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White paper October 2012
Fardous Rahim
Associate Analyst Retail Banking
I am an Associate Analyst, specializing in the Retail Banking sector, having joined Datamonitor in 2011. I have authored reports on a range of topics in the banking space including in-depth competitor and market analysis of the mortgage sector, as well as the consumer credit, personal savings, and SME banking markets. I am particularly interested in how consumer trends will interact with market forces to determine the future of retail banking. I have also worked in the Datamonitor research team, primarily market sizing and forecasting the payment cards market for over 60 countries worldwide.
If you have questions about the research, data, and findings within this document you can put your questions directly to the analysts. Simply email your questions to askfs@datamonitor.com. To find out more about Datamonitor Financial contact us at: email enquiries@datamonitorfinancial.com phone +44 20 7551 9437 Visit our website: www.datamonitorfinancial.com Or follow us on Twitter: @DatamonitorFS
DISCLAIMER While every care is taken to ensure the accuracy of the information contained in this material, the facts, estimates, and opinions stated are based on information and sources which, while we believe them to be reliable, are not guaranteed. In particular, it should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by Datamonitor, its directors, or employees for any loss occasioned to any person or entity acting or failing to act as a result of anything contained in or omitted from the content of this material, or our conclusions as stated. The findings are Datamonitor's current opinions; they are subject to change without notice. Datamonitor has no obligation to update or amend the research or to let anyone know if our opinions change materially.
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The Financial Customer Intelligence framework presents eight mega-trends that help us to understand the needs, preferences, and demands of consumers. It is vital to understand the attitudes and behaviors of consumers in order to design products and services that align with these demands.
Source: Datamonitor. Marketing Strategies for Rebranding Financial Services (2012)
This document will focus on the Individualism mega-trend. Individualism is one of the eight mega-trends that Datamonitor has identified as being a significant driver of consumer behavior in relation to the purchase and use of financial services and products.
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There is strong demand among consumers to be treated as individuals by their financial services providers. Datamonitor's 2011 Financial Services Consumer Insight Survey reveals that 75% of consumers worldwide said that it is important for their provider to treat them as an individual. Consumers also expect their provider to cater to their individual needs; globally 67% of consumers said that their provider should allow them to customize products and services.
The vast amount of information available to consumers has made them more independent in all stages of the customer journey, from researching to decision making and purchase. Consumers want their financial services provider to recognize their personal needs and demand customizable offerings.
Source: Datamonitor. Marketing Strategies for Rebranding Financial Services (2012)
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Datamonitor's Financial Customer Intelligence framework summarizes these two Individualism trends as Independence and Tailoring. This white paper will use current case studies to illustrate how each of the sub-trends (Empowered, Self-Reliance, Right-For-Me, and Made-For-Me) is now impacting on the financial services industry.
Consumers are empowered by the volume of, and easy access to, information. Consumers want to be able to compare products and services with features and reviews.
The Internet provides consumers with unprecedented access to information that allows them to compare and review products and providers when they are considering purchasing a product.
United Services Automobile Association (USAA), a US financial services group, has set up a portal that allows customers to rate their products on a five-star scale and write a short review, which then becomes available to other users. Access to this "tried and tested" information allows consumers to make more informed purchasing decisions about USAA products and services.
Source: USAA (2012)
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Consumer access to peer reviews has clear implications for providers. They can no longer rely on bold marketing claims to sell their products as users of their products will add their own assessment of its quality.
The financial services industry can be complex, which means that consumers often lack familiarity and understanding of important products and services.
Commonwealth Bank, an Australian provider, runs a blog that provides consumers with information, news, and advice on financial issues including money management, investments, and technology. Some of the blog entries are written by Commonwealth Bank employees while others are taken from external sources. The bank tries to keep its content topical and informative for its audiences, with entries such as "Top tips for managing your credit card." The Commbank Blog is being used to educate and inform customers, which empowers them to make better decisions about financial products.
Source: Commbank Blog (2012)
Consumers are making their own financial decisions instead of using providers to make decisions on their behalf. Consumers want to bypass providers completely, using external sources of information.
Empowered by the volume of information at their disposal, consumers are increasingly utilizing this information to bypass providers and make their own financial decisions.
TD Direct Investing offers an execution-only dealing service that implements trades but does not provide investment advice or recommendations. In order to help customers make their own investment decisions TD gives them access to
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the latest market news, historical share prices, and company data. TD also publishes video interviews with fund managers about their different funds and market views. Customers can use TD's mobile trading app to make investment decisions at a time and manner that is convenient for them.
In the UK, the upcoming implementation of the Retail Distribution Review is having an impact on how consumers make their investments. Retail investors who do not wish to pay for advice from an independent financial advisor or who want to be more directly involved in making investment decisions are increasingly looking towards execution-only investment services to take control of their investments.
Access to publicly available information means that consumers are no longer as reliant on the opinions of their financial services provider as they once were. Self-reliant consumers are more difficult to influence and the challenge for providers is to find ways in which to persuade and inform consumers through new and less direct channels.
Consumers value offerings that cater to their individual needs and circumstances. Products and services that are customizable give consumers a feeling of control over the fit with their personal needs.
Traditionally, consumers who wish to invest had to have enough assets to hire the services of an investment professional or understand the markets Source: Nutmeg (2012)
well enough to invest their money
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themselves. Nutmeg is an online investment manager tool that has brought innovation to the industry. Using Nutmeg consumers can invest amounts as low as ÂŁ1,000 in a portfolio of assets. Nutmeg personalizes the composition of each portfolio according to the consumer's goals and circumstances, such as their investment timeframe and risk tolerance.
Barclays has introduced its Features Store, which is an interactive hub where customers can shape their current account with additional "Features" and "Packs" to suit their needs. The Features include options such as mobile banking and the ability to personalize the bank card with a personal photo. Barclays' Packs are fee-based bundles that offer a range of benefits to cover home, travel, and technology. The Barclays Features Store allows consumers to build their own current account with a combination of Packs and Features that suit their lifestyle.
Providers must meet the demand for additional control over services by allowing consumers to customize their offerings. Consumers are more likely to put a higher value on a product or service that has been tailor-made for them.
A product or service that already fits the needs of an individual is an attractive proposition. The targeting of segments with differentiated and appropriate offerings will appeal to consumers.
In economically developed countries often banking saturation is high and switching is low, which means that a key area for growth is acquiring the business of newcomers to the country. Immigrants can become one of a few sources of new business for banks looking to build their customer base. The
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card is designed to be easy for an immigrant to open; it is a prepaid card and so the customer does not need to open a bank account or undergo any credit checks.
Datamonitor's 2012 Financial Services Consumer Insight Survey shows that ANZ's efforts are yielding results as it has a higher market share among immigrants' transaction accounts than it does among the wider Australian market.
The turmoil in the global financial markets in recent years and the effect that this has had on the economy and society has led many consumers to become disillusioned with large high street banks.
Triodos Bank is offering an ethical alternative to high street banking. The bank's mission is to make a positive contribution to society and the environment while also being commercially profitable. Triodos uses depositors' money to lend to organizations and people who are working to benefit the planet environmentally, socially, or culturally. To promote transparency the bank publishes details of every organization it lends to so that savers can see how their money is being used. Triodos's approach appears to be resonating with consumers as assets under management have increased by an average of 22% annually between 2008 and 2011.
Providers must align their offerings with the needs of their target audience in order to ensure that they are relevant and attractive to consumers. Consumer segments, however, are more numerous and diverse than they have previously been, meaning that the challenge for providers is to be smart about how they target these.
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Society and technology have encouraged and facilitated consumer focus on the "self." This has had an impact on consumers' attitudes towards products and services. Consumers now demand that their financial services provider treat them as individuals and expect products and services that are tailored to their specific needs and circumstances. This paper has identified several examples of personalized products that have empowered consumers.
Datamonitor's Financial Customer Intelligence framework offers a useful means of identifying the different factors that providers need to be aware of when trying to maximize their individual and customer-centric strategies.
Consumers have become more independent, with easy access to a vast quantity of information on financial products and services. This has allowed them to become more empowered and self-reliant.
Publically available information on comparison sites as well as customer review platforms have given consumers the ability to compare different providers, products, and services with confidence. Consumers are using this information to help them make better informed purchasing decisions.
Access to such information has allowed consumer to become more self-reliant in their decision making and less dependent on financial services providers for information and advice. The availability of useful information has given consumers who wish to take financial decision making into their own hands the ability and confidence to do so.
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Consumers have come to expect their financial service providers to recognize their personal needs and are no longer happy with a "one size fits all" approach. Product offerings that are tailored to individuals and deliberately designed for specific consumers groups will appeal to consumers.
Consumers expect their providers to treat them as individuals and offer products and services that can be tailored to their needs and circumstances. The benefit of offering customization for the provider is that consumers are more likely to value a product where they are only paying for what they want.
A product or service that already meets the needs of an individual or a particular consumer group is also an attractive proposition. Providers need to identify which consumer segments they want to target and then design products and services that align with the needs of that segment.
Financial institutions that prove themselves the best at treating consumers as individuals will gain a vital competitive edge over their less customer-centric rivals and stand to improve their market share.
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Use better segmentation to build a more tailored proposition – Consumers demand an offering that is clearly aligned with their individual needs so that it represents value to them.
Give consumers the tools to make their own financial decisions – Consumers demand the tools and information to be able to inform and shape their own financial decisions.
Allow customizable options on products and services – Consumers want to customize the products and services that they use so that they represent a best fit for the individual.
Place emphasis on the individual – Small actions such as addressing customers by name or personalizing communications help consumers to feel that they are treated as an individual.
Help consumers to express themselves through financial services products – Products that can be customized with pictures, for example, allow consumers to express their identity.
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Trends in Action: Trust in Financial Services >>
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At Datamonitor Financial, we deliver intelligence-led insight and data on financial services markets, competitors, and consumers. Our robust forecasting methodologies, proprietary databases, and the experience and knowledge of our in-house analysts help clients to make better strategic decisions in the areas of Retail Banking, Cards & Payments, Savings & Investments, Private Wealth Management, Life & Pensions, and General Insurance. Our research on cards and payments covers competitor developments, consumer attitudes, market forecasts, and technology developments, highlighting current and future trends. The Global Payment Card Analyzer, our proprietary online tool, includes market size, consumer, and competitor data for 60 countries.
If you have questions about the research, data and findings within this document you can put your questions directly to the analysts. Simply email your questions to askfs@datamonitor.com. To find out more about Datamonitor Financial contact us at: email enquiries@datamonitorfinancial.com phone +44 20 7551 9437 visit our website: www.datamonitorfinancial.com Or follow us on Twitter: @DatamonitorFS
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