FinTech has ‘huge potential’ to break UK savings inertia
To cure the inertia plaguing the UK savings market the industry must unlock the power of fintech. This is the view of several senior industry figures who were present at Flagstone’s recent roundtable event on the future of the cash deposit marketplace.
There was agreement among all our guests that technology could incentivise savers to shop around for better rates and potentially unlock billions of pounds of extra interest in the process.
“For us the savings platform arena is still some way from mass-market, but we believe technology, and in particular cash platforms, has huge potential to unlock the inertia we are seeing in the savings market at the moment”, said Adrian Mawson, Commercial Director – Banking, at Moneysupermarket.com.
This prediction follows a major report from the Centre for Economics and Business Research (CEBR), which was commissioned by Flagstone, that reveals savers could up earn up to an extra £7 billion a year by switching to a leading savings account.
Nonetheless, a survey of 4,207 UK adults, conducted by YouGov as part of the CEBR study revealed why many savers aren’t choosing to shop around for better rates.
More than two-fifths (42%) of people who took part in the study stated that an interest rate differential of 1 percentage point or less would persuade them to switch accounts.
However, given there is already at least a 1 percentage point difference between the market-leading and lowest-rate instant access accounts, it suggests savers are not fully aware of the interest rates available, or that other factors are over-riding consumers’ desire for higher returns.
Adrian Mawson added: “Aside from low rates, people are often put off by the length of time and the complexity of switching their savings, so anything that makes that easier could give people the incentive they need to shop around for a better deal.”
This was one of the reasons clearly cited in the YouGov survey, which found the complex and time-consuming application processes associated with opening new deposit accounts acts as a major deterrent.
This helps, in part, to explain why UK households have £1.3 trillion languishing in low-paying accounts with the Big 5 banks, which often pay some of the lowest rates on the market.
But as Darren Bailey, Head of Product Management – Savings, at Nationwide points out, developments in technology may lead to a dramatic shift in how savers manage their money.
“Over time, enhancements in technology could result in a greater number of consumers using platforms and other intermediaries to manage their savings.
“In the mortgage market, nearly c.75% of business is generated through introducers – the question is whether the savings market follows a similar trend?”
This view was echoed by Paul Emery, Head of Client Banking at St. James’s Place Wealth Management, who pointed out that cash is a high growth area for wealth managers and will continue to be so.
“If platforms can integrate themselves into the offerings of wealth managers, banks and comparison sites, they will really take off and you will find wealth managers increasingly looking to place that cash on behalf of their client. That could well act as an antidote to the inertia seen in the market at present.”
But how quickly will these technological developments take effect? Much could depend on the speed of adoption by banks, wealth managers and comparison sites, who hold the power to drive changes in consumer behaviour.
We’d like to thank the participants for making the roundtable such an intriguing and wide-ranging discussion of the future of the cash deposit market.
- Adrian Mawson - Commercial Director, Banks; Moneysupermarket.com
- Paul Emery - Head of Client Banking; St James’s Place Wealth Management
- Darren Bailey - Head of Product Management, Savings; Nationwide
- David Hunt - Treasury Products & Distribution; Investec
- Gary Wilkinson - CEO; Redwood Bank
- Iain Hunter - CEO; Wyelands Bank
- Rachel Curtis - Chief Customer Officer; Cambridge & Counties Bank
- Paul Whitlock - Executive Director; Charter Savings Bank