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UK RETAIL BANKER
THE COMMERCIAL OPPORTUNITY
DECEMBER 2016 ISSUE
SACHIN MEHRA Page 12
RFi GROUP INSIGHT
YOUNG PROFESSIONAL OPINION
08 Banks could be left behind as SMEs start to search
14 Alex Marsh, Close Brothers Retail Finance
20 Save and invest like an American
CONTENTS DECEMBER 2016
RFi GROUP INSIGHT Banks could be left behind as SMEs start to look elsewhere for better financing
12 THOUGHT LEADER INTERVIEW Sachin Mehra, Mastercard
Tesco bank current accounts targeted in cyber-attack
The highest increase in credit card spending since November 2008
Save and invest like an American
32 PERSONAL LOANS Personal loan rate war continues
14 YOUNG PROFESSIONAL OPINION Alex Marsh, Close Brothers Retail Finance
MORTGAGES ‘Buy as you go’ scheme could help renters become homeowners
PAYMENTS & DIGITAL Contactless card payments finally accepted on all London black cabs
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TOP 10 NOVEMBER S BASED ON RFi GROUP'S LINKEDIN PAGE (DAILY STATS FROM 1 NOV 2016 - 30 NOV 2016)
79% of UK savings account holders use online banking to interact with their primary savings account provider
35% of Canadian SMEs have used for business funding in the last 12 months
of banking customers in Mexico intend to borrow more in the next 12 months
45% of aï¬€luent consumers in the UAE subscribe to a priority banking program
Online paym most comm payment us of Indian co
STATISTICS 246 times/year
ments is the mon form of sed by 93% ompanies
Retail banking customers interact 246 times with their main banks on average annually (across all channels) in Vietnam
of banking customers in South Korea prefer to apply for a new current account/savings account through digital channels
47% of cardholders in Japan use their credit card to do grocery shopping
In Malaysia, 48% of total retail banking customers hold a credit card
48% of Australian businesses use a debit card for business expenses
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 aim is to combine global intelligence and local knowledge to provide insightful, valuable and actionable recommendations, with a core focus on the provision of exceptional client service. Covering 43 key global markets with regional offices in San Francisco, Toronto, London, Hong Kong, Singapore and Sydney, RFi Group consistently provides clients with tailored advice and independent intelligence relevant to their specific markets and business needs. RFi Group delivers business intelligence via both proprietary and syndicated research programs.
Our syndicated research is delivered via our Financial Councils model. Upcoming North American Financial Council research includes: H2 UK Payments and Innovation Council – Coming soon Q3 UK Savings Council survey – Out now Q3 UK Mortgage Council survey – Out now H2 UK Retail Banking Council survey – Coming soon H2 UK Premier Banking Council survey – Coming soon H2 UK Travel Council – Coming Soon H2 UK SME Banking Council – Coming Soon H2 UK Commercial Banking Council – Coming Soon
Find out how you can access RFi Group’s latest business intelligence Please contact Jonathan Withers for further information: Jonathan Withers Sales Director - EMEA firstname.lastname@example.org +44 (0) 203 862 2166
Welcome to the December 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. In anticipation of the launch of RFi Group’s SME and Commercial Council next month, this edition evaluates the current state of business banking and where the opportunities are. We were fortunate enough to meet with Sachin Mehra, Global Head of Commercial Products from Mastercard, to hear his thoughts on how to transform the generic offering to corporates and small business owners. The Young Professional Opinion comes from Alex Marsh of Close Brothers, who discusses his multiaward winning offering to specialist retailers and how the industry could be doing more to support the small guy. This month’s insight piece analyses the current sentiment around SME financing and the potential risks for banks if they cannot compete with innovative new players. We are pleased to announce that we shall be adding an SME and Commercial product news section in January’s edition, providing the latest stories and insights within this space. I hope you enjoy this issue, see you in the new year! Best Wishes,
Sarah Hollinshead Events & Media Manager, RFi Group email@example.com
RFi GROUP INSIGHT
BANKS COULD BE LEFT BEHIND AS S M E S S TA RT TO LO O K E L S E W H E R E FOR BETTER FINANCING WORDS SAM GOLDFINCH
A major driver of change in the SME lending space is customer satisfaction. According to Close Brothers, 46% of SMEs have experienced barriers to finance, whilst 24% have been turned down for finance by their bank.
urrently in the UK, four banks dominate the SME lending market with around 90% market share of all SME lending; the Royal Bank of Scotland, Lloyds, Barclays, and HSBC. Despite this dominance, many small businesses feel that the banks are not meeting their business financing needs. Although this is the current situation, it may not stay like this forever, with several key market features pointing towards a movement away from the majors towards smaller, alternative lenders. General dissatisfaction with the high-street banks, as well as government intervention, the emergence of a range of alternative lenders, and a general willingness of UK SMEs to source their funding from a range of lenders all point towards coming change. Whether these changes represent a threat or an opportunity will, of course, depend on how institutions react to the current market movements, but letsâ€™ have a closer look at some of the features driving this change. A major driver of change in the SME lending space is customer satisfaction. According to Close Brothers, 46% of SMEs have experienced barriers to finance, whilst 24% have been turned down for finance by their bank. This equates to around 100,000 businesses a year being turned down for financing worth around ÂŁ4 billion according to a report undertaken by
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the UK government. Not only are SMEs being turned down for finance, 25% feel that the lenders do not understand the industry they operate in, creating an obvious disconnect between the lender and the borrower. With such a large market crying out for service, it is unsurprising that there would be a number of SMEs looking to alternative lenders to meet their financing needs. On top of this, the UK government is looking to get involved in the industry to ensure that SMEs get sufficient access to funding, as they are playing a such a fundamental role in the UK economy. One of the recent key developments is the government Bank Referral Scheme. This scheme refers declined applications from the major banks to alternative lenders in the market. It aims to encourage small businesses to look beyond the traditional providers for financing, as previously most of those who were declined ended up scrapping their growth plans. There are also a number of new entrants eyeing the UK market to make their big foray into the market. One of such is AREX, a Finish lender that has gained in popularity and is now looking to launch in the UK early 2017. AREX is a factoring Fintech that
RFi GROUP INSIGHT
UK RETAIL BANKER 09
RFi GROUP INSIGHT
matches businesses looking to sell their unpaid invoices with investors willing to pay at set rates. For this service, AREX only takes 0.25% of the total invoice sale for itself. It enables them to compete well in the market as this charge makes it much cheaper compared to larger lenders and intermediaries. In 2014 it was said that the factoring industry was worth €2,311 billion worldwide with €376 billion of it in the UK, highlighting the significant demand for this type of financing. Given all this activity in the market it is also important to point out how SMEs in the UK have demonstrated a degree of willingness to use these alternative lenders, particularly when comparing them to their European counterparts. Borrowing of alternative lenders sums to around €2.3 billion in the UK, including peer-to-peer and crowd funding lenders, compared to just €140 million in Germany and €8.2 million in Italy. This shows that despite the dominance of the major banks, SMEs in the UK are realising the growing borrowing options available. Peer-to-peer lending alone is growing rapidly. In 2013 the industry was only worth US$3.5 billion globally, the year after it than doubled to $9 billion, whilst 2015 saw an explosion, with the industry estimated to be worth $64 billion. Around $3.5 billion of this estimate is attributed to the UK according to Bondmason. Peer to peer lending is establishing its ground and stands as an emerging option to traditional borrowing channels. Peerto-peer lenders use investors’ money to lend to SMEs across the country, and with the investor themselves often choosing the level of risk they are willing to accept, these lenders can be
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more lenient than banks in terms of acceptance. Despite the success, alternative lenders face several challenges too. These include large amounts of regulation, and a general reluctance of SMEs to switch their banking relationships to these challengers. Only 4% of small businesses switch their bank each a year according to a government report. Another challenge will be the absence of branch networks, particularly FinTechs, with a government report saying that the bank branch being close to SMEs’ business is important for 70% of them. Moreover, small lenders face difficulty in getting their name into the market and being heard by competing against well-known brands with large marketing budgets. As laid out here, the UK SME lending market is in a period of major change, which is driven by significant dissatisfaction with existing lenders and the lack of financing available. Change is coming with exciting new firms appearing to try and capture this business and better meet the needs of SME borrowers. While the future of these alternative lenders is currently unknown, it is fair to say that if they can meet their service proposition, they have potential to become a powerful competition to the major providers and could cause significant moves in the SME lending market in the UK. If you would like to discuss the launch of the UK SME Banking and Commercial Banking Councils further, please contact: Olivia Cosgrove firstname.lastname@example.org
RFi GROUP INSIGHT
UK RETAIL BANKER 11
The Commercial Opportunity There are 4 key issues; the need for liquidity or working capital, the need for data, the need for better control and more efficient processes.
GROUP EXECUTIVE, GLOBAL COMMERCIAL PRODUCTS, MASTERCARD
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THOUGHT LEADER INTERVIEW
WORDS SARAH HOLLINSHEAD
e need to stop treating commercial business as though it is a consumer business - Sachin Mehra, Mastercard’s Group Executive of Global Commercial Products, sat down with Sarah Hollinshead to discuss the unmet needs in commercial offerings across the globe.
capital problem; it is a single use card solution, in that a discreet card number is issued for every use allowing for better controls; it comes with enhanced data so that buyers and suppliers know exactly what payment has been made, which ultimately makes it more efficient.”
The commercial payments space may not fill the content of technology news sections or industry event agendas as ubiquitously as consumer payments, yet the opportunity in this space is huge.
Fitting innovative card-based solutions into multiple legacy systems is however a challenge. Currently, the mentality of ‘if it ain’t broke don’t fix it’ seems to be widely adopted by many large institutions when it comes to their core infrastructure, and therefore companies looking to partner with banks need be smart and agile.
Historically, the cards and banking industry has essentially taken an approach of extending the consumer proposition to commercial customers. However, going forward, Mastercard are serious about penetrating the market in a more meaningful manner. With a focus on the pain points for both supplier and buyer, they intend to leverage technology to develop unique solutions.
“Many people in the business world believe that if it works, I get no prizes for having changed it. The only way I get beaten up, is if I try to make changes and I mess it up. That is something we must think about every day. What are those common areas where we can integrate our technology to provide more seamless experiences for people involved in the back-end operations?”
“Now banks are starting to see the light; that there is a real need to service these business owners that power the economies of countries around the globe. That is why our focus is to be able to deliver and make available technology plumbing infrastructure and value propositions which banks can then take to market, to capture the commercial payments opportunity.”
Achieving widespread acceptance is another crucial element to extracting the most value out of Mastercard’s solutions, as if corporate card holders are met with no or limited acceptance, they are forced to use an alternate payment method, therefore diluting the key benefits of the commercial offering.
What has previously deterred banks from investing in this sector is its complexity. Three very different segments exist within the commercial spectrum; small and medium-sized enterprises (SME), travel and entertainment (T&E) and business-to-business payables (B2B). Within each of these segments is a multitude of differing industries and business models. Furthermore, these segments are maturing at differing rates across the globe, which makes scalable products far more difficult to create. Despite this, Mehra believes in 4 clear requirements that are relevant across all corporates and all markets across the globe. “There are 4 key issues; the need for liquidity or working capital, the need for data, the need for better control and more efficient processes. It is some combination of these 4, in my mind, that we are trying to solve. We have no illusions about the fact that we are a B2B2C company. This helps us generate a level of scale that is needed, in order to develop and deliver technology solutions to our business partners, banks, and issuers that enable them to capture the commercial opportunity.” Mastercard’s In Control solution is designed to cater for these needs. In a move away from plastic, this virtual card product has a multitude of capabilities and benefits: “It enables banks to provide credit, solving for the working
Mehra’s passion and drive in providing seamless and efficient solutions is palpable, largely dictated by his previous experience in the business world. Having started this Commercial Products role only last year, Mehra’s history is in treasury, corporate finance and M&A, with positions at both General Motors and oil and gas company HESS Corporation. Prior to this, he worked in a family business in India for 4 years, where he gained first-hand experience of entrepreneurship and small business management. Having seen both ends of the spectrum, Mehra is now in a great position to relate to his end clients. “Quite frankly, when I was in the treasury at HESS, GM and Mastercard, I experienced commercial payments first hand. So, I have seen the client side of the equation. Therefore, I can bring some of that thinking to what Mastercard should be building in terms of our product solutions to meet client needs. I have loved it so far, and have learnt a lot in the process.” The combination of the past and present businessman in Mehra make him empathetic in his engagement with clients. The belief that commercial propositions should differ from consumer offerings is central to his philosophy and hopefully Mastercard’s example shall encourage the development of more comprehensive and valuable products across the wider industry. To keep up to date with the latest news, interviews and information at RFi Group, follow @RFiMediaGRB on Twitter.
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LEGACY SYST S â€™ K EM AN B SH G I IN B
D HEM GT IN ER
IN SERVING SME S
AH AR SS RD WO
ALEX MARSH Managing Director, Close Brothers Retail Finance
ne of the newest areas within financial services experiencing mass-invasion from fintech and alternative finance players is small and medium enterprise (SME) financing. The widely acknowledged narrative is that big banks have largely underserved SMEs whereas Close Brothers have always championed these important businesses. Alex Marsh, Managing Director of Close Brothers Retail Finance, believes big banks will struggle to overcome this due to the burden of legacy systems. Sarah Hollinshead sat down with Marsh, to understand how they overcame the challenges affecting their industry to create a multi-award winning offering. Close Brothers Retail Finance offers customers instalment finance at the point of purchase, ultimately aiding specialist retailers to grow their sales and build customer loyalty. As part of a merchant banking group that has existed since 1878, they have only been able to create such a compelling offer due to the way their business model has evolved. In keeping with Close Brothers progressive methods, Iinstead of putting a digital veneer over a legacy system, Close Brothers Retail Finance broke out as a new entity and built their business start-up style.
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YOUNG PROFESSIONAL OPINION
“When you’re working with legacy systems, you can package it with a fancy website, you can add layer upon layer to feel more modern, but it all starts to crunch in the back-office loan system that is crying somewhere in a dark corner. This is not the Close Brothers way and it might be cliché to say but we are digital by design.” Having previously worked in the premium finance arm of the group for a number of years, Marsh has experienced the relatively slow-moving insurance industry first-hand, but now working within retail finance, the pace of change is significantly greater. “If business wants to adapt or expand its offering but this change has an 18-month lead time to go-live, you are dead in the water as the market will have already changed. We went from business case to go-live in 3 months, as well as built up an entire eco system of partners to help us continue to evolve at pace. It feels like a much more progressive model and I see more and more businesses moving towards this trend.” Being a start-up within a large corporate has led them on an incredible path so far. Marsh and his team have recently received 3 awards across a 3-month period; ‘Best New Product’ at The UK Customer Experience Awards, ‘Best New Business Launch’ at the Market Gravity Corporate Entrepreneur Awards and ‘Finance Provider of the Year’ at the British Small Business Awards. “Each of these awards link to differing aspects of the business that I am particularly proud of; one around us being an innovative new business, another around the quality of the product itself, then one for specifically supporting the small specialist retailer.” For retailers and banks, a fast, seamless and omni-channel experience is the universal goal. Close Brothers Retail Finance have created a system that allows retailers to offer finance instore and online within 48 hours. Moreover, customers can provide all details and check eligibility for a loan in-store, before deciding whether to sign there, or receive an email giving them the option to continue proceedings from the comfort of their own home. “That to me is an omni-channel experience. In real-time, we, our retailers and their customers can all see the same application at the same time and effect change in that ecosystem simultaneously.”
prospects, which can be expensive and timely.” Close Brothers have made a conscious decision to differentiate themselves with a local and specialist service. “We try to be the best of both worlds. In that we have a local service, but combine that with an exceptional digital self-serve experience, to make decisions fast and service scalable. Within our local sales team, we have a hybrid model, combining expertise on retail sector, region and subject matter, better equipping our employees to understand the specific retailer’s strategy and structure the appropriate product features to fit their customer demographic.” Time is of the essence here, as in the context of a declining foot fall on the high street, and strong competition from online giants, retailers need better servicing. “Until now, specialist retailers have had to consider sacrificing their profit margins to remain competitive. So, we are saying, invest your margin in instalment finance, rather than give it away in one-off discounts. And our retailers have reported seeing higher loyalty as a result.” They encourage their retailers to integrate POS finance into their overall offer, rather than as an uncomfortable conversation at the end of the sale. By being upfront, they believe this provides a distinguishing factor for retailers, allowing customers to view products in the context of monthly interest free payments. “Rather than customers visiting a specialist shop for advice and information, before heading online to places like Amazon to get the cheapest deal, we are giving them the tools to make the offer before them much more appealing and secure the sale.” The account management is far more personalised and supportive as well. “In the more traditional model, meetings between finance providers and retailers involved gripes about loan rejects, issues with processing delays or the system being down. Now, our retailer meetings are about how we can help grow their business, for example, let’s try a new deposit threshold to attract a different demographic of customer or optimising their website to encourage customers to use monthly payments. We are much more about adding value, we are experts in finance and have extensive retailer experience, so can advise on features to help grow their sales.”
By underpinning their business model with strong digital technology, they are also able to serve their customers in a more cost-effective manner. Following the banking crisis in 2008, unlike Close Brothers many banks turned away from SMEs due to the costliness of serving multiple customers for relatively low lending volumes. Marsh believes that the principle challenge lay in physical distribution.
In just two years, Close Brothers Retail Finance has gone from 0 to over 700 retailers and achieved an NPS score of +70. It is certainly an impressive tale, not only for Close Brothers, but for such a young executive in Marsh. He hopes to pull up more young talent through the ranks to continue the start-up spirit he has instilled in his team. The Retail Finance arm is a change from Close Brother’s traditional model, and Marsh is passionate about pushing this further and growing the business.
“If you are a big bank, you can send one sales person to a single large corporate and secure a multi-million pound loan. It may only require a few meetings. Whereas to lend the equivalent to SMEs, you have to physically visit potentially hundreds of
“I feel very fortunate in my current role to be working with a really great team, delivering an offering that genuinely helps SME retailers compete, whilst being at the forefront of driving innovation in both the finance and retail industries.” UK RETAIL BANKER 15
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CURRENT ACCOUNTS WORDS SIMON HADDAD
17 Tesco bank current accounts targeted in cyber-attack 18 FCA acts to improve competition within current account market 19 TSB offers £100 incentive to switch to Classic Plus account
Tesco bank current accounts targeted in cyber-attack
housands of Tesco Bank current account customers have fallen victim to online fraudsters. It was initially reported that 20,000 Tesco bank customers have had their current accounts hacked, but that number has since been halved to around 9,000. This systematic and sophisticated attack has cost Tesco £2.5 million in refunds to those affected. It is a requirement as part of the FSA (Financial Services Authority) ruling that dictates that banks must repay any unauthorised or fraudulent activity. Tesco Bank has also announced that its customer’s personal data was not compromised in the hack, which will be some relief to all those affected.
This systematic and sophisticated attack has cost Tesco £2.5 million in refunds to those affected.
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FCA acts to improve competition within current account market The Financial Conduct Authority (FCA) has announced that it will act to improve competition within the current account market following recommendations from the UK’s Competition and Markets Authority (CMA) Report, published in August this year. Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said that it will take action in a number of areas, which will include improved transparency for overdraft users, improving service, and prompting increased customer engagement. The FCA will begin to address the issue of improving overdraft transparency by reviewing the rules of a proposed Monthly Maximum Charge for overdrafts. It will also consider requiring banks to make information about their products more comparable and accessible to the public to improve service, whilst developing and testing ‘prompts’ to encourage consumers to assess their banking arrangements. The FCA will begin its research and testing in early 2017.
CHRISTOPHER WOOLARD, FCA
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Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said that it will take action in a number of areas, which will include improved transparency for overdraft users, improving service, and prompting increased customer engagement.
TSB offers £100 incentive to switch to Classic Plus account TSB will offer new customers a £100 cash incentive to switch to its Classic Plus account if they use the comparison site MoneySupermarket.com. This exclusive offer with the comparison site comes just weeks after TSB announced it would be cutting interest from 5% to 3% in January 2017. TSB also currently offers a 5% refund on contactless spending, worth up to £5 per month until September 2017, which will enable new customers to earn a total of £195 in rewards. As well as opening an account via Moneysupermarket.com, new customers must switch over at least two direct debits and transfer and minimum of £500 within 28 days of opening the account in order to receive the £100 cash incentive. This deal lasts until 11th of December and new customers are limited to one single and one joint account. TSB hopes that this temporary promotion will increase subscription for its Classic Plus account. According to RFi Group data, 1 in 6 people have previously switched current accounts to take advantage of a switching reward, suggesting this promotion could attract a number of new customers to the brand.
WHY DID YOU SWITCH YOUR MOST FREQUENTLY USED CURRENT ACCOUNT? 25% 20%
10% 5% 0% The customer service
I look advantage of a switching reward
The interest rate was higher on the new account
Source: RFi Group UK Priority & Retail Banking Council 16 H1
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SAVINGS WORDS SAM GOLDFINCH
20 Save and invest like an American 21 Over 1 in 3 using ISAs to save for retirement 22 New peer-to-peer ISA to launch
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Save and invest like an American
K savers may be beginning to follow the US model by increasing their investments at the expense of savings. According to RFi Group data, 69% of Americans invest compared to just 63% in the UK, but 18% of UK savers would now prefer to invest their money as interest rates are so low, showing that this gap may start to close in the near future. One investment product that may see growth are passive funds, which follow the value of the FTSE 100 or other indices. Currently in the UK, around 20% of assets are estimated to be held as passive funds whereas this figure is 30% in the US, according to the Telegraph. This shows that there is room for growth in the UK market. These funds are much cheaper than
active funds as the annual fee does not have to pay for an expensive fund manager. Despite this, over the past three years, passive funds have provided returns much higher than the standard savings account, with one example in the US, returning 11.1% over 3 years at a small cost of just 0.04% a year. Richard Parkin, of Fidelity, the investment company, commented that: “What we’re seeing in the US is investment firms using technology and investment solutions to bring services that were traditionally only available to very rich customers to the ordinary investor. New developments, such as pension freedom and the use of mobile technology, are driving innovation in these areas in the UK too.”
Currently in the UK, around 20% of assets are estimated to be held as passive funds whereas this figure is 30% in the US, according to the Telegraph. This shows that there is room for growth in the UK market.
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Over 1 in 3 using ISAs to save for retirement Despite interest rates being so low, 38% of UK savers are saving for retirement with Cash ISAs, according to RFi Group data. The highest rate ISA now stands at just 1.5%, comfortably behind the recommended method of long term saving, the stock market, where the FTSE 100 is returning on average 3.7%. “Although tax-free Cash ISAs can be a useful pot for short term or emergency funds, those with longer term plans for their money may suffer by missing out on the greater potential for growth that stock market-based investments can provide,” says Sara Wilson, Head of Platform Proposition at Alliance Trust Savings. One of the primary reasons for this reluctance to invest in the stock market is risk aversion. RFi Group data says that 30% of those not wanting to invest think it is too risky, although consumers may still be costing themselves in the long term.
WHAT IS STOPPING YOU TO INVEST YOUR MONEY OUTSIDE OF A SAVINGS ACCOUNT? By those who have not invested before 60% 50%
10% 0% I don’t have enough money
I don’t know enough aobut it
It’s too risky
The fear of losing everything
Source: RFi Group UK Savings Council 16 Q3
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There hasn’t been a need for it
RFi Group data says that 30% of those not wanting to invest think it is too risky, although consumers may still be costing themselves in the long term.
These returns are higher compared to those offered by the high-street banks but do come at a slightly higher risk.
New peer-to-peer ISA to launch Peer-to-peer lender, Lending Works, which is now fully regulated by the FCA, recently announced that it is launching a new ISA â€œimminently.â€? Lending Works currently offers savers an average return of 4.2% a year if they save with them for three years. Although rates change weekly, investors to the new ISA will be able to access the same rates. These returns are higher compared to those offered by the high-street banks but do come at a slightly higher risk as investorsâ€™ money is used directly to give loans to small or medium size businesses, with the investor carrying the risk of default. The innovative finance ISA was created by George Osbourne last summer and Lending Works has become one of the first peer-to-peer lenders to be approved by the FCA and has launched into the market. Currently 85 other institutions are waiting to be approved by the FCA which will offer other products and bring some good competition into the market.
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MORTGAGES WORDS MEERA PANCHASARA
24 ‘Buy as you go’ scheme could help renters become homeowners 25 Seven-day mortgage switching process unlikely to work according to lenders and brokers 26 Attractive deals introduced for re-mortgaging
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The rent would be around 90% of the local market rate for people living in ‘buy as you go’ homes, with the split between rent and equity payments changing over time until the tenant owns the home.
‘Buy as you go’ scheme could help renters become homeowners
new policy that helps families become homeowners after 25 years of paying rent is set to be revealed in the Chancellor’s Autumn Statement. Under the new plan, known as ‘buy as you go,’ home buyers will not require a deposit or mortgage but will accumulate equity in their homes over time. According to the National Housing Federation, housing associations could build 335,000 homes in 4 years, provided the government supports the proposal with funding and changes to investment plans. The rent would be around 90% of the local market rate for people living in ‘buy as you go’ homes, with the split between rent and equity payments changing over time until the tenant owns the home. A report by Savills published at the beginning of November revealed that a lack of available rental homes has increased rental prices, with Londoners facing a 25% rise in rents in the next 5 years, while the rest of the country may face 19% increases in rents on average. These figures suggest that helping consumers access the property ladder will be very important moving forward.
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Seven-day mortgage switching process unlikely to work according to lenders and brokers A survey by the Intermediary Mortgage Lenders Association (IMLA) found that 81% of lenders and 66% of brokers believe a sevenday mortgage switching process, proposed by the government, is unlikely to work, while 59% of lenders and 41% of brokers believe it is a bad idea. According to lenders, the main barriers to the sevenday switch include getting valuations in that timeframe (78%), risk and regulatory concerns (70%), and affordability checks taking too long (44%). Meanwhile, risk and regulatory requirements were the main issue highlighted by brokers (78%), followed by automated valuation models being inaccurate (37%). IMLA Executive Director, Peter Williams, further dampens the prospect of a seven-day switch by adding, â€œWhile consumers may benefit from being able to switch a bank account or broadband provider in a short timeframe, the fact is that a mortgage is a much more significant purchase.â€? Despite this, the report shows that lenders and brokers see re-mortgaging as the area of the market with the best growth prospect for the rest of 2016. Research from Connells Survey and Valuation supports this, as the number of re-mortgage valuations was almost 17% higher in October 2016 than in the same period last year.
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SEVEN-DAY MORTGAGE SWITCHING PROCESS
of lenders believe it is unlikely to work
of brokers believe it is unlikely to work
of lenders believe it is a bad idea
of brokers believe it is a bad idea
Attractive deals introduced for re-mortgaging Competition for re-mortgagers has increased recently, with several lenders introducing attractive incentives. For example, Accord Mortgages, the intermediary-only lender of YBS Group is currently offering either cashback (£250) and free standard valuation or free legal fees and free standard valuation to re-mortgage customers with 35%, as well as 10% deposits. Lloyds Bank is another lender offering attractive deals, with the bank giving cashback in the form of £500 to borrowers who remortgage with them before the 2nd of January. This offer comes with 2 or 5 year fixed loans at rates between 2.64% and 2.99% including paid legal fees and a free property assessment. RFi Group data shows that ‘no fees to change lenders’ where the new lender pays the legal and valuation fees, is among the top 10 drivers of future mortgage choice for those looking to re-mortgage in the next 12 months. It’s an even more important driver of choice than free valuations or cashback. Therefore, offers to pay the legal and valuation fees are likely to be more effective in drawing in remortgagers over cashback.
...‘no fees to change lenders’ where the new lender pays the legal and valuation fees, is among the top 10 drivers of future mortgage choice for those looking to remortgage in the next 12 months.
ASIDE FROM INTEREST RATES, WHAT DO YOU SEE AS THE TOP 5 FACTORS IN CHOOSING THE RIGHT MORTGAGE? Future actives: By borrower type First Time Buyers
40% 30% 20% 10% 0% No fees to change lenders
Source: RFi Group UK Mortgage Council 16 Q3
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CARDS WORDS KALLIA MANIKA
29 ‘The highest increase in credit card spending since November 2008 31 Virgin taking steps to protect itself in wake of growing debt
The highest increase in credit card spending since November 2008 According to the Bank of England, the rate of credit card debt growth in the UK has rocketed, with annual growth of 8.4% seen last month, the highest rate since November 2008. Overall, British households spent £500 million on credit cards last month, bringing total credit card debt to £66 billion. Experts believe consumers have been encouraged to spend rather than accumulate their money in savings accounts due to the low interest rates following the August rate cut from 0.5% to 0.25%. Even though some economists interpret the massive increase in credit card spend as indicating increased consumer confidence, i.e. consumers are confident that they will be able to pay back what they borrow, debt charities see the figures as “frightening”. Peter Tutton from StepChange Debt Charity, stated, “Credit cards are already the most common type of debt we see and we are concerned that increased lending could see even more people fall into problem debt. The worry is that we return to the bad old days we saw prior to the credit crunch where too many households were able to build up unsustainable balances. The sad reality is that increased consumer borrowing will, for some people, turn into the nightmare of problem debt.” Since the beginning of 2016, in an attempt to offset the European Union (EU) cap on interchange fees, banks have started adding higher fees or interest rates, despite the low interest rate environment. For instance, HSBC’s Premier Credit Card MasterCard annual interest rate increased from 11.9% to 18.9%, according to the financial website Moneyfacts. co.uk. Additionally, NatWest’s Reward Credit Card MasterCard interest rate rose from 2.9% to 18.9%, while Santander’s 123 Credit Card Mastercard annual fee increased from £24 to £36. “The increasing cost to borrow on credit cards has been blamed on the new EU interchange fee caps as card companies attempt to sustain offers whilst seeing a reduction in card processing fees,” a finance expert at Moneyfacts.co.uk, Rachel Springall, said. However, the Head of Policy at the UK Cards Association, Richard Koch argued, “While there has been a recent rise in Annual Percentage Rates, there’s still plenty of good value in the credit card market, with a wide range of competitive products and many 0% deals for new and existing customers of up to 42 months.” RFi Group’s analysis shows that the interest rate on purchases is a greater driver of credit card satisfaction than the annual fee, suggesting that those banks trying to recoup costs through the interest rates are likely to have a larger impact on their consumer satisfaction than those that change the annual fee.
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Virgin taking steps to protect itself in wake of growing debt In response to consistently increasing credit card debt, Virgin Money has decided to “protect the credit quality of new credit card lending” by hardening the lending requirements for customers who wish to apply for a credit card. The change in policy has come about as a result of market changes since the EU referendum, with consumers generally increasing credit card debt in response to falling interest rates. It shows that lenders are paying careful attention to changes in the market. Despite the change, as Virgin’s market share is growing and more clients are applying and taking up credit cards, the overall amount owed to them could continue to rise. JayneAnne Gadhia, CEO of Virgin Money, commented that: “We have been encouraged by the relative strength of the UK economy immediately following the EU referendum result although we continue to look forward with caution. We are well placed to manage potential economic headwinds and remain confident of achieving a solid double-digit return on tangible equity for 2017.”
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The change in policy has come about as a result of market changes since the EU referendum, with consumers generally increasing credit card debt in response to falling interest rates.
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PERSONAL LOANS WORDS CELINE Ã˜DEGAARD
33 Personal loan rate war continues 34 Growing number of lenders are increasing personal loan limits 35 Brightstar launches into unsecured lending
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In response to these low rates, the British Banker’s Association found that consumer credit has been growing at its fastest rate for a decade.
Personal loan rate war continues
ate competition continues to intensify, with Ikano Bank recently announcing new loan rates of just 3.1%, tied with the record low loan rates on offer by Sainsbury’s Bank to the its Nectar Card holders. In response to these low rates, the British Banker’s Association found that consumer credit has been growing at its fastest rate for a decade. It stated: “consumers are increasingly using short-term borrowing to take advantage of record low interest rates.” RFi Group data suggests that low rates could be a good way to attract new customers, with more than 2 in 5 consumers considering ‘competitive interest rates’ to be the most important factor when applying for an unsecured loan.
IF YOU WERE TO APPLY FOR A NEW UNSECURED LOAN, WHAT FACTORS WOULD BE MOST IMPORTANT TO YOU IN SELECTING A NEW PERSONAL LOAN Top 5 - H2 2015
Competitive interest rate
Competitive fees and charges
No penalty for early repayment
Ability to make additional repayments without penalty
A flexible approach to lending terms
Source: RFi Group UK Priority & Retail Banking Council 15 H2
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As the competition in the personal loan market is getting more heated, other lenders are expected to follow and increase their maximum limits.
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Growing number of lenders are increasing personal loan limits First Direct has launched a new era of jumbo- sized personal loans by increasing its upper personal loan limit from £30,000 to £50,000. The typical rate charged has also increased to 6.7%, which is double the 3.4 % that First Direct charges on personal loans below £30,000. The following week, Lloyds Bank upped its personal loan limit as well, saying it reflects “rising prices and changing customer needs.” As the competition in the personal loan market is getting more heated, other lenders are expected to follow and increase their maximum limits.
Brightstar launches into unsecured lending Digital intermediary platform DotBroker, which shares information between IFA’s/ brokers and unsecured lenders, will now be integrated into specialist lending distributor Brightstar’s sourcing system - EasySource. Brightstar, which allows intermediaries to search across multiple lenders, will now provide information on personal loan lenders, as well as mortgage lenders. Rob Jupp, CEO of Brightstar said, “Now Brightstar has made it possible for intermediaries to help their clients by searching for the best value loan on EasySource and comparing it to the cost of a second charge or re-mortgage.” If an unsecured loan is considered the best solution for the client, the sourcing system will enable them to apply to multiple lenders in a single application.
If an unsecured loan is considered the best solution for the client, the sourcing system will enable them to apply to multiple lenders in a single application.
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PAYMENTS & DIGITAL
PAYMENTS & DIGITAL WORDS MANISHA NOBEEN
39 Contactless card payments finally accepted on all London black cabs 41 PayPal integrates with Appleâ€™s Siri for voice command payments 41 Starling Bank completes first debit card payment
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PAYMENTS & DIGITAL
Contactless card payments finally accepted on all London black cabs
ver 22,500 black cabs in London now accept contactless credit and debit cards. In February 2016 Transport for London (TfL) announced it would require all black cabs to accept contactless payments, which at the time had only been accepted by around half of all London’s licensed taxis. The move follows TfL’s attempt to keep up with the technological challenger, Uber. To cover the additional costs of installing the payments device, the minimum fare has increased from £2.40 to £2.60, replacing the previous £1 surcharge for passengers using card. According to Steve McNamara, General Secretary of the Licensed Taxi Drivers Association, ‘Every black cab taking cards is fantastic news for London […] it is without a doubt better for our customers and for drivers’. London Mayor, Sadiq Khan, mentioned that the update would help make journeys ‘quicker and more convenient.’ Recent data from RFi Group shows that over the last 12 months, preference for cash when paying for taxi fares has fallen, suggesting huge opportunity for cash displacement in taxis, in line with TfL’s move.
ASSUMING THAT YOU HAVE ALL OF THE FOLLOWING OPTIONS AVAILABLE TO YOU, PLEASE SELECT THE METHOD YOU MOST PREFER FOR PAYING FOR THE FOLLOWING PAYMENTS MADE IN PERSON/ OVER THE COUNTER Preference for cash when paying for taxi fares – 12 month trend 100% 80%
60% 40% 20% 0%
Source: RFi Group UK Payments and Innovation Council 16 H1
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PAYMENTS & DIGITAL
SIRI VOICE INTEGRATION AVAILABILITY Siri voice integration is rolling out in multiple languages serving 30 countries: Australia Austria Belgium Brazil Canada China Denmark Finland France Germany Hong Kong India Israel Italy
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Japan Malaysia Mexico Netherland New Zealand Norway Russia Saudi Arabia Singapore Spain Sweden Switzerland Thailand UK UAE United States
PayPal integrates with Apple’s Siri for voice command payments Apple and PayPal have announced a partnership that will enable voice command payments via Apple’s digital assistant, Siri. By downloading the PayPal app, iPhone or iPad, users can tell Siri to make a payment to a specified contact via PayPal. In addition, Apple has announced it is opening access to Siri for third party developers, helping to enhance Siri’s capabilities in completing a wider range of tasks. The service has been made available in 30 countries including the UK, China, the US, Australia and India. Similarly, MasterCard has announced plans to create a payments ‘chatbot’ that will integrate with existing messaging apps such as Facebook Messenger. The chatbot will help users make transactions and payments quickly and efficiently by typing queries and responses into their smartphone, whilst receiving human-like responses.
PAYMENTS & DIGITAL
Starling Bank completes first debit card payment UK challenger bank Starling has announced a partnership with MasterCard that will see it launch its first contactless debit card that will connect to its mobile app. The card will work alongside the app by showing users their spending habits with predictive insights, financial wellness and budgeting tools. Other benefits of the new card will include the ability to gain access to direct debits and overdrafts. Whilst still in early testing of the card, Julian Sawyer, COO of Starling Bank, believes making their first payment is a huge step for Starling, while Mark Barnett, MasterCard President in the UK & Ireland believes that the partnership will help to provide consumers with a â€˜fast, convenient and secure wayâ€™ to pay.
Whilst still in early testing of the card, Julian Sawyer, COO of Starling Bank, believes making their first payment is a huge step for Starling.
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