White paper

October 2012

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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.

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

Source: Commbank Blog (2012)

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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

well enough to invest their money

Source: Nutmeg (2012)

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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 £1,000 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 >>

Trends in Action: Digital Lifestyles in Financial Services >>

Trends in Action: Convenience in Financial Services >>

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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