Very few people are saving enough. Fintech offers the potential to support primary savings needs but what are the factors for the success of these services, asks 11:FS' Amy Gavin.
Much like the rest of UK retail banking, the savings market has long been dominated by the big six – Barclays, HSBC, Lloyds, Nationwide, RBS and Santander. These large personal current account providers have tended to hold an advantage when it comes to attracting savings deposits, as many consumers – driven by a desire for convenience – typically use the same provider for their current and savings accounts. In fact, 56 per cent of current account holders also have a savings account with their main bank, according to the FCA.
However, the recent fintech revolution has sparked innovation across all aspects of personal finance, not least the savings market. New digital propositions are being developed which are beginning to prompt a shift in consumer attitudes and challenge the dominance of the major brands.
Changing market dynamics
An increasing willingness amongst consumers to consider newer providers for their personal finance needs is kicking-off diversification in the market. Digital challengers, including Monzo and Starling, have been steadily taking current account customers away from incumbent banks for a few years, according to recent CASS figures. This trend is also starting to present itself in the savings market, where the big banks’ overall market share of savings by value and by new business is falling.
New entrants, such as OakNorth and Marcus, are gaining significant traction due to their ability to better meet customers’ needs with convenient, digital-first solutions. They’re also typically offering higher savings rates than the major banks, which has proven a hit with savers.
New product innovation
The choice of savings products available to customers is growing steadily. Broadly, new savings propositions can be grouped under three key themes:
Goals and Pots: A subsection or ring-fenced area within a customer’s main account that separates savings from spending money, for example, Starling’s Goals, N26’s Spaces, Revolut’s Vaults, and functionality in the likes of Dozens and Liv.
What comes next?
The competitor landscape will continue to evolve and diversify as alternative providers gain traction with customers. The range of savings products will widen as a variety of new and innovative services enter the market, driven by technological advances and strong consumer demand for digital-first products.
However, the ability of challengers to successfully grow their customer base will depend on the willingness of savers to trust new brands to meet their financial needs. This trust factor is likely to increase as alternative providers become more established and prove the value of their offerings vs incumbent providers.
There are a number of key considerations for providers looking to create new savings services:
Understand savers’ needs: Get to the heart of why people open a savings account; what they are saving for, and why they currently struggle to save. This will enable the design of customer-centric propositions that drive a genuine shift in savings behaviour.
Be creative: Inspire and engage customers with intuitive solutions that provide something different to those offered by incumbents. Experiment with the tone of voice, visual app designs and personalisation to bring saving to life and encourage people to reconsider their existing attitudes towards saving.
Harness the power of automation: Support customers to save subconsciously with automated savings rules that put aside money on a regular basis, without negatively impacting their day-to-day life.
Focus on reward: Help people achieve something with their savings by encouraging them to recognise their motivations for putting money aside. Empower customers to reach their goals with customisable and lockable savings pots which are separate from daily spending.
Leverage partnerships: Focus on narrow execution and developing a best-in-class solution that meets the needs of a specific market segment. For areas outside your expertise, partner with whoever is best in the industry to plug gaps in your product offering.
Over the next few years, it will be interesting to monitor the progress and development of new market entrants and alternative savings solutions, as well as observing how the incumbent banks respond to the ongoing evolution of the UK savings market.
Amy Gavin is a market researcher at 11:FS’ Research & Benchmarking Team. The views and opinions expressed are not necessarily those of AltFi.