Topic 7 - Providers

Considerations when choosing a provider

• Should assess personal circumstances to see what product they need.

• Research the best rates available for them

• Safety of the product

• How convenient are the communication methods of the organisation.

Banks as global businesses

• Banking groups are formed when financial providers merge or acquire (buy) other providers.

• Lloyds Bank has merged/acquired over 200 banks and has become Lloyds Banking Group.

Advantages of Banks

• Easy access to different products

• Can afford to invest in more products/services.

Disadvantage of Banks

Less efficient customer service

Description of Banks

Public limited companies that sell a wide range of financial products and services.

Building societies

Mutual organisations owned by their customers, who are called members. used to only offer savings and mortgage however now, while these are still maintained, they offer more financial products.

Advantages and disadvantages of Building societies

Advantages

• Members have a say in how the society works

• can vote on issues and speak at annual meetings

• don’t have running costs associated to dividends

• all the profits benefit the members - therefore lower APR, higher AER

• good customer service

Disadvantages

• small scale so they are less likely to spend high amounts on research or development

• need to rely on partners.

Why are they smaller organisations than banks?

• Tend to operate in the UK only with a lot of local focus.

• There are legal restrictions on their business activities.

  • minimum 75% of assets must be mortgages and minimum 80% of total funding should come from members’ deposits - the amounts they hold in their current/savings accounts.

• Restricted amount of unsecured loans they can make - takes less risks than banks

What is demutalisation

This is when a company’s mutual status is now changed and becomes a bank as it now has shareholders.

This is only possible if the majority of the members agree and this option is only available to large building societies due to the cost.

What are Credit Unions?

These are also mutual organisations, owned and run by the members. The key difference between this and a building society is that the members in credit union must share a common bond. (e.g. live in the same are or work in the same industry)

Membership of credit unions

• Smaller organisation than banks and most building societies.

• Changes in legislation allows people to stay in the credit union even if they leave the area or change jobs.

Products offered in Credit Unions

• Two main products are loans and savings

• Before 2012, they were limited to paying returns on savings in the form of annual dividends - a percentage of profits made.

• Their key role is to offer affordable loans - low APR and fees.

Advantages and disadvantages of Credit Unions

Advantages

• Low operating costs

• Profits made benefit the customer

• Local, community-focused

• inspires customer loyalty through the common bond

Disadvantages

• limited product range

National Savings and Investments

• When products are bought from here, money is being lent to the government. All money is guaranteed to be 100% safe by the Treasury.

• They offer many products:

  • Cash ISA

  • Savings account

  • Investment Account

  • Income bonds

  • Premium Bons - Price draw to win money - the NS&I doesn’t pay interest on these. Instead a rate is used to calculate how much interest would be paid and this money is placed in a prize fund. Each month 2 premium bonds are randomly chosen to win £1 million.

The Post Office

• Has over 11500 branches across the country and also operates mobile vans to visit rural locations.

• This makes access more convenient for a large population of UK consumers.

• Offers a range of financial products and services, which are provided by its partner banks and insurance companies.

  • savings accounts, mortgages, loans, credit card, home/car/travel insurance.

Communication Methods

Branches

• Can talk in person - feeling of better trust

• advertise all products

• personal service - can understand the requirements of the customer

• however, opening times may not be convenient.

Telephone

• contact from anywhere

• longer opening hours

• less expensive to operate

• specialist advice - departments

• ask questions to get responses

• However,

  • potential fraud

  • customer service may not be grate

  • technical issues

Online Banking

• access 24/7

• immediate transactions

• research products

• use online tools for calculations

• apply for online products

• low costs

• However there are security issues and lack of personal contact.

Post

• delivers physical message, can spend time considering or can be kept for future reference.

• use statement inserts for adverts

• convenient for signed contracts

• However

  • takes time for arrival

  • risks of items being lost in post.

Mobile Banking

• combines the benefits and disadvantages of online and telephone banking

• overall quick and convenient but requires sophisticated security.