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UK Savings Market: CACI Interviews the Savings Guru - part two

Tuesday 30 April 2019 AICustomer ExperienceDigital Transformation

Paul Kenny's picture
By Paul Kenny

The UK savings market is more vibrant than it has been for years, with new entrants, a wider product range, rising rates and higher levels of liquidity. Paul Kenny, Director of CACI's Retail Finance Benchmarking division, asks Savings Guru founder James Blower for his thoughts on the market in a two-part interview. James has worked with a number of challenger banks, and is a regular commentator on savings for the BBC and The Daily Mail. He runs an information and comparison site for consumers, and is the founder of The Association of Savings Professionals – a group for savings executives.

This is part two and the final part of Paul's interview with Savings Guru founder, James Blower. Read part one.

 

Part two: M&As, Consumer Behaviour, Open Banking and the impact of AI

 

Paul Kenny: Given the number of new entrants to the savings market, do you expect to see mergers or acquisitions in the challenger space?

James Blower: The simple answer to this is yes. We've seen the One Savings Bank and Charter Court merger announced relatively recently, and prior to that we've seen CYBG and Virgin Money get together. I think it's inevitable that, with the number of new entrants that have come in and those that are still to enter the market, we'll see more consolidation in the future.

What will be interesting to see – and we haven't seen a huge amount of yet – is whether some of the bigger providers try to pick off some of the new entrants. Will we see one of the big four, for example, buy a niche lender and add that to their portfolio? We haven't seen that kind of move yet domestically, but we've seen it externally obviously, with FirstRand buying Aldermore and BBVA increasing its stake in Atom Bank.

There's several rationales for further mergers and acquisitions. The nature of some of the new providers is that they're focusing on quite niche markets, so a tie-up of providers that are in different niche lending markets would create a wider portfolio and diversify their risk. Some operational efficiencies would help with costs, although I would say that most of the new entrants are not suffering cost pressures in terms of their cost:income ratios.

There will be providers in the market who will see a merger or an acquisition as a way of gaining scale, of getting to where they want to quicker.
Finally, I think the exit route for some people entering the market has been through flotation, and we can see that the equity market’s valuation on banks isn't particularly high at the moment. Since that route is less attractive, that inevitably makes mergers and acquisitions a more appealing alternative.

 

PK: How do you think technology will impact the savings market, and specifically, how might Open Banking developments affect the number of new players joining the savings market?

JB: It’s not Open Banking that’s driving the new entrants. Many providers are in the queue already, and their business models were not predicated on Open Banking. Most entrants coming to market have a business plan that has, given the length of time it takes to become a bank, been in place for some time and pre-dates Open Banking.  

Generally, technology may make the savings market more commoditised. It will make it easier to see and move money, and it will remove some of the friction that's in the market. As we all know, customers don't like friction, so removing that will certainly lead to some more commoditisation of the savings market.

What will be interesting is whether anyone embraces technology to drive a different business model into the market. By that, I mean the providers trying to do something innovative with technology for their customers so that they're repaying customers for their love of the technology they’re using. For example, Monzo has been very successful in their entry into the current account market. That’s a market where we've seen the big boys paying £150/£200 incentives for consumers to switch, but Monzo has gone in without any of that. What it has done is build a following, it gets customers to love the app and the features that they've got to manage their money. I think if someone looks to do something similar in the savings market, it will be interesting to see whether that attracts savers to that provider over a rate-based decision to go to another provider.

 

PK: When will technology facilitate savers to seamlessly move and manage deposits in one place, from their current accounts to and from non-CMA9 savings banks?

JB: Technology is pretty much there already, and we will see more of that happening over the next twelve to twenty-four months. Open Banking will make that easier, in terms of the transfers. There are many apps and personal financial management tools already on the market that will provide an holistic view. The technology already exists to provide a single view to consumers, and the ability to link in the providers is made available by Open Banking. Most of the big banks are frankly dragging their heels in terms of complying with Open Banking, and in making it happen.

Most of the big banks are frankly dragging their heels in terms of complying with Open Banking, and in making it happen.

James Blower, Savings Guru

PK: Will customers ‘trust’ and ‘rely’ on AI to optimise savings returns in future, rather than listen to gurus?

JB: My answer to that is “no” because they’re not using this type of tech already. Some of those kinds of tools and services are out there already, and customers don't trust them, and I don't see that changing. That’s not to say that’s because customers are necessarily going to trust somebody like myself, other comparison sites or other people in the market. There's a general lack of trust in banking and financial services and I think that is going to take some time to change. A generational shift may be necessary to change that.

As an industry, we've all got a lot of work to do to help rebuild trust with customers, but that's going to take some time. I don't see that AI is going to come in and that customers are going to instantly trust it to give them the right answer or solution. There's still a lot of work to do to rebuild trust, but I don’t think that AI is going to be the answer to that.

 

PK: In your opinion, is there a gamechanger in the savings market?

JB: In my opinion there isn't at the moment. I don't think that the savings market is going to look massively different in the next few years. We may see a lot of different names at the top of the tables that are not necessarily some of the ones that are there now, because they'll be replaced by new entrants coming in. Is there some sort of service or technology or provider that's going to come in and revolutionise the market? I don't see any sign of that but, longer term, there are some propositions and technologies being developed that have the ability to impact the market quite strongly.

PK: That's a wrap! Thank you very much James for your expertise and opinions on some of our burning questions.
JB: Thanks Paul, always a pleasure to talk about the UK savings market with you.

If you missed part one of the interview, you can find it here.

Part two of Paul Kenny's interview with James Blower, founder of Savings Guru.

UK Savings Market: CACI Interviews the Savings Guru - part two

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