Innovative technology for wealth management, financial markets and the mortgage industry.

Data, disruption andthe digital consumer

How the tech revolution affects financial servicesApril 2015

Like it or not, the Internet is now a firm fixture in all of our lives. Technology has advanced dramatically over the last 20 years.And as desktop computers have given way to laptops and ultimately the tablet and smartphone, we can access the information and services we need faster and more effectively than ever before.

It’s staggering to consider that in the wake of the dot com bubble 15 years ago there was still speculation about whether

the Internet was just a flash in the pan. Today Internet access is viewed as a human right and to question its power and

influence would be unthinkable.

As the Internet has become ubiquitous so consumers have become more demanding. Today children do their

homework online and we can buy almost anything our bank balance allows at the touch of a screen.

Access has been made simpler through technological advancements from pioneers such as Apple, who

revolutionised the phone and tablet markets in the last decade. By removing the barriers of needing even

a basic technical knowledge to use their products they have opened up the Internet to new demographics

and forced competitors to respond.

Within the Internet itself sites such as Amazon have created simple, trusted user friendly experiences that

have drawn consumers in - paving the way for the business to grow from a book seller to a global retailer

of almost any product imaginable.

But the impact of this change is much more profound with pressure on nearly all businesses to adapt their

models to remain relevant. To do this effectively, we need to understand how consumers interact with our

business and products and, more importantly, how they want to interact in the future. Some industries have

embraced this change and evolved while others still lag behind.

Introduction

iress.com

Financial services as a sector has successfully

embraced technology in some ways but has

struggled in other respects. Unique challenges,

both from within and of external perception, make it

difficult to meet consumer demands but the industry

must adapt. The industry has been both inadvertently

constrained and protected by regulation but the

landscape is now changing fast. There is an appetite

across the industry to embrace this change and

make a shift to meet the evolving needs of the digital

consumer - however the pace of change is of the

utmost importance

We need to look critically at the models of businesses

that have successfully added an online presence to

a traditionally physical model, such as Argos and

John Lewis. Financial services needs to consider

how this can be emulated to engage the consumer,

build trusted relationships across multiple channels to

respond to how consumers now interact.

We believe that this report will give the industry

an insight into how it can achieve this, and in

which direction evolution must follow to match the

development of the digital consumer in

the UK.

Simon Badley Managing Director, IRESS

Introduction 01

The Switched On Consumer 03

Age v Money 05

The Purchasing Experience 07

How to Provide Support 09

The Online Divide 10

The Need for Trust 11

The Worldwide Wealth Web 13

Financial Advice - Retirement Reassurance 15

Face-to-Face 17

The Future - Simple, Safe and Secure 19

Conclusions 21

Contents

Methodology - The survey was conducted usingan online interview administered by YouGov of 2,197 UK adults.Fieldwork was undertaken between 18th - 19th January 2015.The figures have been weighted and are representative ofall GB adults (aged 18+).

2

Eight out of ten people (81%) now access the Internet several times a day as the non-digital consumer becomes an endangered species. While the home pc or laptop is still the main way to get online (51%), nearly half (47%) of people use their phone to do so numerous times throughout the day.

Although how we are using the Internet continues to evolve with increasing broadband speeds and new technology

advancements, industries that adopted the web early and utilised it effectively are already reaping the benefits. More than

half of us (52%) access current affairs online on a daily basis, compared to just 13% who watch films or TV. However, one

of the biggest online winners is the retail sector where a mere 8% of people say that they never shop online and 83% do

so at least once a month.

Further to this, when asked which industry had embraced technology the most in the last

five years, nearly a quarter (23%) said retail, with music a distant second at 12%. A focus

on user experience, convenience, simplicity and customer service has seen retail thrive

online and gain the trust of consumers. While some traditional high street retailers initially

struggled with the move online, Internet only retailers such as Amazon and Ebay led the

way remodelling the business paradigm in a way few can now afford to ignore and today,

even a niche retailer such as Ashmei sports clothing offers instant online chat to answer

consumer queries.

This step change holds important lessons for financial services providers and financial

advisers, who need to improve online take-up of products and services and match the

changing demand of consumers. The way people choose to engage has impacted all

online behaviour, with consumers becoming more discerning. Purchasing decisions are

made after significant research and independent verification through customer reviews,

specialist opinion and social media.

Today, for example, just 11% of people say they are prepared to make significant

purchases or investments, or secure significant products (such as insurance or

mortgage products) without prior research. More than half of people (52%) say that

they use price comparison websites to conduct pre-purchase research for significant

purchases or investment decisions. The majority of users (60%) trust these sites, with a

third of respondents seeing them as the most positive advance in financial services for

consumers - the most popular innovation among respondents.

The switched on consumer

iress.com

People use pricecomparison websitesin their pre-purchaseresearch.

People do researchwhen making a significantpurchase or investment.

80%

52%

Almost one in five people (19%) use peer review websites such as Money Saving Expert, while 29% say that they use

a specialist website to research products. This indicates that often consumers require as much detailed information as

possible before making a large financial commitment, but there is also a desire for consumers to have their opinions

validated, as well as informed, by trusted impartial sources.

Social media does not appear to factor significantly in the decision making process, with only 7% of the sample saying

they use it for research, but there are signs that its importance is growing. Here age is a factor as 15% of 18-24 year

olds utilise it, while for the over 55’s the figure is just 4%. The FCA has taken note and has set rules on social media

promotion of services suggesting that it anticipates people’s use of social media is beginning to incorporate financial

services discussion and products.

4

Which, if any, of thefollowing do you EVERdo/use to research signi�cantpurchases, investmentsor products beforepurchasing?

The company’s own website

49%

52%

A comparison website (e.g. Moneysupermarket)

19%

A peer review website

29%

A specialist website

20%

A review publication

16%

Discuss the product / service with an impartial expert

39%

Discuss the product / service with friends/ family

7%

Social media searches

3%

Other

8%

Don't know

11%

Not applicable - I never do / use any research before purchasing

iress.com

While younger demographics still use technology more than any other age group, ongoing simplification and ease of access have promoted broad access to information and services online. Half (50%) of 18-24’s questioned use the Internet daily to access current affairs information, while for the over 55’s the figure is almost as high at 48%.

The biggest gap in usage now exists between different income groups. Broadly speaking, the wealthier

the consumer, the more frequently they use technology, suggesting that they are more comfortable with it,

potentially due to the difference in the level of access they have to online resources.

While 47% of households with the smallest annual income (below £20,000) access current affairs information

daily online, the figure rises to 71% among those who earn over £60,000. There is a similar pattern across

a number of activities, with 44% of those in the lowest income bracket accessing sport news online at least

once a month compared to 66% of highest earners. However, 67% of those in this higher earning bracket

use the Internet for work on a daily basis and 71% access the Internet via a smartphone several times a day,

compared with just 36% and 34% respectively for the lowest earners.

Age v money

Use a smartphone or tablet several times a day.

Annual household income £60,000+

Smartphone Tablet

71%

0% 10% 20% 30% 40% 50% 60% 70% 80%

41%

Annual household income £40,000 - £59,000

59%

33%

Annual household income 20,000 to 39,999 per year

45%

26%

Annual household income under £19,999 per year

34%

21%

6

So as the online experience simplifies the purchasing process,our research suggests buying a financial product is a generally positive experience for consumers.

When asked about the last product they bought, more than half (53%) said it was simple and 38% said

it was quick. However, this does not tell the full story as the research revealed that some products are a

much less straightforward experience to buy than others. Nearly half of people (47%) who had bought a

SIPP recently said the process was confusing, while 24% said the same about life insurance and 33% felt

the same about buying an annuity. The most positive purchasing experiences were for products that can

be and often are bought online, such as securing a credit card, ISA, or savings account.

The purchasing experience

iress.com

Found buying their last �nancial product confusing

Credit card(s) 05%

Mortgage(s) 18%

Savings account(s) 06%

Cash ISA 05%

Stocks and shares / Funds ISA 03%

SIPP (Self-Invested Personal Pension) 47%

Critical illness or income protection insurance 51%

Private medical insurance -%

Life insurance 24%

Annuity 33%

Income drawdown 24%

Motor insurance 04%

Home building / contents insurance 04%

Travel insurance 06%

Pet insurance 04%

0% 10% 20% 30% 40% 50% 60%

8

People say that buyingan annuity was confusing

33%

People would like promptson financial advice via emailor website notifications

20%

Say that they do not wishto receive any advice at allwhen purchasing a financialservices product

5%

How people prefer to receive support when making major financial decisions presents a challenge for the industry as 39% say that they would only like to receive advice that they have actively requested within the process.

The difficulty is two-fold: firstly, whether or not people are aware of the advice that is available to them and

secondly, the difference between simple guidance and regulated financial advice. One in five people (20%)

say that they would like occasional prompts via email or website notifications, which may present the best

option to give customers advice options to consider, or indicate points where fuller advice may be more

applicable. Just 5% say that they do not wish to receive any advice at all.

If the financial services industry wants to improve the online experience, simpler, quicker and clearer options

are needed to give customers the confidence to implement online. Throughout the process, the availability of

guidance or advice should be made clear, in a fee transparent manner to avoid the perception that advice is

being offered as an additional sales tool.

How to provide support

iress.com

It is now possible to buy almost anything online and, as a society, we have become reliant on it to offer a convenient way to access goods and services more easily and cheaper than by other methods. When people interact with financial services firms, 39% say technology is making the process more convenient, 21% say it speeds up the process and 68% are positive about the impact that technology has on financial services.

In spite of this there are still some products that people are reticent about buying online. While 56% of people

have made a bank account transaction online, 42% have purchased car insurance and 41% have made a

large purchase such as a holiday or a car, only 2% have purchased a retirement product such as an annuity

or drawdown product, 3% have secured a mortgage and only 9% have invested in stocks, shares or funds.

When examining the divide it is likely that familiarity and complexity have roles to play. Even though the

costs are high, cars, insurance and holidays are viewed as everyday purchases, are easier to understand

and so many consumers appear comfortable with making these transactions online. By contrast, products

such as annuities and mortgages are typically bought no more than a handful of times in a lifetime and so

the decision to purchase will have an effect over a greater length of time. Equally, these products are more

complicated in nature as well as holding longer lasting implications. Here, most consumers appear happier

to defer to an adviser.

The online divide

10

Say technology makesthe process of interactingwith financial services firmsmore convenient

39%

People now useonline banking

85%

Purchased a retirementproduct such as an annuityor drawdown product online

2%

Further to this there is clearly a trust and security issue to overcome. Banks have been very successful at presenting online banking as a simple and secure option, which is why it is now used by 85%of people.

Price comparison websites have helped to play their part in increasing trust in the process of buying

insurance online, creating a more retail focused offering that appeals to consumers. It is up to the industry to

build this level of trust across other products and services as only 28% say that they would be comfortable

transferring legal or confidential documents online and just 23% say that they feel the same way about

retirement decision making.

When asked how comfortable they would be doing a number of different tasks solely online, there are a

number of people that say they would feel comfortable securing a mortgage (30%) or investing in stocks

and shares (31%) so there is also a need to increase both access and awareness to these services online

to support today’s consumer behaviour.

The need for trust

iress.com

Not comfortable Don’t know Comfortable

How do you feel about doing the following solely online?

Purchasing car insurance 8%

Making large purchases 17%

Weekly shopping 13%

Investing in stocks and shares or funds 33%

Purchasing house insurance 11%

Retirement decision making 38%

Checking bank account / savings / investment statements 10%

Transferring legal / confidential documents online 43%

Making bank account transaction 12%

Selecting a current account 17%

Securing a mortgage 37%

69%

62%

63%

31%

68%

23%

78%

28%

74%

59%

30%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

12

Wealthier consumers are more likely to want to conduct financial activity online. When getting an update on the performance of an investment, savings or retirement plan, only 38% of people with a household income under £20,000 would prefer to do this online, rising to 56% of those that earn over £60,000. When changing payments to an existing pension pot the difference is from 24% (under £20,000) to 46% (over £60,000).

It is likely that those with higher incomes make larger nominal investments and yet they are still more

comfortable doing this online than others. However, it may be due to a greater access to and use of

technology. Those who earn over £60,000 are more likely to use social media several times a day (59%)

than those that earn £20,000 (44%) and they are also more likely to use the Internet to check personal

finances. The highest earners are both more willing and able to embrace technology and access financial

products and advice online.

Trust in financial services is also higher amongst the wealthy across the board, with the exception of pay

day lenders, where trust is universally low. More than half (52%) of those that earn between £100,000 and

£149,000 trust financial advisers compared to 32% of those that earn less than £20,000. It would seem

reasonable to assume that more higher earning consumers will have used the services of an adviser and

their view is based on experience rather than perception. There is a need for financial services providers

and advisers to tackle this perception and build trust among lower earners and offer products that meet

their needs. Part and parcel of this should be propositional innovation, delivering affordable scalable

advice that supports mass market demand.

The worldwide wealth web

iress.com

Earning between £100,000 and £149,000 trust financial advisers

Earning less than £20,000 trust financial advisers

14

52%

32%

Level of trust in �nancial services

£60,000+

£40,000 - £59,000

£20,0000 to £39,999

Under £19,999

Building societies

Household income per year

62%75%75%77%

54%65%64%74%

54%57%58%61%

37%45%44%44%

32%41%42%46%

29%40%46%48%

30%33%36%31%

18%21%28%30%

15%20%25%26%

7%5%4%3%

Comparisonwebsites

Banks

Insurancecompanies

Financial advisers /wealth managers

Mortgage brokers

Insurance brokers

Investmentsupermarkets

Peer to peerlending

Pay day lenders

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Financial advice remains an important service for many people. A quarter (25%) of consumers are willing to pay for professional financial advice from an independent financial adviser (IFA)and this figure increases significantly to more than half (51%)for those earning £100,000 - £149,000 and 74% for thoseearning over £150,000.

Clearly those with more resources to pay for advice are more willing to do so, but these richer consumers

may also have larger investments or more complex arrangements and will feel the need for support and

reassurance in making the right decisions.

Financial AdviceRetirement reassurance

iress.com

Willing to pay for �nancial advice from an IFA (by household income per year)

£150,000 and over 74%

£100,000 to £149,999 51%

£70,000 to £99,999 40%

£60,000 to £69,999 39%

£50,000 to £59,999 37%

£45,000 to £49,999 32%

£40,000 to £44,999 33%

£35,000 to £39,999 31%

£30,000 to £34,999 27%

£25,000 to £29,999 29%

£20,000 to £24,999 27%

£15,000 to £19,999 19%

£10,000 to £14,999 16%

£5,000 to £9,999 12%

0% 10% 20% 30% 40% 50% 60% 70% 80%

16

Consumers are willingto pay for professionalfinancial advice from an IFA

25%

People prefer a face-to-face meetingwith an IFA when deciding whichretirement product to buy

48%

When asked what their preferred method of communication with financial advisers would be, more than four in 10 (44%) chose a face-to-face meeting when planning how much they need to save for retirement.

Nearly half (48%) said the same about deciding which retirement product to purchase. At a time when

pension rules are changing advisers are in a strong and trusted position to act as the voice of authority

and reassurance to those trying to make sure they have enough money once they stop working.

Currently interaction with IFAs is seen as a face-to-face experience but this could change in the future.

When choosing which financial services innovation they would most like to see from a list of eleven

options, 10% of people chose automated online financial advice. The Australian model of scaled advice,

that seeks to provide for affordable advice by adjusting the scope of advice to match a client’s relevant

circumstances, would be more likely to drive advice into an online space and also meet the challenge of

desire for advice compared to willingness to pay for it.

Face-to-face

iress.com

Prefer face-to-face meeting with an IFA

When completing a confidential health questionnaire as part of a life/ health/ medical insurance application

19%

20%

When getting an update on the performance of an investment, savings or retirement plan

33%

When making a change to an investment or savings product

28%

When changing payments into an existing pension pot

16%

When telling an insurer about a material change in my circumstances

15%

When making a claim on a medical insurance policy

44%

When planning how much I need to save for my future retirement

48%

When deciding which retirement product to purchase with my pension

18

When asked what innovation they would most like to see in the world of financial services in the future, nearly a quarter of people (23%) said they would like the ability to view their financial world - bank accounts, mortgages, investments, insurance - in one place. Further to this, 18% of people want fully integrated customer service options across phone, online, social media and text.

Technology has caused people to demand simple, clear and easy to access information. They also want the

convenience of being able to respond to this information by whatever channel is most convenient to them.

Opportunities exist to respond to this and offer customers a concise, on-demand picture of what their money

is doing.

However, tied to this is an appetite for increased security, particularly through the use of biometrics, which

a further 23% of people said was the innovation that they would most like to see in financial services. This

further highlights the desire for innovation and the wish to use online resources, but only as long as there

is trust that they are safe and secure.

There is also a sense that people want help to enable them to save more as 14% say what they most want

to see is compulsory financial education in the workplace. There has been increased financial services

education at a school level in recent years but there is a desire for adults who missed out on this to improve

their understanding of financial products. Further to this people also want help saving more money as 12%

are most keen to have the ability to automatically switch change from small purchases (e.g. buying a coffee)

into their savings account.

The futureSimple, safe and secure

iress.com

These demands demonstrate there is plenty of room for innovation in financial services. When a sector does not

evolve it is at risk from disruptors in the marketplace. Financial services could see challenger businesses reacting

faster to the digitalisation of business take the initiative and market share, as Uber has with transport and Airbnb has

with accommodation. However, the industry is also in a position to see what has worked well in other sectors and

adapt them to offer the best possible solution to consumers. While disruptors may be best placed to react purely to

digitalisation, it is established firms that are in a position to react, but also leverage their experience to make sure any

advances also cover existing consumer concerns such as security and integrated multi-channel engagement.

20

People would most like tohave an online resourceto view all of theirfinances in one place

23%

People would mostlike to see increasedsecurity through biometrics

23%

Which of the following innovations would you most want to see in �nancial services?

Access savings / pensions via social media 1%

Automated online financial advice 10%

A single secure store of personal data 14%

Automated information and prompts on financial services 6%

Fully integrated customer service options 18%

Improved security through unique human characteristics 23%

Access via wearable technology 24%

An alternative visual representation of investments and financial products 5%

A single view of all your financial services accounts 23%

Micro-saving 12%

Compulsory financial education in the workplace 14%

0% 5% 10% 15% 20% 25%

Consumers are embracing financial services online and, in some areas such as banking, the adoption is almost universal and a part of daily life. There has also been a huge impact on how people purchase financial services online, due to price comparison sites, which are trusted by a generation of consumers that requires impartial advice and guidance before making decisions or for securing the best price.

However, there are still areas of financial services that have not yet been adopted as Internet friendly.

Pensions, mortgages and stocks and shares have been purchased online by only a comparatively small

number of consumers. Our research shows that there is a desire among many to be able to buy these

products online but the industry has not yet been able to emulate the success of online retailers like

Amazon and will need to streamline and improve accessibility to the entire process, to be able to achieve

this.

This research highlights that simplicity, security and convenience need to be at the heart of innovation for

the financial services industry to build trust and better meet the needs of today’s - and tomorrow’s - digital

consumer. It has also led to the development of �ve key foundations for innovation in the industry.

Conclusions

iress.com

00

Unify engagement via multiple financial advice options ranging from full advice, scaled or guided advice and self-service.

Simple and secure multi-channel engagement and customer support will help consumers switch between channels based on advice or assistance need in real-time.

Integration of research and advice functions into digital models to take advantage of the high level of online research already being conducted on financial decisions.

Provision of simple but detailed information and guidance online via semi-automated prompts for people to utilisewhen researching, selecting or altering products.

Leverage technology to provide consumers with a consolidated single view of their overall financialposition ensuring consistency between channels.

Five key foundations

1.

2.

3.

4.

5.

For further information: Teamspirit PRDan Pike / Kate Cunningham

IRESS@teamspiritpr.comT: 020 7360 7878

IRESS: Debra Knottdebra.knott@iress.co.uk

T: 01926 621410M: 07769 271584

© IRESS UK Limitedwww.iress.co.uk