Introduction and Abbreviations
Definitions
Abbreviations

Executive Summary
Changing working practices place a premium on convenience...
...while ever-improving technology allows banks to offer this convenience
Almost half of UK adults now have access to the Internet
High street banks creating an environment in which direct banking channels can thrive
More that 100 million bank accounts in the UK
Internet access tends to generate higher transaction volumes
Every major bank now offers extensive telephone and online access
Advertising expenditure provides an indication of the direct banks' priorities
Direct banks tend to appeal to the more affluent...
...who were also far more likely to use telephone or Internet banking
Consumers still prefer to talk to their bank face to face
Regular users of direct channels appreciate the convenience
Migration will be slow, but direct banks will become increasingly important players

Market Factors Consumer confidence is falling
Figure 1: Consumer confidence, January 2001-February 2003
Saving taking precedence over spending
Figure 2: The Financial Activity chart, September and December 2002
Shifting working patterns ensure that convenience is paramount
Figure 3: Household working patterns, 1999-2002
The British, the 'long hours culture'...
...and their need for easy access to their finances
Automated payment systems make online banking a reality
Figure 4: Volume of automated payments and cheques, 1990-2002
Low interest rates mean that shopping around is vital...
Figure 5: Real and nominal interest rates, January 1992 to February 2003
...just as stock market woes cause many to look for safe havens
Almost half of the UK is online
Figure 6: Internet penetration, March 1998-January 2003
The young and the affluent form the majority of the online population
Figure 7: Internet penetration, by socio-demographic group, May 2000-January 2003
Reaching the mass-market is crucial
Figure 8: Evolution of an e-consumer
High street banks cutting costs by cutting branches
Figure 9: Number of bank branches (MBBG only), 1997-2001
Increasing functionality of ATMs reduces the need for access to bank branches
Figure 10: Availability of additional ATM facilities, 1993-2001
Changes to the Banking Code should encourage switchers

Market Size
Over 100 million personal bank accounts in the UK...
Figure 11: Volume of UK personal bank accounts (MBBG only), 1997-2001
...worth in the region of £350 billion
Figure 12: Value of UK personal bank accounts (MBBG only), 1997-2001
Total number of current accounts has grown by a quarter in five years
Figure 13: Volume of current accounts versus instant access savings accounts (MBBG only), 1997-2002
A fifth of current account holders have used online banking
Figure 14: Number of current accounts accessed through direct channels, by frequency, November 2002
Online customers make considerably more use of the facilities available
Further evidence of different patterns of usage
Figure 15: Direct banking - number of transactions (MBBG only), by delivery channel, 2001

Key Players and Product Range
The development of direct banking services
Internet banking replaces earlier 'home banking' models
Current account market share...
Figure 16: Current account ownership, November 2003
...and their position in the direct banking market
Figure 17: Usage of direct banking channels, by main current account provider, November 2003
Direct banking services go well beyond the core current account
Pure-play direct banks enjoying an ever-greater impact on the market
Figure 18: Key pure-play direct banking companies
First Direct took five years to break even - Egg did it in three
First Direct
The One
Egg
Smile
Cahoot
IF - Intelligent Finance

Advertising and Promotion
Smile tops the charts when it comes to promoting its current accounts...
Figure 19: Advertising expenditure on online current and savings accounts, years to January 2002 and January 2003
...but Egg is the highest overall spender among the direct banks
Figure 20: Adspend among selected pure-play direct banking companies, February 2002-January 2003
Rates highly publicised...
...but direct banks also concentrate on less tangible factors

The Consumer
Who has a current account?
Figure 21: Bank account ownership, by socio-economic group, November 2002
And with which institution do they hold it?
Figure 22: Main current account provider, by age, November 2002
Direct banks' customer base largely drawn from the affluent
Figure 23: Main current account provider, by gender and socio-economic group, November 2002
Counter service still the key banking channel
Figure 24: Channel usage preferences, by age, November 2002
Cash machines an essential for most respondents...
...while older consumers tend to steer clear of telephone services
Internet bankers are still in the minority...
...but those who have tried it would appear to like it
New technologies yet to have a significant impact
The affluent appear to be more receptive to new channels
Figure 25: Channel usage preferences, by age, November 2002
More than a fifth of ABs use Internet banking on a regular basis
A quarter of young ABC1s use Internet banking regularly
Figure 26: Channel usage preferences, by lifestage, November 2002
Security concerns fading, but face-to-face contact is still crucial
Figure 27: Attitudes towards direct banking, by age, November 2002
Convenience is the key motivator
Are the affluent ready to desert the high street?
Figure 28: Attitudes towards direct banking, by gender and socio-economic group, November 2002
Why consumers use direct channels...
Figure 29: Attitudes towards by direct banking among regular users, November 2002
...and why they don't
Figure 30: Attitudes towards direct banking among non-users, November 2002
Internet users extremely positive about the online experience
Figure 31: Attitudes towards direct banking amoung regular users of Internet banking services, November 2002
Are Internet users driven online by the call centres?

The Future
Telephone banking already widely accepted...
...while Internet transactions are beginning to move into the mainstream
Has critical mass been reached?
Creeping migration aids account uptake...
...but many will not see any reason to switch to direct banks
Higher rates can only go so far to attract new customers...
...but direct banks are finding new battlegrounds on which to fight
New technology offers considerable scope for product development
Despite the positives, direct banking will remain a niche product - in the short term at least

Forecast
Figure 32: Regular direct bankers, by age, socio-economic group and lifestage, November 2002
Figure 33: Forecast of the number of regular direct bankers, 2002-07

Appendix: Research methodology

Index of reports