Agenda Items and Discussion Points for Savings and Investments

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2 Agenda Items and Discussion Points for Savings and Investments Market Factors Traditional Vanilla Savings THE CONSUMER Demographics Behaviour Technology Alternative Savings Propositions Distribution Landscape 2

3 Agenda Items and Discussion Points for Savings and Investments Market Factors bn - 1.5bn Origination Platforms + Marketing & Distribution Challenger Banks Overseas Banks Traditional Vanilla Savings THE CONSUMER Demographics Behaviour Technology Alternative Savings Propositions 80m - 100m Marketing Only Peer to Peer Lending Equity Crowdfunding Investment Platforms Building Societies Distribution Landscape Structured Products 3

4 Agenda Items and Discussion Points for Savings and Investments Market Factors Political, economic & social landscape Interest rates & regulatory environment Demand for savings & potential volume Product features Traditional Vanilla Savings THE CONSUMER Demographics Behaviour Technology Alternative Savings Propositions Peer to Peer & Crowdfunding Structured Products & Equity-based Retail / Corporate Bonds Online & Offline Commentators & Consumer Organisations Distribution Landscape 4

5 The UK marketplace conditions will change, but slowly The end of FLS 2015 / 2016 Interest Rate Environment 2015 UK Election UK Regulatory Environment PBF Solutions Ltd 5

6 The UK Savings Market volume still growing despite returns 1,400, ,200, Deposit balances outstanding in monetary financial Institutions Index for easy-access best buys 1,000, , , , , Jan 2002 Jan 2003 Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 ISA Amounts subscribed 57 billion was subscribed to Adult ISAs in , unchanged from In 2013, around 160bn of easy access account savings earned an interest rate equal to or lower than the Bank of England base rate of 0.5% Sources: BSA, SavingsChampion, HMRC 6

7 Savings product features what is currently selling? No. Applications via PCWs FTDs 24% Total balances in the different types of cash accounts, bn Instant Access 26% Cash ISA 50% Product features trends across all product types Online Opening Managing Acct Tenure Cash ISAs variable rather than fixed FTDs shorter terms (80% on 1 Yr) Differentiation vs AER Product innovation Income vs growth Source: PBF Solutions Estimates, FCA 7

8 The Consumer who are they and what do they want? Savings accounts summary statistics by age band Monthly income vs capital growth Online application and account management All Devices! Brand SMEs bn in deposit accounts, 85bn in current accounts 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% Between Jan and July 2007 BBR increased On 3 occasions from a start point of 5% to 5.75% It then started to tumble to 0.5% where it has remained since Mar 2009 According to ONS there are now nearly 900K adults aged between 18 & 25. these will never have experienced a rise in the UK Bank Base Rate! Source: ONS 8

9 The Consumer the motivation for saving in the first place Investing : putting money into a savings account to generate income from savings. For these savers, getting a market leading interest rate is most important. P2P Building up a savings pot: saving for a specific purpose (e.g. house deposit, holiday) or a rainy day. These consumers value putting money aside in a separate pot. Interest rate may be less important, particularly where balances are not high. Transacting: using a savings account as an additional transactional account alongside their main current account (e.g. to set money aside for paying monthly bills). Consumers deposit and withdraw money from these accounts frequently. For these consumers, the convenience arising from viewing and managing their accounts in one place is more important than interest rate. PBF Solutions Ltd 9

10 5,000 Market growth and size of alternative finance sector 4,000 3,000 2,000 1, m 666m 1.7bn bn est introduction of P2P ISA classification Source Nesta: The UK Alternative Finance Industry Report

11 Growth in comparable markets - US LendingClub IPO 2014 market cap USD $7bn Google has invested $125m into LC & has begun it's own pilot lending platform Funding Circle launched into US 2014 Source Foundation Capital : A Trillion Dollar Market By the People for the People

12 The P2P Audience Motivations for lending through platforms (Business P2P) Source Nesta: The UK Alternative Finance Industry Report

13 The P2P Audience 86% of equity crowdfunding investors and 83% of P2P business lenders surveyed are male All funded by UK retail savers / depositors? Retail vs Institutional Funding Banking Partnerships with P2P Platforms P2P Lending Funds Lend directly to the platforms themselves Buy shares in the platforms themselves Source Nesta: The UK Alternative Finance Industry Report

14 Market growth factors Current users of UK alternative platforms indicate that they are very likely to use alternative finance models more in the future. More than half of P2P business lenders plan to lend more in the coming year than last year. On the borrower side, 86% say they would be likely or very likely to approach alternative finance platforms first in the future even if a bank were to offer funding on similar terms. 42% of individuals participating in a national survey were completely unaware of any type of alternative financing activities or platforms. 14 % of the respondents in the same survey had used an alternative finance platform, While 44%of SME s surveyed were familiar with some form of alternative finance, less than 10 per cent had approached an alternative platform to seek finance. Source Nesta: The UK Alternative Finance Industry Report

15 The challenges for developing D2C propositions Factors in play when lenders consider P2P as alternative savings Awareness of category Potential returns Fixed or variable Length of tenure Risk vs other platforms & diversification Awareness of brands / trade body associations Payment of interest income or growth Access to funds Lending to individuals or SMEs / unsecured or secured Risk vs deposits Tax treatment Average case sizes per platform Availability of provision fund AWARENESS & EDUCATION RETURNS COMMITMENT ASSESSMENT OF RISK Source Nesta: PBF Solutions 15

16 The Distribution Challenges for P2P Comparison Sites Consumer Affairs / Money Advice Sites Niche Alternative Finance Aggregators IFAs / Wealth Managers Platforms Newspapers Offline Advertising Social Media Search Marketing Information & Comparison Regulatory / Compliance Risk (Reputational & Investment) Apples & Pears Apples & Oranges (FSCS) Cascade effect of Savings Advisory / discretionary Fees & Commercials Advice Understanding RoI / Wastage Awareness Targeting Audience Behaviour Competition / Price Source Nesta: PBF Solutions 16

17 Thank You PBF Solutions Ltd 17