Financial Services: Technology and the Internet - UK

Technology has created both opportunities and challenges for the financial services industry over the last decade. The expansion of online banking services has fundamentally altered the retail banking sector, while the development of online distribution channels is having an impact across the financial services industry. At the same time, a proliferation of websites that provide product comparisons, best buys, expert opinion and personal finance discussion boards are beginning to have an impact on consumer behaviour and the wider market for financial advice.

The use of technology, including PCs and mobile phones has, become integral to everyday life and the evolution of these products is continuing to shape innovation in the financial services industry. Recent developments include the expansion of mobile banking services and the emergence of contactless and mobile payments. However, as a significant number of people still retain some concerns about online banking security, providers are likely to face significant challenges in convincing people of the benefits of these newer forms of technology.

This report examines the impact of technology and the internet on the financial services sector. It considers recent developments in online and mobile banking and contactless payments, and also the emergence of the internet as a source of financial advice. Mintel’s exclusively commissioned consumer research provides an insight into the appetite for new technology, as well as the potential barriers. It also examines usage of the most popular personal finance websites, attitudes towards online sources of advice and the growing influence of social media.

Issues in the Market

Key issues

Abbreviations

Future Opportunities

Tackling security concerns

Beyond the basics

The high street vs online

Opportunities to expand mobile banking

Shift in market for financial advice

Market in Brief

Technology ownership

Figure 1: British internet penetration at home/work/place of study or elsewhere, April 2002-April 2009

Almost 90% use the internet for some banking activities

Figure 2: Overview of preferred channels for banking activities (combined), June 2009

Online banking increases but concerns persist among consumers

Online channels are surpassing traditional sources of financial advice

Figure 3: Most popular sources of advice for financial products, June 2009

Moneysupermarket.com and MoneySavingExpert.com lead the way

Mobile banking is a niche activity but there is scope to expand

Security concerns are likely to limit the uptake of contactless payments

Technology Ownership and Usage

Key points

70% of adults have internet access

Figure 4: British internet penetration at home/work/place of study or elsewhere, April 2002-April 2009

Financial activities are common reason for using the internet

Figure 5: Types of activity undertaken on the internet in the last three months, October 2008 and April 2009

Technology device ownership

Figure 6: Technology device ownership summary, July 2009

Factors that determine technology ownership

Figure 7: Technology device ownership summary, July 2009

New finance related technology is endorsed by government

Consumer Context

Key points

The economic context

Changing attitudes and behaviour

Recession leads to increased financial engagement

Figure 8: Savings, investment, borrowing and debt repayment - consumers’ expected activity, quarterly indices, 2002-09 (Q2)

Online Banking

Key points

Shift towards online transactions

Figure 9: The number of personal customers registered for telephone and internet banking, and the number of transactions, 2003-07

Around 34 million use internet for banking activities

Figure 10: Overview of preferred channels for banking activities (combined), June 2009

Convenience is the main attraction for consumers

Online banking has advantages and challenges for providers

Online banking vs. branch network

Banking crisis could undermine appeal of online-only providers

Tackling security concerns, as online banking fraud rises

Figure 11: Online banking fraud losses, 2004-08

Recent online banking developments dominated by security improvements

Mobile Banking

Key points

Mobile phones are ubiquitous

Figure 12: Mobile phone subscribers, 2003-08

Mobile banking - a niche but evolving activity

A range of mobile banking services is available

Different approaches to charging structures

Recent mobile banking developments

Interest among consumers but there are barriers to overcome

Figure 13: Attitudes towards mobile banking, June 2009

Security fears may be overstated

Expansion of smartphones will boost mobile banking

Contactless and Mobile Payments

Key points

An evolution in UK payments

Figure 14: Volume of cheque*, plastic card** and automated payments^ transactions, millions, 2002-18

Moving towards a cashless society

More than three million contactless payment cards in circulation

Banks take different approaches to rollout

The role of retailers

The consumer perspective

Figure 15: Attitudes towards contactless payment technology, June 2009

Recent market developments

Mobile payments - the next big thing?

Development of mobile wallet concept

Helping to tackle financial inclusion

Pre-paid cards as a launch pad into mobile banking

Online Advice and Money Management

Key points

Online sources of advice are changing the advice landscape

Figure 16: Most popular sources of advice for a range of financial products, (includes banking, general insurance and long-term products) June 2009

But online advice doesn’t always translate to online sales

Usage of personal finance websites

Figure 17: Usage of selected personal finance websites, June 2009

Independent money websites strike a chord among consumers

Taking an independent approach to financial matters

A new breed of money management providers

An opportunity for financial service providers?

Making finance fun

Mobile money management

Financial Services and Social Media

Key points

Social networking has become a mass-market activity

Figure 18: Usage of selected social networking sites, June 2009

Advantages of using social media

Examples of online communities

Communities for finance professionals

Challenges of using social media

Consumer activism

Gaining and maintaining interest

An evolving marketplace

The Consumer - Purchasing Financial Products Online

Key points

General insurance products are more likely to be purchased online

Figure 19: Online purchasing of financial products, June 2009

Online purchasing behaviour - a three-way split

Figure 20: Repertoire of number of financial services products bought online, June 2009

Online purchasing is more likely among high earners

Figure 21: Demographic overview of repertoire of number of financial services products bought online, June 2009

General insurance - the ‘starter purchase’

Figure 22: Buying financial services products over the internet, by repertoire of number of financial services products bought online, June 2009

Age is not the barrier often cited…

Figure 23: Financial products bought online, by gender, age, socio-economic group and gross annual household income, June 2009

… but younger adults will be easier to convert to online channels

Figure 24: Financial products that people would consider buying online, by gender, age, socio-economic

Under-24s need more support to use online channels

Figure 25: Financial products that people would consider buying but not online, by gender, age, socio-economic group and gross annual household income, June 2009

The Consumer - Channel Preferences for Banking Activities

Key points

Online is becoming increasingly popular for regular banking activities…

Figure 26: Preferred channels for banking services, June 2009

… but face-to-face channels still have the edge for advice and queries

Men are more likely to complete more detailed transactions online

Figure 27: Online banking activities, by gender, age, socio-economic group and gross annual household income, June 2009

What people want from their bank branch

Figure 28: Face-to-face banking activities, by gender, age, socio-economic group and gross annual household income, June 2009

Telephone banking - a support service?

Figure 29: Telephone banking activities, by gender, age, socio-economic group and gross annual household income, June 2009

A multi-channelled model?

Figure 30: Overview of preferred channels for banking activities (combined), June 2009

Mobile remains a niche banking channel

The Consumer - Attitudes Towards Online Banking

Key points

Online banking provokes mixed opinions

Figure 31: Attitudes towards online banking and security, June 2009

Shifting attitudes as convenience becomes more important

Figure 32: Positive and negative attitudes towards online banking and security, by gender and age group, June 2009

Tackling security concerns and providing a sense of control

Figure 33: Positive and negative attitudes towards online banking and security, by attitudes towards online banking and security, June 2009

Online banking users have security concerns

Figure 34: Attitudes towards online banking and security, by preferred channels for banking services, June 2009

Security concerns influence online purchasing behaviour

Figure 35: Attitudes towards online banking, by the likelihood to have arranged current account online, June 2009

Higher earners are more likely to opt for online providers

Figure 36: Attitudes towards the security of high vs online providers, by age group, socio-economic group and gross annual household income, June 2009

Banking crisis - positive for high street providers?

The Consumer - Channel Preferences for Financial Advice

Key points

Bank staff and price comparison sites are most popular sources of advice

Figure 37: Most popular sources of advice for a range of financial products, June 2009

Different sources of advice for different financial products

Figure 38: Preferred sources of advice when arranging financial products, by type of product, June 2009

Online sources of advice appeal to under-35s and more affluent groups

Figure 39: Key demographics for preferred sources of financial advice, June 2009

Most people use multiple sources of financial advice

Figure 40: Cross-analysis of sources of advice when arranging financial products, June 2009

Online advice is likely to be crucial in the expansion of new technology

Figure 41: Preferred sources of financial advice, by selected attitudes towards online banking, mobile banking and contactless payment cards, June 2009

The Consumer - Attitudes Towards Online Sources of Advice

Key points

20 million internet users use price comparison sites

Figure 42: Attitudes towards online sources of financial advice, June 2009

Are financial forums reducing the demand for professional advice?

Figure 43: Attitudes towards online sources of financial advice, by sources of advice most likely to be used to arrange financial products, June 2009

Price comparison sites as a research tool rather than a distribution channel

16-24-year-olds most likely to lack trust in online advice

Figure 44: Attitudes towards online sources of financial advice, by gender and age group, June 2009

Internet usage has impact on attitudes towards online advice

Figure 45: Attitudes towards online sources of financial advice, by gross annual household income and daily personal internet usage, June 2009

The Consumer - The Key Online Brands

Key points

Moneysupermarket.com top personal finance websites

Figure 46: Frequency of usage of internet sites, June 2009

Most people use a variety of finance and social networking websites

Figure 47: Repertoire of number of internet sites used, June 2009

Figure 48: Usage of internet sites by repertoire of number of internet sites used, June 2009

Users of price comparison sites use several different brands

Figure 49: Cross-analysis of usage of selected internet sites, June 2009

More affluent are more likely to turn to online sources of information

Figure 50: Demographic overview of users of different types of internet sites, June 2009

Discussion boards are replacing traditional channels of advice

Figure 51: Advice or guidance most likely to use to arrange financial products, by types of internet sites used, June 2009

Websites influence purchasing behaviour

Figure 52: Attitudes towards online sources of financial advice, by types of internet sites used, June 2009

The Consumer - Attitudes Towards Mobile Banking

Key points

Two fifths are interested in mobile banking…

Figure 53: Attitudes towards mobile banking, June 2009

… but security concerns and a perceived lack of need could hamper the uptake

Almost four million 16-24-year-olds are interested in mobile banking

Figure 54: People interested in mobile banking, by gender, age, and gross annual household income, June 2009

A bonus for busy professionals

Allaying fears and promoting mobile banking

Figure 55: Barriers to mobile banking, by age group, June 2009

Telephone banking could provide a lead into mobile banking

Figure 56: Attitudes towards mobile banking, by preferred channels for banking services, June 2009

Balancing online and mobile banking channels

Figure 57: Attitudes towards mobile banking, by postive and negative attitudes to online banking, June 2009

The Consumer - Attitudes Towards Contactless Payment Cards

Key points

Security worries may hamper the uptake of contactless payment cards

Figure 58: Attitudes towards contactless payment technology, June 2009

Under-35s are the most likely to appreciate contactless payment facilities

Figure 59: Positive attitude to contactless payment cards, by gender, age, and socio-economic group, June 2009

Lost cards are a bigger issue among likely users

Figure 60: Attitudes of those postive about contactless payment cards, June 2009

Chip and PIN has support across the demographic spectrum

Figure 61: Negative attitudes towards contactless payments, by gender, age and gross annual household income

Experience of contactless technology has positive and negative impact

Figure 62: Cross-analysis of attitudes towards contactless payment cards, June 2009

Positive indications for mobile payments

Figure 63: Attitudes towards contactless payments, by interest in mobile banking, June 2009

Online channels will be important

Figure 64: Attitudes towards contactless payment technology, by likelihood to purchase a credit card over the internet, June 2009

Appendix - The Consumer - Channel Preferences for Banking Activities

Figure 65: Overview of preferred channels for banking activities, by demographics, June 2009

Appendix - The Consumer - Attitudes Towards Online Banking

Figure 66: Full demographic breakdown of positive/negative attitudes towards online banking and views on high street and online providers, June 2009

Appendix - The Consumer - Channel Preferences for Financial Advice

Figure 67: Preferred sources of advice when arranging financial products, full demographic breakdown, June 2009

Appendix - The Consumer - Attitudes Towards Online Sources of Advice

Figure 68: Demographic breakdown of attitudes towards online sources of financial advice, June 2009

Appendix - The Consumer - The Key Online Brands

Figure 69: Frequency of usage of internet sites, by demographics, June 2009

Appendix - The Consumer - Attitudes Towards Mobile Banking

Figure 70: Most popular attitudes towards mobile banking, by demographics, June 2009

Figure 71: Next most popular attitudes towards mobile banking, by demographics, June 2009

Appendix - The Consumer - Attitudes Towards Contactless Payment Cards

Figure 72: Attitudes towards contactless payment technology, by demographics, June 2009