Internet Selling in Financial Services - UK

Introduction and Abbreviations

Mintel’s consumer research

Market context

Key sources

Global information and research

Consumer research

ACORN

Abbreviations

Executive Summary

Background

The main findings of Mintel’s consumer research

Figure 1: Distribution of Internet users by frequency of use, December 2005

Determining the size of the online account customer base

Figure 2: Financial accounts held/registered online by Internet users, December 2005

Ranking the main protagonists

Assessing online buying activity

Figure 3: Financial products bought online within the past 12 months by Internet users, December 2005

Segmenting the Internet base

Figure 4: Segmenting the Internet user base according to online buying experience, December 2005

The Internet encourages consumers to compare prices

Attitudes towards other channels...

...and use of aggregator sites

The main advantages of banking and buying online

Factors which would persuade more consumers to migrate to the Web

Market outlook

Market Dynamics

Market Drivers

Internet penetration

Figure 5: Proportion of GB adults who have used the Internet at home or elsewhere in the past year, 2002-05

Online access determined by technology take-up

Figure 6: Ownership of the Internet and other new technology at home - GB, 2002-05

Demand drivers - a matter of convenience

Figure 7: Demand drivers helping to facilitate online purchasing

Over a fifth of Internet users say buying online makes their life easier

Figure 8: Proportion who agree with four statements about the Internet, 2002-05

25-44-year-olds are prime targets for Internet sales

Figure 9: Proportion who agree with four statements about the Internet, by gender, age and socio-economic group, 2005

Market Barriers

Lack of access

Technical issues

A problem with awareness, perhaps?

Figure 10: Provision of telephone and Internet banking by main bank and proportion who use these services, 2004 and 2005

Fear of fraud and online scams

Common security threats

Customer responsibilities

Banks strengthen security procedures and seek to educate consumers of the risks

Under the spotlight 1: Lloyds TSB’s measures to combat fraud

Ecommerce regulation

UK law

Other legislation

Market Developments and Innovations

Banking

Background

The future of standalone Internet brands

Figure 11: Size of the main Internet-only banking brands in the UK, by number of customers, 2005

Internet and call centre technologies are converging

On the move with mobile Internet banking

Account aggregation

Personal Loans and Credit Cards

Online credit cards

Anti-card fraud initiatives

Mortgages

Problems with online relevance

Optimising the power of search engines

Under the Spotlight 2: Standard Life Bank’s Freestyle mortgage range

General Insurance

The Internet is less effective at up-selling extras

The fight to the top

Greater functionality

Complementing (or competing with) other direct channels?

Investments

An evolving marketplace

The pros and cons of online share dealing

The market is experiencing increasing consolidation

Online trades now account for at least half of all execution-only trades

Figure 12: Number of online investors and volume of online trades, Q3 2002-Q2 2005

Figure 13: Number of online investors and average number of trades per online investor, Q3 2002-Q2 2005

Fund supermarkets

Pensions

Using the Internet to galvanise interest and raise confidence

Online User Profile

The Internet is ideal for targeting the more affluent and financially active

Figure 14: Penetration and profile of GB Internet users, by gender, age, socio-economic group and working status, October 2005

Sending and receiving email is top online activity

Figure 15: Types of activity undertaken on the Internet in the last 3 months, July 2003, July 2004, August and October 2005

The Internet has made pre-purchase research much easier

Travel sites are the most popular destinations for online browsers

Figure 16: Websites browsed for information purposes in the last three months, November 2002, October 2004 and October 2005

Online bank accounts and general insurance sites attract an increasing proportion of potential buyers

Figure 17: Websites browsed for information purposes with a view to possibly buying in the last three months, November 2002, October 2004 and October 2005

For other areas of finance, the Internet remains a niche sales channel

Figure 18: Websites actually purchased from in the last three months, November 2002, October 2004 and October 2005

Balance enquiry is the top financial activity executed online

Figure 19: Financial activities undertaken by Internet users, 2005

The Consumer and Online Account Penetration

Nearly a fifth of adults are heavy Internet users

Figure 20: Proportion of adults who have used the Internet in the past three months and frequency of usage, December 2005

One in four adults have an online current account

Figure 21: Proportion of adults who have finance accounts registered online, by type, December 2005

Online account ownership rises with frequency of Web use

Figure 22: Proportion of adults who have finance accounts registered online, by type and Internet usage, December 2005

Mortgage holders are most keen on Internet access

Figure 23: Proportion of adults who have finance accounts registered online, by type of product owned, December 2005

ABs and full-time workers strongly favour online access

Figure 24: Proportion of adults who have finance accounts registered online, by gender, age, socio-economic group and working status, December 2005

Singletons are just as likely to log on as couples

Figure 25: Proportion of adults who have finance accounts registered online, by marital status, lifestage and Mintel’s Special Groups, December 2005

Income is an enabling factor

Figure 26: Proportion of adults who have finance accounts registered online, by tenure, gross annual household income, region and ACORN category, December 2005

Broadsheet readers and Waitrose shoppers record high take-up

Figure 27: Proportion of adults who have finance accounts registered online, by new technology usage, newspaper readership, commercial TV viewing and supermarket preference, December 2005

The Internet is highly effective at attracting the more affluent groups

Figure 28: Profile of online account holders and non-online account holders, by gender, age, socio-economic group and working status, December 2005

Under the spotlight 3: ING Direct’s online achievements

CHAID analysis

What is CHAID analysis?

The main target groups identified

Figure 29: Target groups identified for finance accounts registered online, December 2005

Around one in ten consumers have three or more financial products registered online

Figure 30: Number of financial product types held/registered online, December 2005

Figure 31: Financial accounts registered online by number of online product types held, December 2005

ABs have the greatest tendency to hold multiple online finance accounts

Figure 32: Number of financial product types held/registered online, by gender, age, socio-economic group and working status, December 2005

The big five banks have the largest Internet account customer bases

Figure 33: Where online accounts are held, by individual brand or type of company, December 2005

Four in five customers of the Internet banks are ABC1s...

Figure 34: Online customer profiles of the main types of financial provider, by gender, age, socio-economic group and working status, December 2005

...and hold the broadest range of online accounts

Figure 35: Type of Internet account held by the customers of the main types of financial provider, December 2005

RBS/NatWest benefits from the biggest concentration of ABC1s

Figure 36: Online customer profiles of the top five banks, by gender, age, socio-economic group and working status, December 2005

Figure 37: Type of Internet account held by the customers of the big five banks, December 2005

Industry Views

Internet Banking

What does the future hold for standalone Internet brands?

And what’s the next major development phase?

Selling Insurance Online

High marketing costs make it difficult for smaller operators to compete with the big brands

Selling online the Direct Line way

The Consumer and Online Purchasing Behaviour

Motor insurance is the best online seller

Figure 38: Proportion of adults who have bought a financial product online over the past 12 months, by type, December 2005

A small proportion of ‘non-users’ have arranged insurance online

Figure 39: Proportion of adults who have bought a financial product online over the past 12 months, by type and Internet usage, December 2005

One in eight have bought multiple financial products online in the past year

Figure 40: Number of financial products bought/arranged online over the past 12 months, December 2005

Motor insurance is often the first financial product purchased online

Figure 41: Financial products bought online by number of products bought over the past 12 months, December 2005

Heaviest users are more inclined to buy multiple finance products online

Figure 42: Number of financial products bought/arranged online over the past 12 months, by gender, age, socio-economic group and working status, December 2005

16-34-year-olds are twice as likely as the overall population to apply online for a credit card

Figure 43: Top four financial products bought online over the past 12 months, by gender, age, socio-economic group and working status, December 2005

Some consumers have bought an insurance policy over the Web but have yet to migrate their current account online

Figure 44: Proportion of adults who have bought/arranged financial products online in the past 12 months - online versus non-online account holders, December 2005

Online credit card customers are key cross-selling targets

Figure 45: Type of online product bought online in past year by online current account, savings account and credit card holders, December 2005

Most online users have used the Web with regards to some part of their finances

Figure 46: Segmenting the Internet user base according to financial ecommerce activity, December 2005

Two thirds of Internet users say they are more prone to comparing prices online

Figure 47: Agreement with three statements about arranging financial products online, December 2005

Half of those who have bought a financial product via the Web are in favour of renewing online

Figure 48: Ownership of any Internet account and financial products purchased online in past year by those who agree with three statements, December 2005

Some two thirds of Internet users aged 25-34 want to renew/amend their insurance policies online

Figure 49: More likely to compare products online and pro the ability to renew/amend insurance policies online, by gender, age, socio-economic group and working status, December 2005

Consumer Attitudes and Behaviour

Internet banking may be a natural progression from telephone banking

Figure 50: Agreement with statements relating to the Internet and other service-delivery channels, by Internet usage, December 2005

Cluster analysis

Figure 51: Proportional size of clusters - total sample versus Internet users only, December 2005

Figure 52: Agreement with statements relating to the Internet and other service-delivery channels, by clusters, December 2005

Cross-analysis shows that Online Buyers are aptly named

Figure 53: Internet usage, number of online finance accounts held and number of financial products arranged online, by cluster, December 2005

One in five people aged 45-54 are Potential Converts

Figure 54: Cluster analysis by gender, age, socio-economic group and working status, December 2005

Marketing to Potential Converts and Keen Talkers

The southern regions, bar London, have a significant share of Online Buyers

Figure 55: Cluster analysis, by marital status, lifestage, region and ACORN category, December 2005

Four in five Kwik Save shoppers are Outside Net

Figure 56: Cluster analysis, by new technology usage, newspaper readership, commercial TV viewing and supermarket preference, December 2005

Open 24/7 is a major plus...

...but buying financial products online is not perceived generally as ‘fun’

Figure 57: Advantages of buying/subscribing to financial products/services online, by Internet users December 2005

The ability to access services from anywhere will curry favour among frequent/long-haul travellers

Figure 58: Advantages of buying/subscribing to financial products/services online - total sample and by Internet usage, December 2005

Online account holders rank the benefits somewhat differently

Figure 59: Advantages of buying/subscribing to financial products/services online, by online account holders, December 2005

ABs want convenience, C1s look for price advantages and C2s like to avoid sales pressure

Figure 60: Advantages of buying/subscribing to financial products/services online, by gender, age, socio-economic group and working status, December 2005

Security is the number one concern...

Figure 61: Factors which would make consumers more likely to subscribe to Internet banking or buy a finance product online, December 2005

...and particularly for medium-to-heavy Internet users

Figure 62: Factors which would make consumers more likely to subscribe to Internet banking or buy a finance product online, by Internet usage, December 2005

Major target groups are most anxious about online security

Figure 63: Factors which would make consumers more likely to subscribe to Internet banking or buy a finance product online, by gender, age, socio-economic group and working status, December 2005

Further analysis

Advertising and Promotion on the Web

Internet adspend comprises a small proportion of overall industry expenditure

Figure 64: Total advertising expenditure by finance sector, by main media type, 2004 and2005

Under the spotlight 4: Norwich Union’s online advertising push

Loan and credit card providers are among the heaviest online advertisers

Figure 65: Top ten Internet advertisers in the finance sector, 2004 and 2005

Assessing the effectiveness of online versus offline advertising

Figure 66: Effect of online and offline advertisements on purchasing of products and services, July 2004 and August 2005

The Future

Internet penetration will continue to grow

Online banking will become increasingly mainstream

The Internet has increased price competition...

...but big brands will help to stabilise the motor insurance market

Internet sellers will seek to improve conversion rates...

...by educating consumers about how to protect themselves...

...offering user-friendly and streamlined processes...

...and giving greater focus to branding

Technical innovation moving mobile

And finally...