Retail Banking and Private Banking Spotlight Live Event
29th June 2021
This transcript includes certain statements regarding our assumptions, projections, expectations, intentions, or beliefs about future events. These statements constitute "forward-looking statements" for purposes of the Private Securities Litigation Reform Act of 1995. We caution that these statements may and often do vary materially from actual results. Accordingly, we cannot assure you that actual results will not differ materially from those expressed or implied by the forward-looking statements. You should read the section entitled "Forward-Looking Statements" in our H1 Results announcement published on 31st July 2020
David Lindberg (DL)
Right, thank you and a big welcome to all of you. We're so thrilled to talk to you today, tell you about our business and some of the plans we have for the future.
So, the way today will work is first I'll provide an update on Retail business and then Peter will update on Private. We also have Simon and Jen who will follow up with technology and with transformation. I'm also joined by each business CFO, Stuart Nimmo and Andrew Kyle. I'll host a Q&A with all of us at the end of our prepared remarks.
Now we talk a lot about running our business with a one bank mindset and we really hope that that comes out as you hear from all six of us today.
Before we begin, let me remind you of Alison's four pillars: supporting customers, powering growth through innovation and partnerships, simplifying our business and sharpening our capital allocation. The Retail franchise is an important part of each of these.
Let's begin with some context. Retail and Private banking together account for 46% of NatWest Group's income, 38% of operating expenses and 28% of RWAs, obviously an important driver of the Group's returns.
Retail itself is a large division with 17 million customers. We offer a full range of our own banking products and services. We also now offer five simple, personal portfolio funds delivered by Coutts to our Retail customers. We call these funds NatWest Invest.
We're also a core part of living the group's purpose. Climate matters to our business and our Green mortgage is a part of that. But we're contributing most significantly to the financial capability pillar of our purpose.
In 2020 we conducted 2.9 million positive financial interactions, including financial health checks, money sense and fraud awareness training. We helped 600,000 customers start saving for the first time and we're committed to helping 2 million by 2023. And our in-app know my credit score tool has been used by over 3 million customers since launch in February last year.
We have the second largest current account base in the UK at 16%. NatWest group is the third largest mortgage lender in the UK, with a retail business share at 11% and we deliver above cost of capital returns across all lending products.
Now we've provided new information today which I know will be of interest. This is based on 2020 reported financials with two important adjustments. First, we have normalised the cost of risk, reflecting the heightened impairments in 2020. Secondly, we have layered in the anticipated impact of regulatory changes in mortgages and increased mortgage risk weights accordingly.
On this conservative basis, our main lending products deliver attractive, above cost of capital returns, despite the income pressure related to the pandemic and our overall returns are also above cost of capital.
Our overall Q1 financials were also strong, contributing 1.06 billion revenue, up 8% from the fourth quarter and an ROE of 23%.
Turning to what I'm seeing in the market. The retail market is emerging strong from Covid, the mortgage market is particularly strong, benefiting from government stimulus plus working from home patterns and high savings rates during lockdown. We expect the size of the new lending market in 2021 to be the largest we've ever seen, and we plan on growing our share in that market.
Natwest Group delivered 9% volume growth over the year to the end of quarter one, well ahead of the market at 4%.
The deposit market was very strong through Covid, a slowdown is expected but it does not turn negative at this point.
The Group's deposit growth was up 17% year on year, well ahead of market growth at 12%.
Consumer spending is also recovering. Debit spending is now above pre-pandemic levels whilst credit card spending is nearly back to pre-pandemic levels.
In the last little while, we've seen huge growth in retail, travel, motoring and fuel and we expect this to flow into consumer credit, but it will be slow and is unlikely to build until later in the year.
In this market we're growing share in all of our core products. If I look March to March, mortgages have grown from 10.4% to 11%. Using more recent public data, we can see our mortgage growth continues to be above market and our retention has improved from around 70% to nearly 80%.
Cards have grown share from 6% to 6.4% year on year, as we rebuild our proposition. Cards growth has been supported by re-entry into the zero percent BT market.
Loans have been flat year on year at 15%. At the account level we're seeing very strong growth in new lending and, importantly, credit card accounts. Deposits have grown from 10.5% to 11% year on year.
If you take a step back, our goal is to maintain our above market growth each year, but we also need to balance growth with risk discipline and strong margin management.
We are not seeking to lead on price. Our goal is to create sustainable value so we will be discerning, not necessarily grow above market in every quarter.
Now, the first major point I want to make to you is that we have significant room to continue to grow across our business, both at the customer level, and particularly in lending.
At the customer level, I believe growing primary bank relationships is the key to building long term value. On this front NatWest has not performed as well as we would have liked, and we have room to improve.
Our customer acquisition has been weak, particularly in youth. Our share of new current accounts is 12% despite a stock share of 16%. Only 3% of our accounts are youth versus 7% for the sector leader, and we know that customers acquired in youth are at least 1.5 times the value of those acquired as adults.
To capture this opportunity, we will improve our proposition by adding features that appeal to both youth and to parents, such as savings pots and parental controls and offer a transition to an adult account on the customer's 18th birthday. We have created a real focus on youth.
The point is that we are focused on growing primary bank share with a particular focus on youth, and also premier. Peter will talk to premier shortly.
Our products per customer, though, is also low, and this is an enormous opportunity for us. Over the medium term, this is probably our largest financial opportunity.
On average, a NatWest current account customer holds one additional product versus 1.3 for the market leader. Within this, credit cards is an opportunity I want to highlight to you. Not only is our share low at 6.4%, but we only have a 20% penetration of our own current account customers versus 27% for our top competitor.
We're fast closing the gap in our product range in credit cards and our launch of a new card earlier this month, offering a matching introductory rate interest free period on both purchases and balance transfers, means we can compete in another 24% of the new business market. So, credit cards is a major opportunity for us and we plan on growing our share.
And we still have room to grow in mortgages. We're only at 11% share and we've not done as well with existing customers as we could have.
We only have 6% penetration of our own customers versus the market leader at 9% and we also still have important unaddressed markets such as buy to let where we only receive 3% of balances today. Buy to let has margins about 30 basis points higher than margins on residential mortgages.
We are also weak in the first homebuyer market, and we will be playing more strongly in new homes, new builds, and government schemes.
We will also be extending our maximum loan term from 35 to 40 years, allowing more younger customers to get onto the housing ladder.
But I would also like to briefly address investments, an important one-bank opportunity for us. Savings customers have never been given a proper investing option within the retail bank.
We have started to offer personal portfolio funds, delivered by Coutts, good for our customers and Group. From a low base we're seeing rapid growth. We've had net new flow of 160 million in Q1 21 versus only 39 million the prior quarter one, and I expect this to grow.
In short, we're executing on a strategy to take advantage of these opportunities. We plan to grow primary bank customer numbers through youth acquisition and growing primacy from existing customers and will grow our low share of cards, keep growing mortgages and begin to turn investments into a more material line for us.
I want to spend some time talking about our customer plans. The larger banks have been losing share to fintechs and I feel it's time we fight back.
We've a real strength in digital, but we have to make it the best digital experience anywhere in the world and beat the experience of fintechs.
But our point of difference is that we will offer a great digital experience, combined with access to our thousands of frontline experts, something fintechs can't match.
So, we're building a customer proposition of great digital experience, driven by data, combined with access to our expert people, something we know remains incredibly important to our customers.
We are going to talk a little bit about our digital plans and even though I'm speaking to this, digital reports to both Simon and I. In line with our one-bank approach we're running this together. He will expand on my points later.
In many respects, we are today a digital business and a platform business. But nine out of ten sales are now digital and more than 60% of our customers only bank digitally.
In my view, we have one of the leading Apps with an NPS of plus 45.
Our AI engine, Cora, is taking millions of customer interactions now and about 50% require no human intervention. Simon will talk to this particularly in his update.
And we're making a vast array of service improvements at high speed. In the last few months alone, we've launched Cheque capture. In-app payment limits have been dramatically increased, up to £20,000 for Retail or £50,000 for our Premium customers.
We have also become one of the first banks in the UK to deliver personalised payments limits for our customers.
Biometrics are rolling out too. We're one of the first UK banks to capture customer face biometrics. We'll soon be authenticating a payment by blinking and we'll eliminate card readers because our customers hate them.
But we really think of the mobile app as the authentication window to the rest of the bank. Once the customer logs in, usually with their face, they're connected to all of our services, including our people, in person, via video, on the phone and even authenticated for the branch.
We've just launched something, we call it right here, right now, where our customers can reach a video banker 24 hours a day, 7 days a week. I believe this will make Natwest the most accessible bank in the country. I believe that we are on our way to becoming the UK's first full time, full-service bank.
We also have some of those highly trained, highly engaged professionals in the industry and our customers will soon be able to speak to them at any time of the day, or night, at the touch of a button.
And we're investing better to support customers through our branch network, which remains an important element of our customer proposition.
Now, to support our strategy we're changing the way we operate. We are digitising every customer journey, using data to improve our customer interactions and we're simplifying our product range.
We are orientating much of our business around agile journeys, improving experience, and reducing costs. Jen will expand on this later.
Account onboarding has been a focus. Today, 93% of all new branch accounts are opened using digital journeys and by 2023, 100% of these journeys will be digitised; one digital journey, all channels, including branch.
The time to apply for a current account and a savings account has been more than halved this year to 14 minutes.
Mortgage journeys are also a focus. The time to switch has moved from as much as 23 days last year to as little as 10 minutes today. This is an approved retention by almost 10 points to 78%. That retention alone is worth about 2 billion in volumes per year.
We're also in the process of reducing the number of on sale products significantly and as a platform business, we're beginning to use our data to engage with our customers more than ever before.
We're not there yet, but we're using data and AI to interact with our customers, not to sell, to serve and in many cases, to support better financial habits.
We now send 50 million proactive, personalised prompts to customers every week in mobile and online banking. In the year to date 4.3 million people have logged into spending in our app, a total of 22 million times.
We're trying to run our business with a customer obsession and we're beginning to see an improvement in our customer scores. NatWest's 12-month rolling NPS score is up 4 points since last March to plus 10, nowhere near where we need to be but improving.
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Natwest Group plc published this content on 16 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 September 2021 14:01:07 UTC.