail banking market. In terms of market share, few of the major players currently dominate the market. However, with technological advancement and product innovation, mid-size to smaller companies are increasing their market presence by securing new contracts and by tapping new markets.

Additional Benefits:

  • The market estimate (ME) sheet in Excel format
  • 3 months of analyst support

This product will be delivered within 2 business days.

Table of Contents

1.1 Study Deliverables
1.2 Study Assumptions
1.3 Scope of the Study
4.1 Trends Shaping the UK Retail Banking Market
4.2 Consumer Behavior and Loyalty Analysis
4.3 Government Regulations and Industry Policies
4.4 Fintech Disruption in the UK Retail Banking Market
4.5 The Challenger Landscape in the UK Retail Banking
4.6 Strategic Considerations for Digital Transformation of the UK Retail Banks
4.7 Social Media Channels for Better Market Penetration
4.8 Recent Developments in the Market
4.9 Market Drivers
4.10 Market Restraints
4.11 Porters Five Forces Analysis
4.11.1 Threat of New Entrants
4.11.2 Bargaining Power of Buyers/Consumers
4.11.3 Bargaining Power of Suppliers
4.11.4 Threat of Substitute Products
4.11.5 Intensity of Competitive Rivalry
4.12 Impact of COVID-19 on the Market
5.1 By Product
5.1.1 Transactional Accounts
5.1.2 Savings Accounts
5.1.3 Debit Cards
5.1.4 Credit Cards
5.1.5 Loans
5.1.6 Other Products
5.2 By Channel
5.2.1 Direct Sales
5.2.2 Distributor
6.1 Vendor Market Share
6.2 Mergers and Acquisitions
6.3 Company Profiles
6.3.1 HSBC Holdings
6.3.2 Barclay's PLC
6.3.3 Royal Bank of Scotland
6.3.4 Lloyds Banking Group
6.3.5 Standard Chartered PLC
6.3.6 Santander UK
6.3.7 Nationwide Building Society
6.3.8 Schroders
6.3.9 Close Brothers
6.3.10 Coventry Building Society

Companies Mentioned

A selection of companies mentioned in this report includes:

  • HSBC Holdings
  • Barclay's PLC
  • Royal Bank of Scotland
  • Lloyds Banking Group
  • Standard Chartered PLC
  • Santander UK
  • Nationwide Building Society
  • Schroders
  • Close Brothers
  • Coventry Building Society