UK Current Accounts 2008

The UK current account market has become more dynamic recently with the ongoing investigation into fees and charges and the credit crunch. Datamonitor’s UK Current Accounts 2008 report takes a detailed look at the major issues in this sector, investigating consumer attitudes as well as looking at market and competition issues; and providing Datamonitor’s take on future developments.

Report Highlights
When queried by Ipsos MORI, exactly 75% of all respondents stated that they were likely to recommend their bank to friends and family, with only 4% very unlikely to recommend their bank and 7% fairly unlikely. This makes sense since the majority of customers are satisfied with their current account provider.

As the money markets remain clogged up, retail banks will continue to look to increase the proportion of their funding coming directly from consumer deposits. As a result, providers will increasingly seek to link their current account offerings with their savings products.

Should the OFT find that the charges faced by consumers are unreasonable and therefore impose ceilings on bank charges, banks may retaliate by abandoning the free banking model. However, the UK market has become very accustomed to a fee-free banking service and so a first-mover in the market would be likely to face a significant backlash.
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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Current account penetration in the UK is edging closer to 100% 2
Current account penetration moved further above the 90% mark in 2007 2
The majority of consumers would recommend their bank 3
Three quarters of all customers are likely to recommend their bank to others 3
The top five players had 78.5% of all current accounts in the UK market in 2007, but there are some important fringe players 4
The combined share of NatWest and RBS placed the RBS Group in first place in 2007 4
The future of free banking seems uncertain with the High Court decision imminent 5
Banks may compensate for an unfavorable ruling by eradicating free banking in the UK 5
Table of Contents 6
Table of figures 7
Table of tables 8
Market Context 9
Current accounts are a ubiquitous product in the UK market 9
The variety of current account features makes them an attractive proposition for consumers 9
The government has championed basic bank accounts in its attempts to promote free banking for all 9
Premium accounts are favored by a minority 10
Packaged accounts remain fairly popular 10
Current account penetration in the UK is edging closer to 100% 10
Current account penetration moved further above the 90% mark in 2007 10
When sizing the market, the number of current accounts and current account holders is the most sensible measure to use 11
There were an estimated 44.5m current account holders in the UK in 2007 11
Moreover, Datamonitor estimates that there are around 69m current accounts in the UK 12
Most consumers hold just one current account 13
The regulators are currently investigating some issues within the market, which will impact upon the landscape 14
The OFT investigation into fees and charges may lead to fundamental changes in the market 14
The OFT market study found current accounts to be too complex 14
Lack of market transparency is partly responsible for low switching rate 15
The Faster Payments System is likely to increase consumer welfare by allowing savings of £30m a year 15
The Unclaimed Assets Scheme has encouraged banks to track down the holders of dormant accounts 15
The Northern Rock crisis could have implications for the current account market 16
Current account penetration is estimated to continue its upward trend over the next four years 16
Current account penetration is expected to reach 96% by 2012 16
Consumer Focus 18
Cheque book-based accounts remain most prevalent across all age groups 18
The majority of consumers have a cheque book-based account 18
Level of customer satisfaction varies by current account features 19
The great majority of consumers are satisfied with their current account on the whole 19
Those least likely to be satisfied with their current account are in the 18-29 age bracket 19
Dissatisfaction levels are highest regarding bank fees and charges 20
A slightly larger number of customers are satisfied rather than dissatisfied with bank charges 20
Those on a smaller income are less likely to have paid charges in the last year 21
Those aged 60 and above are less likely to have paid bank charges in the last year 22
Only one in 10 respondents is very satisfied with their overdraft interest rate 22
Respondents in the lowest income band are most likely to incur charges for becoming overdrawn without authorization 23
Higher income earners are more likely to have an authorized overdraft facility 24
The majority of consumers are happy with their branch experience 26
More than half of all respondents were fairly satisfied with branch queues 26
Less than 10% of all respondents were dissatisfied with their in-branch privacy 27
An overwhelming majority of 82% were satisfied with their bank's opening hours 28
The overwhelming majority of respondents were also satisfied with how helpful staff were 29
Of the other main channels of management, internet banking has the highest level of satisfaction 30
Almost three quarters of consumers are satisfied with the reliability of their provider's internet banking service 30
Almost two thirds of all current account customers are satisfied with their bank's telephone banking service 31
Consumers are more satisfied when corresponding with their bank over the phone than by letter 32
Satisfaction levels regarding banks' efficiency at dealing with phone enquiries is high 32
More than half of all respondents were satisfied with the speed at which their letters were replied to 33
The level of dissatisfaction varies between 3% and 31% 34
The majority of consumers would recommend their bank 35
Three quarters of all customers are likely to recommend their bank to others 35
Recommendation by family and friends remains the main reason for choosing a specific provider 36
Family and friends play a more important role in choice of provider for the young 37
Providers are adapting their acquisition strategies to the importance of the recommendation factor 38
As customer loyalty remains high in the current account market, switching levels have remained flat 39
Most consumers have remained with their current account provider for more than 10 years 39
The proportion of switchers has remained at about a quarter of the current account market 40
Consumers between the ages of 30 and 59 are most likely to have switched their current account 41
Those with a household income in excess of £50,000 are most likely to have switched 42
Consumers are most likely to switch current accounts if they are with the traditional big four 43
Face-to-face banking in a branch environment remains the most popular channel for opening a new account 44
Consumers prefer to arrange new current accounts face-to-face 44
ATMs and the internet are the most popular methods for customers conducting day-to-day current account banking 46
Trends in current account closures differ by age and income group 47
Consumers with lower incomes are less likely to have closed an account 47
Respondents aged between 30-59 are most likely to have closed an account 48
Consumers are most likely to have closed an account at one of the largest current account providers 49
Competitive Dynamics 51
The top five players had 78.5% of all current accounts in the UK market in 2007, but there are some important fringe players 51
The combined share of NatWest and RBS placed the RBS Group in first place in 2007 51
The market shares in 2008 are likely to see significant changes due to market consolidation 53
Different bank strategies may explain the slight fluctuations in market share 53
There remains a strong link between market share and high street presence 54
The current account market has become more dynamic over the past few years 55
Competition in the current account market has remained intense 55
Advertising for standard current accounts has increased between 2006 and 2007 56
Packaged account advertising expenditure decreased between 2006 and 2007 56
The emergence of the online channel has led to greater competition in day-to-day banking 57
Despite increased competition, there is little variation between the main providers' standard product offerings 58
The level of rate competition increases among the next tier of current accounts 62
Different strategies suggest that providers are going for different clientele 63
Small direct providers such as Smile and Cahoot rely on competitive rates to entice consumers away from the big providers 64
Cahoot's standard current account is one of the few catch-free competitive current account offers on the market 64
Smile also offers a competitive current account, but it requires monthly funding 64
Competition in the packaged account market is fairly minimal 64
Although product innovation has been minimal, it can help to drive competition 65
A&L and RBS segment their current account customers by age group 65
HSBC rolled out Shariah current accounts in 2003 65
Lloyds TSB introduced its 'Save the change' initiative in 2007 65
Current accounts are viewed as the best way for a bank to cross-sell other products 66
Current accounts act as a springboard for the cross-selling of other banking products 66
Cross-selling through products other than current accounts tends to be more difficult 66
Banks use their websites as a tool to promote and sell other products alongside their current account offering 66
Banks make efficient use of their online portal to cross-sell 67
The popularity of cross-selling to students varies as banks look to attract a younger clientele 68
A number of providers are finding innovative ways to increase cross-selling 68
Intelligent Finance allows customers to offset their mortgage rate by arranging a current account through them 69
A&L highlights the other products bought by those who chose their current account with the bank 69
The HSBC fee-free current account offers favorable rates on its savings account 70
With little room to increase current account penetration, banks are attracting migrants 71
The large banks are focusing their efforts towards attracting Polish immigrants 71
Future Focus 73
The future of free banking seems uncertain with the High Court decision imminent 73
Banks may compensate for an unfavorable ruling by eradicating free banking in the UK 73
Industry sources interviewed by Datamonitor have mixed opinions about the potential end of free banking 73
Barclays has introduced a personal reserve to clarify its fees and charges 74
The market faces upheaval, with consolidation from the credit crunch and the potential entry of Tesco 74
The wave of M&A activities in the UK banking sector is leading to a fundamental change in the current account sector 74
The sale of A&L to Santander may reduce the impact of the competitive market fringe 74
The tie-up between Lloyds TSB and HBOS will create a banking behemoth with a huge share of the current account market 75
The potential entry of Tesco as a serious player in the current account market could act as a catalyst to boost competition 75
Tesco is likely to face some tough challenges 75
Changing market dynamics may act in Tesco's favor 76
The large mobile phone operators might present a threat to the established names in the medium-term future 77
Bank and building society strategies will have to take account of new developments 77
The constraints on the banking sector are likely to continue into 2009 77
Banks may withdraw their overdraft facility to poor credit customers 78
Current account switching rate may increase due to the difficult economic climate 78
Attempts by the OFT to render the market more transparent may not have a huge effect on switching 78
Difficult market conditions may boost the number of current account switchers 79
With growth in online banking slowing, consumers may migrate towards mobile banking 79
Hectic lifestyles mean that people seek out convenience in day-to-day banking activities 79
Mobile banking presents different fraud issues from online banking 79
New products will become more differentiated 80
Product differentiation is an important issue 80
New products will be launched more quickly 80
APPENDIX 81
Supplementary data 81
Tables relating to Market Context chapter 81
Tables relating to Consumer Focus chapter 82
Tables relating to Competitive Dynamics chapter 96
Definitions 98
AER 98
APACS 98
APR 98
ATM 98
BBA 98
Current account 98
Debit card 98
Direct credit 98
Direct debit 98
Dormant bank account 98
Giro cheque 99
Internet bank 99
IVR 99
Offset mortgage 99
OFT 99
Overdraft 99
Phishing 99
Stand-alone internet banks 99
Standing order 99
Telephone banking 99
Methodology 100
Competitor profiles 100
RBS 100
Lloyds TSB 100
Barclays 101
HSBC 101
HBOS 101
Nationwide 101
Abbey 102
Further reading 102
Ask the analyst 102
Datamonitor consulting 102
Disclaimer 102
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Table 1: Estimated current account holders, 2004, 2007 and 2012 17
Table 2: Current account customers remain most likely to close their accounts with the big five players 50
Table 3: Market share of current account providers, 2006 and 2007 53
Table 4: A comparison of standard current accounts for the main providers, September 2008 59
Table 5: Credit and debit interest rates for standard current accounts, June 2007, September 2007, September 2008 61
Table 6: Current account penetration, 2006-07 81
Table 7: Current account penetration among UK adults, 2007 81
Table 8: Number of current accounts per account holder, 2006-07 81
Table 9: Type of current account by age group, 2007 82
Table 10: Satisfaction with bank charges, 2007 82
Table 11: Satisfaction with overdraft rate, 2007 83
Table 12: Satisfaction with queuing in branch, 2007 83
Table 13: Satisfaction with privacy in branch, 2007 83
Table 14: Satisfaction with opening hours, 2007 84
Table 15: Satisfaction with helpfulness of staff, 2007 84
Table 16: Satisfaction with reliability in internet banking, 2007 84
Table 17: Satisfaction with telephone banking service, 2007 85
Table 18: Satisfaction with efficiency in dealing with phone queries, 2007 85
Table 19: Satisfaction with speed in replying to letters, 2007 85
Table 20: Likelihood of recommendation, 2007 86
Table 21: Reasons for choosing to open account with specific provider, 2006-07 87
Table 22: Main reason for choice of provider, split by age group, 2007 88
Table 23: Initial channel of arrangement, by age band, 2007 89
Table 24: Frequency of method used to conduct day-to-day banking, 2007 89
Table 25: How long account held, by age band, 2007 90
Table 26: Circumstances in which account opened, by age band, 2007 90
Table 27: Circumstances in which account opened, by income band, 2007 91
Table 28: Overall level of account satisfaction, 2007 91
Table 29: Percentage of account holders having switched current account 92
Table 30: Provider switched from when opening new account, 2006-07 93
Table 31: Paid charges on account in the last year, by income band, 2007 93
Table 32: Reasons for charges, by income band, 2007 94
Table 33: Authorized overdraft facility on account, by income band, 2007 94
Table 34: Level of overdraft at most recent balance, by age band, 2007 95
Table 35: Ever closed a current account, by income band, 2007 95
Table 36: Ever closed a current account, by age band, 2007 96
Table 37: Number of current accounts and branch network by provider 96
Table 38: Standard current account advertising expenditure, 2006-07 97
Table 39: Packaged current account advertising expenditure, 2006-07 97
Figure 1: Current account penetration has increased marginally between 2006 and 2007 3
Figure 2: The majority of consumers are likely to recommend their account provider 4
Figure 3: RBS Group was the market leader in 2007, with 18.1% of all current accounts held 5
Figure 4: Current account penetration has increased marginally between 2006 and 2007 11
Figure 5: Only 7% of the UK population were without a current account in 2007 12
Figure 6: The percentage of consumers with multiple current accounts declined slightly in 2007 13
Figure 7: UK current account penetration is forecasted to reach 96% by 2012 17
Figure 8: Consumers aged between 18 and 29 are most likely to have a card-based account 18
Figure 9: The level of satisfaction increases by age band 19
Figure 10: Satisfaction with bank charges is relatively low, with only 39% of respondents stating they were satisfied 21
Figure 11: Those on lower incomes are less likely to have paid charges in the last 12 months 22
Figure 12: A large proportion of respondents-37%-were indifferent about their overdraft rate 23
Figure 13: Those in the £40,000-£49,999 income band are most likely to pay charges for becoming overdrawn with their provider's authorization 24
Figure 14: The higher income groups are more likely to have an overdraft facility 25
Figure 15: Only 14% of those with an overdraft are not overdrawn 26
Figure 16: Satisfaction with queuing is reasonably strong, although 16% remain dissatisfied 27
Figure 17: Most consumers are satisfied with the level of privacy in their branch 28
Figure 18: 82% of respondents were satisfied with their bank's opening hours 29
Figure 19: A huge majority of consumers are satisfied with the helpfulness of staff 30
Figure 20: A small minority of consumers are dissatisfied with the reliability of their provider's internet banking service 31
Figure 21: Only 8% of customers were dissatisfied with their provider's telephone banking service 32
Figure 22: Almost two thirds of customers are satisfied with their bank's efficiency at dealing with phone queries 33
Figure 23: Less than 10% are dissatisfied with the speed at which their provider replies to letters 34
Figure 24: Dissatisfaction is greatest for bank charges and overdraft interest rates 35
Figure 25: The majority of consumers are likely to recommend their account provider 36
Figure 26: Recommendation has become an even more important reason for choice of current account provider 37
Figure 27: Recommendation is the most important reason for choice of current account provider for the younger age groups, whereas competitive interest rates are most important for the oldest group 38
Figure 28: A&L has a 'Recommend a friend' option on its current account page 39
Figure 29: With the exception of those in the 18-29 age band, the majority of consumers have held their current account for more than 10 years 40
Figure 30: The overall level of current account switchers has remained at around a quarter of the population 41
Figure 31: Current account customers between the ages of 30 and 59 are most likely to have switched 42
Figure 32: Respondents with higher incomes are most likely to switch account externally 43
Figure 33: Current account customers are most likely to switch from the larger players 44
Figure 34: Branch is the most popular channel for all age groups, but declines in importance in the higher age groups 46
Figure 35: Consumers are most likely to use the ATM when carrying out their day-to-day banking 47
Figure 36: Those with lower household incomes are less likely to have closed a current account 48
Figure 37: Those in the middle age groups are more likely to have closed a current account 49
Figure 38: RBS Group was the market leader in 2007, with 18.1% of all current accounts held 52
Figure 39: There is a strong positive correlation between the branch presence and the total number of current accounts held with a provider 55
Figure 40: Advertising spend fluctuated by provider over 2006-07 56
Figure 41: Packaged account advertising expenditure has also fluctuated for most providers between 2006 and 2007 57
Figure 42: To compete with the big four, banks are developing free of charge accounts which offer better rates 63
Figure 43: Lloyds TSB promotes its other products to its current account customers via its internet banking portal 67
Figure 44: Barclays uses its online current account customers' personal banking space to cross-sell its products 68
Figure 45: Intelligent Finance's offset mortgage encourages consumers to also take out a current account 69
Figure 46: A&L shows customers what other products customers are taking out with them 70
Figure 47: HSBC bundles in other products with its current account offering 71
Figure 48: The homepage of the NatWest Welcome Account for Polish immigrants 72
Figure 49: A typical Banco Wal-Mart outlet 77
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