UK RETAIL BANKER w www.rfigroup.com t twitter.com/RFiMediaGRB
08 Saving in a low rate environment
14 Haydn Williams, Royal Bank of Scotland
33 P2P lenders launch ISAs
CONTENTS APRIL 2017
RFi GROUP INSIGHT
THOUGHT LEADER INTERVIEW
Saving in a low rate environment
Brett King, Moven
TSB offers Â£10 cashback for new current account users
Atom Bank cuts rates on savings account
SME & COMMERCIAL
P2P lenders launch ISAs
NatWest plans launch of digital platform for SMEs
YOUNG PROFESSIONAL OPINION
Haydn Williams, RBS
Best opportunities for commercial payments
Bank of England alters mortgage rules
39 PAYMENTS & DIGITAL Jaguar to introduce in-car payments
UK credit card debt soars
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RFi GROUP APRIL STA STATISTICS FROM DAILY STATS ON RFi GROUP WEBSITE (www.rﬁgroup.com)
Over a third
bankin bankin of Chin
(34%) of Canadian SMEs have relationships with multiple banks
15% of US businesses with annual revenue above $1m do not use a corporate card
16% of US SMEs with
annual revenue of less than $10M are likely to switch their main business bank to a diﬀerent provider in the next 12 months
24% of Mexican SMEs would strongly trust (score of 8+/10) a digital only bank when It comes to business loans
41% of Indian customers use m banking at least week
% of urban Chinese
ng customers have ng products outside na
n banking mobile t once per
36% of cardholders in
Indonesia use their credit card for holiday/ travel expenses
22% of urban banking
customers in Indonesia have a time deposit
HONG KONG Overall satisfaction for home loans in Hong Kong is
6.6 out of 10
AUSTRALIA In Australia,
23% of smartphone
owners use a banking app more than 6 times a week
Global Digital Banking Conference 2017 Europe Edition
WINNING THE CUSTOMER OF THE FUTURE HIGHLIGHTING THE FOLLOWING SPEAKERS
“Innovation is being talked about rapidly and repeatedly but we have seen precious little of it in banking. All bets are off and there are no sacred cows.” David Brear, 11:FS
“I think FS companies who don’t believe that open banking has the potential to deliver material changes to the way consumers engage with financial services are at risk.” Catherine McGrath, Barclays
Welcome to the April edition of the UK Retail Banker, a newsletter designed to give you an update on news and trends within the UK retail banking market, contextualised by RFi Group data. This month’s edition focuses on all things savings! Now, with interest rates at an all-time low, the market is forced to attract customers in different ways, and we spoke to two thought leaders on the topic. Brett King, CEO of Moven discusses how product behaviour is important in this field, following their launch into the UK in February 2017. Haydn Williams of RBS provides the perspective of a ‘rising star’ in savings, and how the industry is responding to the changing climate. The RFi Group insight piece then explores what consumers are really looking for in the savings offering.
With just six weeks to go until RFi Group’s Global Digital Banking Conference on 11th May, we would love to see as many of you there as possible. We offer financial services executives a 40% discount, so please get in touch to redeem this offer. In preparation for an insightful day examining the future of innovation in banking, have a read of our product news to get ahead of key industry changes! I hope you enjoy the issue. Best Wishes,
Sarah Hollinshead Editor, UK Retail Banker firstname.lastname@example.org
RFi GROUP INSIGHT
WORDS SAMUEL GOLDFINCH
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UK savers have found themselves in a terrible situation where the rates they can obtain on their savings accounts are lower than inflation, meaning they are actually losing spending power by saving.
RFi GROUP INSIGHT
n the weeks following the Brexit vote in June 2016 there was a great deal of concern surrounding the future of the United Kingdom (UK) economy driven by a plunging exchange rate and a negative outlook for growth in the short and medium term. In response to this concern, the Bank of England cut the base rate from 0.5% to 0.25% to encourage investment and boost growth. While this move offered positives for borrowers, who could now access funds at a lower interest rate, the effects on savers were far less kind, with banks and financial institutions slashing the interest rates and benefits offered on savings accounts. At the same time, inflation has started to creep up, reaching 1.8% in January 2017, along with predictions of inflation of up to 2.7% by early 2018. With no sign of the Bank of England moving to raise rates any time before 2019, UK savers have found themselves in a terrible situation where the rates they can obtain on their savings accounts are lower than inflation, meaning they are actually losing spending power by saving. So, the question becomes, how are savers reacting to this low rate environment? Using RFi Group data taken from the most recent UK Saving Council survey of UK savers (Q4 2016), RFi Group has crunched
the numbers and found that rather than abandoning banks and saving all together, many, particularly millennials, are instead seeking out current accounts that better meet their needs. According to RFi Group data, the average saver believes they are receiving 1.6% per year on their savings, although the actual rate could be much lower, with moneyfacts.co.uk finding that the average savings account now pays only 0.61%. In response to these miserly rates, consumers appear to be taking action. Over the past 3 years, RFi Group data had consistently shown that around 80% of consumers hold a savings product, but in the most recent survey conducted at the end of 2016, this had fallen to 68%. Furthermore, in the last 12 months 15% of savings account holders, who are aware that their interest rates were reduced, have closed a savings account, with this particularly prevalent among those under the age of 34, showing that consumers are looking for other ways to maximise their returns. One approach consumers appear to be taking is moving their money into current accounts, with
One approach consumers appear to be taking is moving their money into current accounts, with these accounts often offering higher interest rates and more flexibility than savings products.
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RFi GROUP INSIGHT
Among affluent consumers aged 18-30, current accounts are appealing due to high interest rates, with 41% of this group preferring to keep their money in a current account, and 25% of them citing high interest rates as a key driver. these accounts often offering higher interest rates and more flexibility than savings products. When asked where they would prefer to put their money in the current environment, almost 1 in 3 (32%) said they would most prefer a current account, compared to 42% who would still prefer a savings account. This is more prevalent among 18-24 year olds, with 47% of this group preferring current accounts, compared to 41% for savings accounts. A number of factors are driving this trend, with the ease of access being a key feature for most. Among Affluent consumers aged 18-30 (those with investible assets
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above £100,000 or personal income above £75,000), current accounts are appealing due to high interest rates, with 41% of this group preferring to keep their money in a current account, and 25% of them citing high interest rates as a key driver. The strong appeal of current accounts in the market was seen in action in February 2017 when Tesco announced it is withdrawing its current account offer from the market due to overwhelming demand, claiming that it received 10’s of thousands of applications a day in the month following the announcement. The Tesco account, which offers a market leading rate of 3%, as well as having no fees, no direct deposit requirement, and no direct debit requirements, has both the high interest and flexibility that the market appears to crave. One possible downside to saving in this Tesco current account, and saving in current accounts in general, is that the high interest rates tend to be capped, at £2,500 in the Tesco case. In this regard, current accounts cannot compete with formal savings products such as fixed-term accounts or Cash ISAs, but with RFi Group data showing that 20% of savers have less than £100 in savings, and just under half having less than £2,500, it becomes clear why this would not be a barrier to many. This is particularly the case for young savers who may be struggling
RFi GROUP INSIGHT
to save due to many conflicting financial priorities and lifestyle choices. Another theory put forward by many in the industry is that consumers will instead look to move their money into other investment products in order to chase higher returns, such as shares, commodities, or peer-to-peer lending. Although many consumers, particularly those under the age of 34, are willing to consider these alternative investments, most, with the exception of Affluent consumers over the age of 60, do not appear to be willing to make the move into investing and taking on the associated higher risk. RFi Group data shows that there has been minimal change in the uptake of investment products, with a number of factors stopping consumers from taking out these products, including a lack of funds (46%), a lack of knowledge (32%), and concerns about the risks (30%). So, despite the potential for greater returns, even in the current low rate environment, alternative investments do not appear to be the answer for struggling savers. As can be seen, many consumers, particularly millennials, are responding to the new low rate environment by abandoning savings accounts in favour of current accounts that offer better interest and more flexibility. Whether this trend continues will
Whether this trend continues will largely depend on the banks and how long they are willing to offer market leading rates on current accounts, rather than savings accounts, as well as how long the Bank of England maintains rates at such low levels. largely depend on the banks and how long they are willing to offer market leading rates on current accounts, rather than savings accounts, as well as how long the Bank of England maintains rates at such low levels. Moving forward, watching how consumersâ€™ behaviour evolves in this new environment will remain fascinating, and will be something RFi Group will continue to closely monitor.
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THOUGHT LEADER INTERVIEW
t Finovate Europe in February, Moven announced the launch of their app into the UK market, from prototype to in-market in just four weeks! As one of the world’s biggest neobanks, with notable partnerships such as Westpac in New Zealand and TD Bank in the United States, this is Moven’s first entrance into Europe. RFi Group’s Sarah Hollinshead sat down with Chief Executive Officer, Brett King, to discuss the adventurous 4-week launch and its plans for growth in the European market.
CEO, Moven WORDS SARAH HOLLINSHEAD
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King is universally recognised as a thought leader in financial innovation, touring the world, speaking at conferences, hosting the Breaking Banks radio show and becoming a five times best-selling author (currently working on his follow up project to book Bank 3.0 with Bank 4.0). In fact, in the week preceding the Finovate Europe event, King had travelled to Hong Kong, Angola, Oslo and Sweden, before popping to the UK for the notso-simple task of launching into the market for the first time!
THOUGHT LEADER INTERVIEW
Although a seasoned speaker, the lack of gaudiness in the way King speaks of the company portrays his absolute confidence in Moven. Cool, calm and collected, King highlights the partnering of time-saving and costsaving initiatives as giving them their competitive edge. “We say to banks around the world, the opportunity of a partnership with a fintech like Moven is obvious. We bend space and time. There is simply no other way you could deploy an app faster internally at a bank.” When looking back at the impressive lead time of just four-weeks to launch, King again describes the process in a fairly nonchalant manner. “It was easy, the largest portion of time was waiting for the Apple store to approve the app. We are on our second version of the app, with new app architecture and a new technology stack made especially for fast deployment and scalability globally. So, we have really shifted away from a core consumer app as a platform in the US to a software company as the basis of the app.” This version of the app allowed Westpac in New Zealand to deploy a prototype linked to their real-time core system in just six days, and at a significantly lower cost than any internal efforts could have achieved. “If you want to try something different in the market, be able to acquire customers quickly, or are looking at a way to test how to generate revenue and relationship on mobiles, this is a very cheap way to do so. We know from experience of banks doing it themselves, the starting price is about £30 million. We can launch to market for £1 million in just 6 weeks.” Therefore, if speed and cost are important, and when are they ever not, King believes this is the only way to innovate. Moven is revolutionising the way financial institutions can assist
consumers in tracking spend, saving goals and budgeting needs. At the conference, Moven announced the inclusion of further predictive analysis and some simple machine learning to enhance responses to spending and saving behaviour. “We want to be able to anticipate where there are opportunities for savings in the future and where are potential problem spending moments. If we know every Friday night you hit the pub and splurge with £100, but you’re saving for something that is going to cost you £300, we can limit that exposure, and maybe even set a limit on the card.” Being able to save and to be financially healthy is not a product proposition anymore, it is a behavioural proposition, believes King. Moven use psychology and gamification to make this a reality in the current market. “For an average savings account that a bank launches in the US, they may get half a percent conversion. We use impulse savings, and say ‘hey, you’re £200 below your typical spend this month, why don’t you lock it away?’ From this messaging, we are getting a 40-50% conversion.”
We are not stuck in the old ‘goals’ mentality, we have moved on, analysing behaviours further and modelling it differently. Moven’s perspective on the savings market is another selling point for partnering with the organisation, as King explains. “We ‘ideate’ better. Today we highlighted the ‘wishlist’ function on our app. We are not stuck in the old ‘goals’ mentality, we have moved on, analysing behaviours further and modelling it differently. That design process and thinking would not come out of a bank.”
And their track record is impressive. Launching TD MySpend in the US in late 2015, Moven aimed to get 30,000 customers in the first three months, building up to 300,000 within 12 months. In reality, the app immediately shot up to number one on the app store as it launched, and had more than 300,000 customers in its first six weeks. King highlighted Moven’s intentions to have a holistic offering for financial health around the world at the fintech conference. To achieve this, it is looking at expanding beyond small every-day savings and entering retirement plans and investment portfolios. “As we started to attack the savings market, we realised people do not just save for short term goals, they have some longer ones. We are not quite ready to do robo-advising, but we are on a path to do simple investment products, and are currently looking at partnerships so that hopefully in the next 12 months, robo-advice will be a reality for us.” Moven makes no secret about entering the UK market with the intention of developing further partnerships. “We wanted to demonstrate to the market that we can launch in just four weeks. I think we are also the largest neobank in the world by availability zones on Amazon Web Services, so we are in the best position to expand, because of our cloud capabilities.” PSD2 is another natural attraction for their expansion into Europe. “PSD2 is a great win for Moven and enables us to better immigrate customers across accounts.” Moven represented one of the most established and globally successful fintechs at Finovate Europe 2017, and with King spearheading the company, they certainly have a lot of attention. Their entrance into the UK is yet another symbol of the ever-pervasive fintech/ bank partnership and the ever-growing competition within this market.
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YOUNG PROFESSIONAL OPINION
WORDS SARAH HOLLINSHEAD
ith interest rates at an all-time low, the UK savings market is under pressure to find new ways to encourage saving behaviours. The challenge is greater for the bigger banks, as new players begin to disrupt the market. RFi Group’s Sarah Hollinshead sat down with young professional Haydn Williams, Commercial Lead for Personal Savings at Royal Bank of Scotland (which includes NatWest, RBS and Ulster Bank among its businesses) to understand his view on the changing climate and how institutions should be responding. The current savings statistics are not pretty and the population is facing a tougher future because of it. Haydn kicks off by providing
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an overview of the current state of the market. “Generally, people in the UK save too little and too late vs. our European counterparts. For example, roughly 1/3 of households have less than £250 in savings, meaning even covering an unexpected bill can be a significant challenge.” These challenges differ between age groups, Haydn explains, with both the young and the older generations at most risk. “For those either in or approaching retirement, interest from cash savings have traditionally been used to support pension income in a manner that provides very limited risk to capital.
YOUNG PROFESSIONAL OPINION
Generally, people in the UK save too little and too late vs. our European counterparts. For example, roughly 1/3 of households have less than £250 in savings, meaning even covering an unexpected bill can be a significant challenge. While the Government’s introduction of the Personal Savings Allowance had made a portion of interest income tax free, due to the low interest rate environment, it is unclear how materially beneficial this has been for savers. This means people have to turn to riskier asset classes (equities, peer-to-peer lending, corporate bonds) to generate yield which could mean capital is at risk during a time of life where certainty could be best.” With potential cuts in the state pension, higher costs of living and higher debt levels (university tuition fees for example), saving is critical for the youth segment to ensure a high standard of living throughout life. “For younger savers, the challenge is different; some may think “why bother” with the rates on offer. Getting into the simple habit of saving regularly, regardless of return, is critical just to build up the capital which either makes you more financially resilient or able to achieve the things you want to in life e.g. buy your first house.” To combat the decrease in savings and the increasing need for good financial health, Haydn believes providers that make it easy for customers to get into the habit of saving regularly are going to be the winners in this environment. “Being able to turn what is seen by some as a burden (i.e. saving to cover the cost of something negative to happen like your car breaking down) into something positive and empowering is really
important. Just look at the success of Help to Buy ISA, an initiative that helps people save towards their first home. For providers, attracting these customers is important commercially lots of customers saving small amounts regularly gives a stable deposit base to act as a foundation of your business.” Further differentiation comes in the form of ease of application, according to the RBS Commercial Lead. “Customers don’t want to waste time in complex account opening processes when returns from cash savings are at historic lows. Customers expect to be able to open a simple savings account with 3-4 clicks online or via a mobile app. The savings providers who do this will undoubtedly be successful.” Customer centricity ties together both Haydn’s factors for success, and this is partnered with a move away from product-centric thinking. Haydn explains that the development of capabilities that help customers save, rather than actual products, provides the true scope for innovation.
Customers expect to be able to open a simple savings account with 3-4 clicks online or via a mobile app. The savings providers who do this will undoubtedly be successful.
however it comes with an interactive app to help children learn about money.” To keep on top of customer satisfaction, Haydn describes the usual feedback loop from staff members and customers as critical. Furthermore, he signifies the importance of 3rd party input in addition to in-house creativity as being the key to victory. “We as a country are recognised as an exciting market for fintech firms. For fintech firms, that means the opportunity to partner with financial institutions to “test and learn” around what concepts work in terms of getting customers to save more effectively – something we are very open to if it is right for our customers.” Fintechs and smaller companies benefit from agility and speed to market. Yet, Haydn is a great believer that improvements in the way data is captured and processed means all providers have opportunities to continually individualise the customer experience at pace. On the other hand, Haydn expresses his belief that a total overhaul of the traditional savings products is unlikely. “In some respects, I can see aspects of the market remaining unchanged. This could be basic savings products or some of the traditional elements of savings. For example, in one form or another, NatWest has offered piggybanks for over 30 years which remain hugely popular with customers!”
“Our activities are aimed at driving greater engagement with the act of saving and core to that is remembering most of your customers are not financial experts - so when they need help, keep it simple and easy to understand.”
Between putting pennies in your piggybank, or transferring funds on a mobile with a fingerprint, the important notion is that savings are vital, and Haydn believes it remains the responsibility of financial institutions to deliver that message to customers. He closes with some words of wisdom on how best to keep ahead.
“Meanwhile, for certain customer segments it is the level of support that will change rather than the product. For example, the NatWest/RBS First Saver account aimed at under 16s is a straightforward savings account –
“It’s easy to be inward looking, however understanding competitors, market and product trends, plus wider economic/ demographic factors, always gives a “top down” view upon which to develop a business strategy.”
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WORDS SARAH HOLLINSHEAD
ast month, RFi Group supported the European Commercial Cards & Payments Summit 2017, where our General Manager for EMEA Victoria Bateman, shared some of our latest industry insights. Over 100 leaders from across the commercial payments sector gathered to better understand the accelerating pace of change in this space and its impacts on their business and their customers. Victoria shared the latest intelligence from our UK Commercial Banking Council in her dynamic presentation, “Put your organisation in the middle… the middle market that is!” Backed by consumer data driven from 5,000 business owners and senior decision makers across France, Germany, Italy, Switzerland, Turkey and the UK, Victoria provided a clear understanding of the payments experiences, behaviours and attitudes of corporates as well as opportunities in winning the all-important share of wallet. “When looking for card solutions, businesses are looking at basic features and simple solutions. You as providers need to be focusing on a simplified proposition at the acquisition stage. Advanced features and benefits then come into play when retaining and satisfying client needs later down the line.” As with any major change comes major opportunity and that was certainly evident in RFi Group’s findings. Victoria discussed many market nuances in payment habits, and one data point particularly resonated with those in the room. “Currently only 1 in 3 mid-market businesses accept cards across Europe. The UK stands out as significantly higher, but they still only have just under 2 in 3 middle market businesses accepting cards for payment. The opportunity therefore is huge.” The UK is therefore evidently a place for great investment, as shown by the statistics referenced in the presentation.
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Currently only 1 in 3 mid-market businesses accept cards across Europe. The UK stands out as significantly higher, but they still only have just under 2 in 3 middle market businesses accepting cards for payment. The opportunity therefore is huge. Victoria Bateman, RFi Group - EMEA “The UK stands out as a market which is ripe for change. There is a 21% net difference between current usage of cards and preference to use cards, indicating huge opportunity to increase uptake of corporate cards within this segment.” For the bankers in the room, Victoria explored the linkages between card providers and main bank, clearly highlighted the importance of main bank relationship in the commercial space. Lastly, a point which cannot be overstated enough, although this event was a European overview of the commercial payments industry, as Victoria explained, a “one size fits all” approach, with the varying conditions in each market, is quite simply, not going to work. To hear more about the UK Commercial Council, please contact: Olivia Cosgrove Business Development Manager email@example.com +44 (0) 7491 240 893
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Current Accounts WORDS SAMUEL GOLDFINCH
TSB offers £10 cashback for new current account users
According to RFi Group data...12% would switch for rewards or cashback offerings, suggesting that this new account will appeal to the market, and could capture a lot of switchers.
SB is now offering up to £10 monthly cashback to new current account customers. To be eligible for the cashback, consumers must meet 2 requirements, with £5 rewarded for each of the criteria met. Account holders must make at least 20 debit card payments per month, this includes all payments made online, using contactless, Apple Pay or Android Pay accounts, and they must set up at least two monthly direct debits to two different companies. This offer runs until 30 June 2018 regardless of when the customer opens the account and is only available to new customers who take out TSB’s Classic Plus current account. The account also offers interest of 3% on balances up to £1,500, giving it one of the highest rates in the market.
According to RFi Group data, 14% of current account holders who are likely to switch accounts in the next 12 months would consider switching for an improved interest rate, while a further 12% would switch for rewards or cashback offerings, suggesting that this new account will appeal to the market, and could capture a lot of switchers. At the same time, it will be interesting to see its impact on the payment market dynamic in the UK.
WHY WOULD YOU CONSIDER SWITCHING TO A NEW CURRENT ACCOUNT PROVIDER? 20% 15%
0% Interest Customer Rewards/ rate service cashback
Fees and Knowled- Applica- Discounts charges ge of staff tion expe- /promotrience ions
Source: RFi Group UK Priority & Retail Banking Council H2 2016
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Revolut team I Image source: Revolut
Revolut launches current accounts UK fintech Revolut has expanded its offering by adding a current account to its suite of progressive and innovative banking products. To access the account, consumers need only download the free Revolut app to their Android phone or iPhone, and they can open the account without proof of address or a credit check. The new current account will allow users to receive a personal account number and sort-code, accept payments, including salary, and transfer funds to any bank in the United Kingdom in a matter of hours. Currently, there are no minimum balance requirements and no monthly account fees. Revolut also plans to launch current
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The introduction of a current account is a key milestone for the 18-month old start-up, which started out with a prepaid foreign exchange card offering. accounts to the rest of the European continent and the US in the near future. The introduction of a current account is a key milestone for the 18-month old start-up, which started out with a prepaid foreign exchange card offering that had a market leading exchange rates, as it makes its clear that Revolutâ€™s ambition is to be in banking, rather than just FX.
Tesco Bank freezes current account openings In early March, Tesco Bank blocked all new current account applications following a rush of applications in late February. Last month, Tesco Bank announced that they would be opening a new, no fee current account in April 2017 that would have an interest rate of 3% on balances up to £3,000, with the rate guaranteed until April 2019. However, after unprecedented demand, with over 60,000 applications in a one week period, Tesco Bank announced that they have had to temporarily stop accepting new applications for this account. At the time of writing, it was unclear when Tesco Bank would reopen applications, if at all. The bank confirmed that anyone who has already had an application accepted will not be affected by this block.
After unprecedented demand, with over 60,000 applications in a one week period, Tesco Bank announced that they have had to temporarily stop accepting new applications for this account. MoneySavingExpert.com attributed the success of this account to the guaranteed interest rate, the bonus Tesco Clubcard points, which saw account holders earn one point per £1 on debit card spending at Tesco and one point per £8 spent elsewhere, as well as the fact an individual could open two accounts, and couples could open accounts separately, giving couples the opportunity to open 4 accounts and guarantee 3% interest on a combined £12,000.
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Savings WORDS SAMUEL GOLDFINCH
Atom Bank cuts rates on savings account
hallenger brand Atom Bank has announced that it will be reducing its market leading one-year savings account interest rate from 2% to 1.8%. Despite the reduction, Atom’s rate still beats its nearest rival by 0.2%. Atom had only recently raised the interest rate on the account to 2%, which had given the brand the leading rate in the market by a considerable margin. Fortunately for savers, Atom will be keeping its three-year rate at 2.2%, and the five-year rate at 2.4%; so, all remain market leading rates. According to RFi Group data, the overall interest rate offered is absolutely critical to 47% of savers when they chose their primary saving account; suggesting that these high rates will drive Atom Bank’s move on rates among savers looking to take up a new savings account. A spokesperson from Atom has said: “We continue to offer the best savings rates of all providers across all of our products, and the new rate for the one year fixed saver
The overall interest rate offered is absolutely critical to 47% of savers when they chose their primary saving account; suggesting that these high rates will drive Atom Bank’s move on rates. remains market-leading. Atom is building products that offer the best rates, based on real-time pricing which allows us to be as flexible as possible and to provide our customers with the best possible service and experience, as well as the best returns.” To apply for a savings account, consumers must download the free Atom Bank app, which is available in Apple and Google app stores, then register and verify their identity. Atom also offers customers the opportunity to receive their interest monthly, which is likely to appeal to customers who may need to dip into their savings regularly.
TOP 10: WHICH OF THESE FEATURES WERE ABSOLUTELY CRITICAL TO YOUR CHOICE OF PRIMARY SAVINGS ACCOUNT 50%
Security of internet banking
Easy to use internet banking
10% 0% Overall interest rate offered
Ease of application process
Ability to apply online
Unlimited penalty-free withdrawals
Simplicity of Online No minimum Ability to product banking access deposit make regular via a computer required to deposits /laptop open account
Source: RFi Group UK Savings Council 16Q4
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Mark Mullen (R) & Anthony Thomson (L)
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The new bond will be available from April 2017 and will pay a rate of 2.2% on deposits of up to ÂŁ3,000. This allows the government to live up to its promise of offering market leading rates.
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Market leading NS&I account announced As part of the 2017 budget, Chancellor Philip Hammond provided additional detail on the new NS&I bond that was announced in April 2016. The new bond will be available from April 2017 and will pay a rate of 2.2% on deposits of up to £3,000. This allows the government to live up to its promise of offering market leading rates, although many market commentators were disappointed with the rate offered, saying the government had done the minimum it could to achieve this aim. About the new bond, Anne Bowes, Director of savings advice site SavingsChampion.co.uk, said: “It’s welcome news that the new NS&I bond will be launched in April but disappointing that the rate is not higher. The new bond will mean savers can earn up to £202 in interest over the three-year term, but this is just an extra £6 a year more than they could get on the open market.” In addition, with inflation likely to increase this year, it is possible that the returns on this account will soon fall below inflation. Despite the drawbacks, the account is expected to be popular among those who like the security of a government backed savings account.
Milestone offers a new fixed 5-year savings account Milestone Savings, a London based fixed-term deposit account provider, has launched a new 5-year fixed rate savings account at 2.3%. At the time of launch, it was the first savings account in over 6 months that offered a 5-year rate of 2.3% or more. The bank also launched a 3-year fixed-term savings account at 1.8%. Milestone Savings is an Islamic bank and therefore all products are Shari’ah compliant. The bank states that all rates are ‘expected profit rates’ rather than fixed rates of interest. If the bank is unable to achieve the expected profit rate, customers will have the option of continuing with the account at the new expected rate or closing the account and receiving their initial deposit plus the profit they have earned. Milestone accounts require a minimum deposit of £10,000 and can only be opened online. Also, the accounts do not offer early access, nor can additional funds be added after the initial deposit.
If the bank is unable to achieve the expected profit rate, customers will have the option of continuing at the new expected rate or closing the account and receiving their initial deposit plus the profit they have earned.
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Mortgages WORDS MEERA PANCHASARA
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Bank of England alters mortgage rules
he Bank of England (BoE) has altered mortgage rules that will allow more borrowers to access high loan-to-value ratio loans. Under the new rules, banks will still need to ensure that less than 15% of their total new mortgages have loan-to-value (LVR) ratios of greater than 4.5 times, but they will now have a 12-month rolling limit, rather than 4 quarterly limits. This gives financial institutions more freedom to offer high LVR loans without worrying about exceeding their quota as a 12-month rolling limit is easier to manage. Senior Technical Director at mortgage broker John Charcol, Ray Boulger, estimates that financial institutions could offer 10% more borrowers loans in excess of 4.5 times their income, explaining that: “Because many mortgage offers are valid for up
As a result, lenders have restricted the proportion of offers in excess of 4.5 times income to about 13%, compared to the Prudential Regulation Authority’s actual limit of 15%. Ray Boulger, Senior Technical Director, John Charcol
to six months but lenders don’t know how quickly borrowers will complete, each lender has up to now had to assume that a higher than statistically likely proportion of offers in excess of 4.5 times income will complete quickly. As a result, lenders have restricted the proportion of offers in excess of 4.5 times income to about 13%, compared to the Prudential Regulation Authority’s actual limit of 15%.”
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Shelter claims 8 in 10 families unable to purchase new-builds According to a report by housing charity Shelter, almost 80% of families across England cannot afford to purchase a new-build home in their local area. The worst-off regions are West Midlands, where over 9 in 10 privately renting working families are unable to afford a newly-built home even with the support of the government’s Help to Buy scheme. Second comes South-west England, where 89% are unable to access the property ladder due to house prices, followed by East Midlands with 87% unable to afford the average house. Shelter believes the current system distorts incentives for developers, who cannot take the risk that increasing supply will lower the value of their investment, driving the gradual release of new housing stock. The charity argues that the current system should be replaced with a ‘civic housebuilding’ programme where cities and larger local authorities sell land at the price of its ‘current use’, on which public, private and voluntary organisations would be encouraged to build well designed and affordable housing.
The worst-off regions are West Midlands, where over 9 in 10 privately renting working families are unable to afford a newly-built home even with the support of the government’s Help to Buy scheme.
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Barclays launches new cashback mortgage Barclays launched a new cashback mortgage in February aimed at encouraging first time buyers to get on the property ladder sooner. Borrowers buying a property between £100,000 and £150,000 will receive £1,250, while FTBs purchasing a property valued between £150,000 to £500,000 will receive the maximum £2,500, with consumers able to spend the money on whatever they wish. The rate on the new product is slightly higher than other mortgage deals at 2.69%, and only comes in a five-year fix rate loan at 80% loan-to-value (LTV). RFi Group data shows that ‘the costs associated with the mortgage (e.g. stamp duty, solicitor fees)’ is one of the major factors that apprehensive future FTBs are concerned about when it comes to applying for their future mortgage, suggesting that Barclays’ new product may help ease such concerns, at least to some extent.
WHAT CONCERNS YOU? Future FTBs apprehensive about applying for their future mortgage (6+/10) 60% 50%
The other costs associated with the mortgage
I am worried about rising interest rates
I won’t be able to buy the property I want to
30% 20% 10% 0% It is a huge financial commitment
I am worried I won’t be approved for a mortgage
(e.g. stamp duty, solicitor fees)
Source: RFi Group UK Mortgage Council Q4 2016
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Cards WORDS ELIA ORELLANA
UK credit card debt soars
ecent figures from the Bank of England have revealed that credit card debt in the UK has reached a record high after January saw consumers spend £339 million on credit cards, the equivalent of nearly £11 million a day. This means credit card debt now stands at £66.7 billion and has risen by more than £10 billion in the space of five years. This credit card debt increase, along with increases in other unsecured lending such as personal loans and overdrafts, takes the total level of unsecured debt up to £194 billion, which represents a 10.3% increase on last year. The increase in borrowing has raised a number of concerns, with debt charities warning that they have experienced record demand for advice from families and many fearing that this surge in borrowing could increase consumers’ vulnerability to debt they cannot repay. Despite this, RFi Group data shows that there has been an increase in the number of consumers hoping to cut back and spend less, suggesting that consumers are feeling wary about their current level of debt and want to get it back under control. Whether they are able to achieve this remains to be seen.
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OVER THE NEXT 12 MONTHS, HOW LIKELY ARE YOU TO CHANGE THE AMOUNT YOU SPEND? 16H1
100% 80% 68% 69%
60% 40% 20%
0% Spend less
Spend the same amount
Source: RFi Group UK Priority & Retail Banking Council H1 & H2 2016
UK card payments up in 2016 Consumers spent £647 billion using payment cards in 2016, up 4.35% from £620 billion in 2015, according to data from the UK Cards Association. Figures also show that 14.8 billion card transactions were made last year, which averages to 40.5 million transactions a day. However, the majority of this spending was made on debit cards, which amounted to £461 billion in total. Contactless payments have seen an even bigger upward trend, accounting for £25 billion of spending, in comparison to just £7.75 billion in 2015. Graham Peacop, Chief Executive of The UK Cards Association, said: “Cards are the preferred way to pay for millions of consumers and underpin the retail economy. Contactless cards are increasingly becoming the payment method of choice for everyday, low-value purchases, with a quarter of card payments now contactless.”
Contactless payments have seen an even bigger upward trend, accounting for £25 billion of spending, in comparison to just £7.75 billion in 2015.
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Virgin Money credit card share surges Virgin Money is seeing a great deal of success in the credit card market, with uptake of its low-cost credit cards helping the bank gain ground amongst its competitors and take the bank’s market share up to 3.5%. This growth was supported by Virgin Money’s range of cheap credit card offers, while the recent release of another range of credit cards at the start of 2017, including a 41-months 0% balance transfer deal and 27-months interest free purchase card, suggest their quest for market share will continue.
Virgin’s growth has been supported by overall growth in the credit card market, with the credit card market registering a 10% year-on-year increase in 2016. Virgin’s growth has been supported by overall growth in the credit card market, with the credit card market registering a 10% year-on-year increase in 2016. Importantly, Virgin Money has been able to achieve this without seeing a deterioration in its loan book, with the bank claiming that it saw a fall in bad loans over 2016.
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Personal Loans WORDS GEORGINA GALVAN
The new Innovative Finance ISA, will allow savers to lend money directly to individuals and businesses in return for an attractive yield.
P2P lenders launch ISAs
eer-to-peer (P2P) lenders are now able to launch Individual Saving Accounts (ISAs). The new Innovative Finance ISA, will allow savers to lend money directly to individuals and businesses in return for an attractive yield. Although this type of ISA was approved in April 2016, the implementation was delayed due to the huge volume of applications the regulators received, and the range of business models that the regulators had to examine and approve. Financial institutions require full regulatory approval from the FCA and authorization from HM Revenue & Customers before becoming ISA Managers. Peer-to-peer lenders have been quick to begin offering the new ISA, with Lending Works, the fourth largest peer-to-peer lender, launching an Innovative Finance ISA, offering 4% interest for 3 year and 4.7% for 5 year personal, unsecured loans between ÂŁ1,000 and ÂŁ25,000. They have also launched an ISA targeting Small and Medium-sized Enterprises (SMEs) across the UK. Downing, Abundance, Crowdstacker and Crowd2Fund are among the other providers who have launched an Innovative Finance ISA.
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Consumer borrowing increased in 2017 Borrowing among British consumers continued to increase in January 2017, according to the latest British Banker’s Association report. This increase in borrowing has come on the back of a slowdown in retail sales in December and January which had raised concerns about the impact of inflation on spending power in the UK. The results show consumer credit increased by 6.75% in January, reaching £528m. The growth is mainly driven by personal loans and overdrafts, which reported a £422m increase. This study only includes data from the 7 top lenders: Lloyds, Santander, TSB, Barclays, HSBC, RBS and Virgin Money, and car loans were not included, meaning the data does not provide a full picture, but one that is close enough to give a good indication of what is happening in the market. RFi Group data supports the idea that consumers are likely to continue borrowing, either by choice or out of necessity, with the proportion who intend to borrow less in the next 12 months lower at the end of 2016 (28%) than it was in the middle of 2016 (33%).
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OVER THE NEXT 12 MONTHS HOW LIKELY ARE YOU TO CHANGE THE AMOUNT YOU: Borrow (less)
50% 40% 33%
20% 10% 0% H1 2016
Source: RFi Group UK Priority & Retail Banking Council H1 & H2 2016
Zopa first P2P lender to reach $2bn in loans Peer-to-peer lender Zopa has become the first P2P lender to lend out ÂŁ2bn, originating more than 300,000 loans. Zopa is the oldest P2P lender in the UK and specialises in unsecured consumer loans by linking borrowers directly with investors. According to Zopa, 34% of its loans were used to purchase a car, while 31% were used for debt consolidation, and 20% to fund home improvement. Zopa customers have an average income of ÂŁ30,000, with the typical borrower tending to be a police officer, nurse, teacher, bank employee, or project manager. Zopa plans to build on its success to date, announcing in November last year that it intends
Zopa plans to build on its success to date, announcing in November last year that it intends to launch a digital bank to operate alongside its P2P operations. to launch a digital bank to operate alongside its P2P operations. Despite this, the lender still faces a number of challenges, for example, in late 2016, Zopa had to stop accepting investments due to a lack of borrowers, showing that Zopa still has work to do if it wants to maintain its growth in the future.
Zopa CEO Jaidev Janardana
Image source: Zopa
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SME & COMMERCIAL
SME & Commercial WORDS CELINE OEDEGAARD
NatWest plans launch of digital platform for SMEs
atWest is currently trialling a new automated lending platform that will give small and medium sized businesses (SMEs) a quick access to unsecured loans of up to £150,000. The platform, called Esme Loans, will originate unsecured and unregulated loans for a maximum of five years to all eligible UK SME businesses, regardless of whether they bank with NatWest or not. To qualify, the business needs to be a limited company that has been trading for a minimum of 18 months. The new service will target UK SMEs with a turnover of over £15,000 (maximum £25,000) and has no early repayment charge. NatWest has also claimed that the tool can offer a decision on the application “potentially within an hour”. According to RFi Group data, 1 in 10 UK SMEs considers quick approval the most important factor when choosing a financial institution for their business’ borrowing products, while 38% rate quick approvals in their top 3 priorities, suggesting that the new platform could appeal to SME operators keen to quickly access funds.
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WHEN CHOOSING A FINANCIAL INSITUTION FOR YOUR BUSINESS’ CASHFLOW PRODUCTS, HOW IMPORTANT ARE THE FOLLOWING STATEMENTS? Most important Top 5 30% 25% 20%
Quick approval for cash
Flexibility in repayment method
Speed in receiving the loan
5% 0% Competitive A good interest reputation rates for business loans
Source: RFi Group UK Small Business Banking & Payments Council H2 2016
SME & COMMERCIAL
Virgin Money looking to enter small business banking market Challenger bank Virgin Money has announced plans to enter the small business banking market. The bank had previously signalled that it was considering plans to enter the space, but backed off following the Brexit vote and subsequent economic turmoil. The change in direction has been driven by a number of factors, including better than expected economic performance following the Brexit vote, and efforts from the UK government to boost competition in the SME lending sector, in particular, the Treasury efforts to negotiate a new deal with the European Commission to meet the conditions of the bailout RBS received during the financial crisis. Under the current plan, RBS
The change in direction has been driven by a number of factors, including better than expected economic performance and efforts from the UK government to boost competition in the SME lending sector is required to open 300 branches under its William and Glyn brand. Under the alternative plan, RBS would be required to partially fund challenger banks, provide ‘dowries’ to encourage small business customers to switch, and provide access to RBS’s branch network.
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SME & COMMERCIAL
Oxygen Finance buys SME alternative lender Satago Oxygen Finance has acquired SME alternative lender Satago, with plans to combine the two companies’ services to begin offering early payment, finance and cash flow finance solutions to large and small businesses. Satago offers SME finance through the use of a cloud-based solution that integrates into an SME’s accounting software, while Oxygen tends to focus on larger corporations by offering an early payment discount service. Oxygen’s CEO, Ben Jackson, refers to the acquisition as complementary to the company’s growth and said in a statement: “Oxygen’s early-payment solutions for large buyers – which facilitates payment to suppliers ahead of contracted terms – is the perfect partner for Satago’s proven business model of giving SME suppliers the tools in their native accounting applications to improve receivables management. Combining these capabilities, Oxygen and Satago will be well positioned to lead the market in delivering modern, integrated payment and receivable strategies for large buying organizations and their suppliers, SMEs included.”
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Combining these capabilities, Oxygen and Satago will be well positioned to lead the market in delivering modern, integrated payment and receivable strategies for large buying organizations and their suppliers, SMEs included. Ben Jackson, CEO, Oxygen Finance
PAYMENTS & DIGITAL
Payments & Digital WORDS MANISHA NOBEEN
Jaguar to introduce in-car payments
ar manufacturer Jaguar, in partnership with Shell, has begun rolling out digital payment capabilities within its in-car entertainment system. By using Apple Pay or PayPal, consumers will be able to securely pay for petrol from within their car, provided their Jaguar is equipped with the InControl App system. In addition to this, by downloading the Shell app to the system, when topping up fuel at a Shell station, users can choose the amount of petrol needed and pre-pay for the fuel. Receipts are also shown on the dashboard and can be forwarded to an email address registered by the user. According to Land Rover’s Director of Connected Car and Future Technology, Peter Virk: “Making a payment directly from a car’s touchscreen will make refuelling quicker and easier. With this new system you can choose any pump at the gas station and pay for the fuel even if you’ve forgotten your wallet or can’t find your credit or debit card.” The service is currently only available to iPhone users, but will be expanded to accept Android pay later in 2017. Moreover, the service is only available in the UK on certain model Jaguars, but it will soon be extended worldwide across every Jaguar SUV, sports car and sports sedan. Jaguar also plans to extend the service to other in-car payments, such as parking locations, drive-through restaurants, toll booths, and other services. This announcement may provide a boost for Apple Pay, which is starting to gain traction in the UK. According to RFi Group UK Payments and Innovation Council data, Apple Pay has seen an increase in usage over the last 6 months and is the most used mobile wallet within the UK. This new partnership will see consumers’ opportunities to use Apple Pay increase, helping to make the tool ubiquitous in their lives and potentially driving greater usage.
HAVE YOU EVER MADE A MOBILE PAYMENT TO PAY FOR A PURCHASE IN STORE USING ANY OF THE FOLLOWING MOBILE WALLETS? Top 3. Yes 16H1
10% 8% 6%
2% 0% Apple Pay
Barclaycard mobile app for Android
Source: RFi Group UK Payments and Innovation Council H2 2016
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PAYMENTS & DIGITAL
Barclaycard to include contactless technology in watches and jewellery Barclaycard has partnered with high street retailer DCK Group, a jewellery firm, and Tappy Technologies, a payments firm that imbeds contactless technology into wearables, to expand the coverage of its Barclays Pay solution. BPay offers a contactless payments system, supported by Visa, and already includes a range of payment integrated technology like a wristband, fob, sticker, and loop, all designed to help provide a seamless contactless experience. The new partnership aims to expand the services into high end retail products, and hopefully increase the appeal of wearable payment devices for consumers. Alan Witzenfeld, DCK Chairman, stated that the partnership with Barclays will help revolutionise the wearables market by providing consumers with an affordable, functional and desirable range of fashion led payments jewellery.
Images source: Barclaycard
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PAYMENTS & DIGITAL
Nicholad Dryden, Chief Executive of payments company Sthaler, believes the service will ensure people are always able to pay for goods, even when they have forgotten their wallet.
Biometric payments trialled to pay for beer Proud, a bar based in the Camden area of London, has been running a trial of a scanner that allows patrons to pay for drinks using their finger. The new technology works by scanning the veins in a personâ€™s finger, with the technology developers claiming individual finger vein patterns are unique. Consumers will be able to link their finger vein pattern details to a bank card to make the payments, with the technology expected to allow for a quicker and easier payments experience. Nicholad Dryden, Chief Executive of payments company Sthaler, one of the key forces behind the finger payment technology roll out, believes the service will ensure people are always able to pay for goods, even when they have forgotten their wallet. Dryden also hopes to expand the trials of this service into supermarkets, cinemas, and music festivals in the near future.
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RFi Group’s syndicated research RFi Group is a global intelligence and media provider focused exclusively on financial services. We specialise in data and information gathering, customer based insight generation and business decision support for the world’s leading financial service providers. Our syndicated research is delivered via our Financial Councils model. Upcoming UK Financial Council research includes:
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