Bank Attitudes to Consumer Credit in Europe

• Sheds light on why some markets are highly developed, while others remain under penetrated
• Measures how important banks consider consumer credit to be
• Profiles best practice cases in the market
• Primary interviews with leading bank executives across Western Europe

• Understand who the best performers of each market are and why they are at the top
• Plan your strategy knowing what other competitors think
• Understand the intricacies of each consumer credit market in Western Europe and how each can be tapped into

CHAPTER 1 INTRODUCTION

What is this report about?

Who is the target reader?

How to use this report

CHAPTER 2 TO WHAT EXTENT HAVE THE ATTITUDES OF BANKS HELPED TO SHAPE EUROPEAN CONSUMER CREDIT MARKETS?

Introduction

Despite numerous similarities between Western European economies, the role that consumer credit plays varies considerably

Consumer credit plays a more important role in the UK economy than it does in any other Western European market

Western European consumer credit markets have developed very differently over the past ten years

A number of factors explain the considerable disparities in the development of consumer credit across Western Europe

Factors can be grouped into those that affect demand and those that affect supply

Socio-demographic, economic, political and attitudinal factors all have an effect on demand for consumer credit

On the supply side, bank attitudes to lending, legislation and the level of competition are influential in determining the development of consumer credit

The extent to which these factors have influenced market development varies considerably from one country to the next

The Belgian consumer credit market suffers from a lack of innovation and significant consumer protection

The French consumer credit market is inhibited by a lack of competition and a constraint in supply

Germany’s consumer credit market is developed, but not to its full potential because banks do not focus on consumer credit

Italy’s consumer credit market remains underdeveloped mainly as a result of formerly high interest rates and high saving rates

The Netherlands has a weak consumer credit market thanks to high mortgage debt and hesitant bank attitudes

Spain’s consumer credit market is on the path towards maturity thanks to positive bank attitudes and consumer demand

The UK benefits from strong demand and a fiercely competitive market

Bank attitudes to lending have had a considerable impact on the development of consumer credit in Western Europe

A visual comparison is useful to understand the relative importance of demand and supply side factors in the development of consumer credit in each market

Bank attitudes have played a major role in shaping the Belgian, German, Spanish and British consumer credit markets

So what shapes the attitudes of domestic banks to consumer credit?

The economic situation of a market can attract or deter banks

High returns on other financial products has meant that interest in consumer credit was sometimes delayed

Problems in the past affect bank attitudes

The competitive landscape has affected how banks look at consumer credit

Regulation has had a significant impact on bank attitudes to the supply of credit

Protectionism has undermined bank innovation and competition

Lack of credit scoring information can ward off bank involvement

Conclusions

CHAPTER 3 THE ROLE OF CONSUMER CREDIT WITHIN RETAIL BANKS TODAY

Introduction

Datamonitor’s findings are based on a survey of 280 branch managers and interviews with senior head office staff

While consumer credit is clearly a key product for European banks, most place greater emphasis on mortgage products

Most retail banks in Western Europe view consumer credit products as very important

While many Spainish banks still see savings products as important, the vast majorty of Italian banks are focusing on consumer credit products

Mortgages remain the most important product for most retail banks in Europe

Attitudes towards product development and differentiation

Price is a key differentiator

Product design is an important aspect of innovation

Bank attitudes towards the sub-prime lending sector also help to indicate the level of a market’s maturity

Attitudes towards selling and advertising

Branches are crucial to selling and advertising banks’ products

The speed at which credit is available varies across Europe

Attitudes towards customer retention

Customers shop around for financial services products more than they used to

German consumers are most likely to shop around for financial services products

In order to increase customer retention, banks are focusing on customer service

Attitudes towards cross-selling

The majority of banks make it standard practice to offer a credit card or an overdraft facility on the opening of a new account

Most banks also try to sell PPI alongside consumer lending products

Conclusions

CHAPTER 4 APPENDIX

Supplementary data

Supplementary data tables related to Chapter 2

Supplementary data tables related to Chapter 3

Research methodology

Definitions

Relevant readings

Future readings

Relevant links

Datamonitor’s custom research capabilities

The Retail Banking team

LIST OF TABLES

Table 1: Total consumer credit gross advances, 2000-2004e

Table 2: Total consumer credit balances outstanding by country, 95-04

Table 3: Total consumer credit balances outstanding per capita by country, 95-04

Table 4: Population by country, 2000-2004

Table 5: GDP per country, 2000-2004, EUR millions

Table 6: Consumer credit balances outstanding as a proportion of GDP, 2000-2004

Table 7: Consumer credit balances outstanding and theoretical balances outstanding if all markets had the same proportion of GDP as the UK, 2004

Table 8: Gross advances and balances outstanding of consumer credit products for the Netherlands in 2004

Table 9: To what extent do you agree with the following statement about your company: ‘Consumer lending products are very important to the bank’?

Table 10: Are there any of these following products that you do not offer in the branch?

Table 11: What proportion of your total consumer lending business is accounted for by current account customers versus customers that have their primary bank account with another bank?

Table 12: To what extent do you agree with the following statement about your company: ‘Savings and investment products are a greater priority at present than consumer lending products’?

Table 13: Which products are currently highest on the branch sales agendas?

Table 14: Does the bank have credit scoring systems in place that automatically establish the possible credit limit on a credit facility or credit card for existing customers should they wish to apply for one of these products in order to speed up the approval?

Table 15: Would the bank automatically refuse to grant credit to people with a minor history of credit problems (i.e. they have been in arrears in the past)?

Table 16: Does the bank have lending products available (such as debt consolidation loans) for people that have a poor credit rating with either serious credit problems in the past or are currently in arrears?

Table 17: Do you think the bank would consider developing a lending product in the future for customers that have a poor credit rating?

Table 18: Are you aware of any banks or credit providers in your market that provide credit to people that would traditionally be refused credit from mainstream providers (that is those people with a poor credit record or history of credit or mortgage arrears)?

Table 19: To what extent do you think the market for lending products to people with a poor credit rating will grow over the next five years?

Table 20: Approximately what proportion of the bank’s customers would you estimate would be accepted for a personal loan, credit card, or overdraft facility/ revolving line of credit?

Table 21: Are branch staff currently incentivized to sell consumer lending products within the branch?

Table 22: What incentives are they offered?

Table 23: When a customer applies for a credit facility, overdraft or personal loan, on average how long would they need to wait before the money is available in their account?

Table 24: Has the speed at which credit is available increased in the past couple of years?

Table 25: As far as you are aware, in the last twelve months has the bank used the following media channels to run individual advertising campaigns for the following products?

Table 26: On a scale of one to five, in your opinion how aggressively is the bank currently looking to cross-sell the following products to bank customers compared to other banks in your market?

Table 27: Is it standard practice to offer a credit card or offer to arrange an overdraft facility when a customer opens a new account with the bank (assuming the customer does not have a poor credit history)?

Table 28: Does the bank currently advertise the following products in the branch using posters or leaflets?

Table 29: Which of the products below have been given the greatest visibility in the branch over the past 12 months?

Table 30: Which of the products below will be given the greatest visibility in the branch over the next 12 months?

Table 31: Which of the following do you think is the most important feature for a customer in terms of selecting a credit card (with a revolving facility)?

Table 32: Which of the following do you think is the most important feature for a customer in terms of selecting a personal loan?

Table 33: In your opinion which bank performed best in your market last year in terms of attracting new credit card customers?

Table 34: In your opinion which bank performed best in your market last year in terms of attracting new personal loan customers?

Table 35: For the following four product categories, could you give us your estimate of what percentage of customers you think will shop around different providers rather than buying from their main bank automatically?

Table 36: Do you think more customers shop around in general for financial services products than they used to a few years ago?

Table 37: Which of the following factors have influenced consumers to shop around more for financial services products than they used to a few years ago?

Table 38: Likelihood of customers shopping around rather than buying from their main bank automatically when looking for mortgages, savings accounts, personal loans and credit cards

Table 39: Is it standard practice to offer creditor insurance when a customer applies for a consumer lending product?

Table 40: In your opinion, approximately what proportion of customers that take out credit cards, mortgages and personal loans, also take out credit insurance from you?

LIST OF FIGURES

Figure 1: The UK has the largest consumer credit market in Western Europe measured as a proportion of balances outstanding to GDP, 2004

Figure 2: If all markets were as developed as the UK, the European consumer credit market would be twice its present size, 2004

Figure 3: The UK and German consumer credit markets are by far the largest in Western Europe, although they have grown at very different rates over the past 10 years, 1995-2004

Figure 4: Expected progression of consumer credit markets over time

Figure 5: Most markets are still in a growth phase of development

Figure 6: High mortgage debt as a proportion of GDP and per capita means that consumers are less willing to take on additional forms of debt, 2004

Figure 7: Bank attitudes have had a considerable impact on consumer credit markets in Belgium, Germany, Spain and the UK

Figure 8: Unsurprisingly, most banks in Western Europe view consumer credit products as very important to their retail business, 2005

Figure 9: German, Italian, French and Dutch banks are now concentrating more on consumer lending products than on savings and investment products, 2005

Figure 10: Mortgages are clearly the product of highest priority for most bank branches, 2005

Figure 11: Value for money and customer service are most important to customers choosing a credit card, 2005

Figure 12: Dutch branch managers believe that convenience of a single provider is most important to customers, while access channels are important for French consumers, 2005

Figure 13: For customers choosing a personal loan, value for money is the most important feature, 2005

Figure 14: Alliance & Leicester is just one of many European banks which compare its prices to competitors in an attempt to gain custom, August 2005

Figure 15: Many banks are not willing to lend to those with a history of minor credit problems, 2005

Figure 16: The majority of banks do not have products available for the sub-prime population, 2005

Figure 17: Dutch sub-prime lending remains small and dominated by a few main lenders, 2005

Figure 18: Most banks do not see themselves getting involved in the sub-prime lending market in the future, 2005

Figure 19: Over 80 per cent of branch managers think that the sub-prime lending market will grow over the next five years, 2005

Figure 20: The majority of branch staff are not incentivized to sell consumer credit products, although there are some considerable variations from one country to the next, 2005

Figure 21: Sales targets are used most often to incentivize branch staff, 2005

Figure 22: Belgian and Spanish branch staff incentivization does not conform to the European average, 2005

Figure 23: Mortgages and personal loans are currently advertised most often in the branch using posters or leaflets, 2005

Figure 24: Mortgages and mutual funds, followed by personal loans have been given the greatest visibility in the last 12 months, 2005

Figure 25: According to branch managers, mortgages and savings accounts, followed by personal loans, have been the most advertised on media channels in the last twelve months, 2005

Figure 26: A significant proportion of customers only have to wait less than two days before their money is available in their account when they apply for a credit facility, overdraft or personal loan, 2005

Figure 27: Italian and Spanish branch managers feel that the speed at which credit is available has increased most in the past couple of years, 2005

Figure 28: Banca Intesa attempts to differentiate its personal loan from others in the market by focusing on speed, 2005

Figure 29: Virtually all branch managers believe that customers shop around for financial services more than they used to, 2005

Figure 30: Increased consumer awareness is the main reason as to why consumers are shopping for financial services products more than they used to, 2005

Figure 31: German customers are more likely to shop around than buying with their current bank automatically when looking for mortgages, savings accounts, credit cards and personal loans, 2005

Figure 32: Mortgage customers are much more likely to shop around for different providers rather than buying from their main bank automatically, 2005

Figure 33: BBVA’s strategy encourages and rewards closer relations with the bank, 2005

Figure 34: Most banks do make it standard practice to offer a credit card or an overdraft facility upon the opening of a new account, 2005

Figure 35: Mortgages and mutual funds are cross-sold more aggressively than consumer credit products, 2005

Figure 36: For the majority of banks, it is standard practice to offer PPI when a customer applies for a consumer lending product, 2005

Figure 37: French consumers have particularly high PPI take up rates, 2005

Figure 38: Datamonitor’s core consulting capabilities