From Our Briefings Newsletter

Published on01 OCT 2018

The article below is from our BRIEFINGS newsletter of 01 October 2018:

Briefly . . . on Goldman Sachs' Marcus and the UK Savings Market 

As Marcus by Goldman Sachs starts accepting its first UK depositors, we sat down with Goldman Sachs' Des McDaid, who heads up the UK Marcus business, to talk about the environment for savers.

Can you describe the current retail savings landscape in the UK and how it compares to other markets?

Des McDaid: In the UK, retail deposits are highly concentrated among a handful of providers that have consolidated to the point where they now control just under 70% of balances. By contrast, the top five banking providers in the US have just over 40% market share of retail deposits. Part of that is due to the UK's geographic concentration and the fact that, unlike other major economies such as the US, the UK lacks another layer of state and regional banking competitors.

How is the pace of technological advancements changing the way people bank?

DM: Like all industries, banks have had to adapt to people's growing use of technology in their everyday lives. In recent years, challenger banks and fintech startups have sprung up across the country -- thanks to an influx of venture capital and favorable regulations in the region -- to compete for consumers' accounts. Many of these challenger banks are focusing on niche areas, such as mortgages or mobile payments, and are using technology to create a better customer experience. The high-street banks, for their part, have been slow to respond due to the costs of dealing with legacy infrastructure and a product-oriented structure. They also have customer inertia working in their favor. Consumers are still reluctant to switch banks -- especially to entities that lack the name recognition and big balance sheets of traditional banks. But as these challengers and fintech firms create a better customer experience, those barriers to switching are coming down. Ultimately the big banks will need to adapt faster.

How will a backdrop of a strengthening UK economy and rising interest rates affect consumers' banking behaviors?

DM: Because rates have been low for so long, people have lost interest in what their banks are paying on deposits. And thanks to years of quantitative easing, the big banks are awash in liquidity so they have had very little incentive to compete for retail deposits.

Meanwhile, the Bank of England raised interest rates in August, and we estimate that only 40% of that benefit has been passed on to savers in the form of higher deposit rates, despite those rates having been passed on as higher interest rates on loans. Given the fact that the UK is facing a number of uncertainties -- including Brexit and concerns over the UK housing market -- the need to save is even greater.