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Why Are Savings Rates Back in Focus in the UK?

2019-04-30

In the wake of the financial crisis, the low interest rate environment gave consumers little incentive to put their money into savings accounts. That's changing in the UK, says Goldman Sachs' Des McDaid, with savings rates "back on the agenda." In this episode, McDaid, who oversaw the launch of Marcus by Goldman Sachs in the UK, explains the factors driving the renewed demand for savings accounts and compares savings habits in the region to those around the world.

This podcast was recorded on March 5, 2019.

The views and opinions expressed herein should not be construed as an offer to buy or sell any securities and such views and opinions may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. This information may not be current and Goldman Sachs has no obligation to provide any updates or changes. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by any Goldman Sachs entity. The portfolio risk management process includes an effort to monitor and manage risk but does not imply low risk.

Copyright 2019 Goldman Sachs & Co. LLC. All rights reserved.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is exchanged. The Goldman Sachs will be discussed, developments totally shaping markets. Industries in the global economy objects, global out of copper communications here, the firm today, one London and we're talking about savings and the consumer finance business. We'll talk a little. The cultural differences and savings habits in the UK and other regions of the world differences amongst generations, millennials, Genovese, baby boomers and how they view the shift to mobile banking and much much more joining his death MC date emerging Directorate Goldman Sachs Consumer Finance division, whose overseeing the launch of markets by Goldman Sachs in the UK, does welcomes the programme thanks Jake So, let's start with some broad context around the savings market in the UK. As this but we ve been a region of savers and how has people view of savings changed since the financial crisis, the UK deafening
nation of savers. Before we launch Marcus, we in future a thousand different consumers to ask how they saved what they thought about savings, and we found that eighty five percent, it will put some money aside every month just to favour that for a rainy day for a holiday, for purchase that nature, good, but what we also found is actually people are very good at saving, so trying to save twenty five so that he will didn't have safe, scared at all ages, either left their money in their current account right. You lots of people left at home, lying on a little pockets, and we find even more so the people that you literally left under the mattress. is quite scary, that a decade of low interest rates, poster financial crisis had just seeing that people try to save them just not good at it. Yeah why there wasn't much reward for saving in the wake of the financial crisis, wondering the obvious when we launched Marcus here in the? U K versus do you
there's a much more active debate around getting a fair rate of return on near deposits. Why things are debate so much more robust here than it is elsewhere? Ten of low interest rates. Savings was almost like a forgotten category within banking, Nelson from consumers, and what we saw was that banks in some way has lost interest in savings and savers. They weren't talking about it. It was light. When was the last time you saw a savings product advertised and customers. It lost interest in savings that apathy about they would get is not worth their while. Switching. Why not leave my money was my current account an account paying virtually no interest at all the apathy really kicked him after TAT long years of low interest so what we saw when we came in and when the reasons Marcus was a success. If we put savings back on the agenda- and our starting point was that she wanted to put the interest backing to savings that wasn't just about paying a great Rachel. Our customers, with that she's put savings back on the agenda, Does you talk a little bit about the
awareness of the savings issues in the rates? Savers are paid policy makers wing in this space, because there's not a big debate in the United States around the rates savers are paid for deposits sum has been a lot of debate, and It is in the UK market from the government and the regulators to try to help people safe. So, if I think of some, the changes have been made. In the last few years, the personal savings allowance was introduced which actually made all savings tax free for the first thousand pounds for normal right taxpayers and five in the pounds for higher at taxpayers that was due to incentivize people's I've also introduce individual savings accounts and schemes to help people in the house him out. If I say the deposits first deafening incentive within the governments to put say
back in the genuine as a realisation that low interest rates haven't help. Savings are trying to do anything from a government point of view which drives savings, behaviour or put Satan's back on the agenda, gets people onto savings habits has that we worked. Whether that's really driven behaviour is yet to be seen in some ways, because in some ways that sounded more complexity to the market, people don't mess. You understand. Should I have this tax free sales count all that taxpayers savings cats? I think there's a dry for simplicity of policy has been in. good way, but I still more that can be done. Monetary policy are very different in different countries. In the wake of the financial crisis, there are emerging from zero interest rates at different paces. What role does monitor He played the differences and savings habits in different countries for look at the UK. First, very much quantities ring fencing the retail banks of awash with liquidity, so data
savings, if you take talk about Europe is, similar has been low interest rates for a long time? So again, people need to cite, but do it Anthony incentives that banks gives them is much lower in that part threat that spread our into all over the great wealth post, a financial crisis, so the bank's didn't really want anymore. Deposits of they were willing to pay for more deposits. Are there other draw psychological factors play in some of the differences run savings if you look round about its difficulty, cultural or psychological factor in itself Our people, savers or spain- does have a young person, we spend, though you know my needs a more and, as I got older, I became a safer because I still think that long term it say more than natural still. You accumulate more wealth, but I'm not sure this. Cultural difference. I know in Germany a fascinating country, because eighty percent of their gdp is that she saved every year that need to. is distressing grained into that culture. I don't think,
so having the Anglo Saxon. Well, though, in different cultures, you see that as much, it fills me more, individual thing. I think what you education, what you bought up. What your needs are, one they knew about gold, men and Marcus is that we have seen have customer service, real life, people who answer the phone. What have we learned about customer service as an institution and housing from here in the UK when we launching markets? In the UK? We spent quite Alot Tom thinking about what did we want the Marcus experience to be another women on loan bank. What we found was people still need to phone is up. Sometimes some people still have questions. People still have concerns, and that's a moment of truth for us when the customer phones, there was something that we thought were very when one was that we wouldn't hide or telephone number on our website idea, was so many companies by trying to find them, and I spent the next hour trying to find their phone numbers. Ironically, that's mobile telephone companies about what
we also have an ivy. Are we didn't want customers to guys through press one pressed to press three? You now have a whole new. Of options underneath it we just want to be able to achieve some wants, a famous they can talk, was quickly screw invested a lot of time in a tea to recruiting agents who were used to dealing with customer service. They came from retailers. There were people who have read good customer attitude and we spend an old my time till training them spending weeks, actually working up to make sure that the service I gave was great. We now have something like fifty agents who look after our customers. We took you, try to answer the phone within seconds people to have to wait to hold onto the phone with us and I'll call center initially was decided in London. It will stay in London, but whirls open when you call sentiment Milton gains. That centre will have up to two hundred and fifty agents over Thomas. We grow the business out and we really excited because inopportune should not just be a digital bank, but we're direct bank
when customers choose to frame a state can actually do with us on the telephone as well as online MAC gives people a choice when you across the rest of the continent of Europe. Where do you see commercial opportunities for Digital bank? That's offering higher interest rates the world move in mortgage still time. People used our phones, all contracts, you're afraid disliking just go and generally Germany for us is a No more next step opportunity because of the size of the market, the nature of the german savour who want stretching grow and the left. Competition that there was fully the largest single market for us, but also pay for France, ITALY, Spain, they all of opportunities for us over time, but for us infrastructure people around the scale of the opportunity, the appetite for those customers, the low right so often level competition, and we think we Germany's on next lots
we'll step. You mentioned, that savings habits evolve as you get older age and we all age. What do you think might help incentivize better savings among younger demographics like Genji or maybe not so young anymore, but the millennials? What we see is that, if you look at her millennials consumer information- I am they use social media, they use, advises a use. I trusted circled, tell them more so well, he found out from. Maybe your parents from advertising from TB, AIDS Millennials, you, social media, treachery, inform them when we see that twice as many of our followers or millennials on our social pages there. The people who look are advertising in that space. so they want advice. They one easy to do the work chase millennials, also one instant gratification. They used to technology there, much more able to get things done. Gateway They go in the phone despite their from across the phone, and it happens. They used to the instant gratification and that's it
What we need to do, we need to deploy technology for them. We need to make it easy for them. We need to explain it in a way that they exist somewhat. Thanks have done historically, if they ve created for them and saw allies that help the banks or frightened but now we need to turn into a customer. Centric operation was actually talks about what customers needs and what their fulfilling this and no one at sea has a savings account to save money? They say forego lay save for a purpose we The change of language a little bit for millennia, also that the understand what they aiming for and if we can do that, I think we can help them manage Money earlier, then, maybe we did it in our ages and progressed further in life. what are some of the barriers you mentioned. Up alluded to a couple of ways to shall banks? Savings are gathered deposits. What are some of them? his barriers that consumers faced today to save more and how is the industry trying to innovate, to break down some of those barriers or do some of that friction? One of the heart
things in terms of barriers to save his habit. You have to get into the habit of saving I'm having a the access and easy way to make money. So what we find is that an awful lot for acknowledges, riddled with catches, conditions about why you have to do something. We have products, UK, where you know- and I was so excited my little- thereby you can put your money in and then you can any withdrawal money on the third Wednesday of a month if it's a full moon and those touch conditions just complicate things: how in its people, trade offs in order to get great returns, they have to make sacrifices and compromises all the time, and I dont know wise and industry. Sometimes we think this is a good thing that we always have he's with great right and then all these conditions behind it? We shall see just put people off, so we just need simpler products at him, ass, a cool thing that many so simple, straightforward products that give customers value and transparent. Other things. That's? U, what market stands for and its heart is accustomed sent it simple transport
offered its value to our customers. Myth we do that as an industry, our consumers, we better off, still save more damage than money, better NL, White Bank, small as well. One group sets out to get the banks, the fin tech start. Ups, the start of your turn to disrupt the way that business is done in this basin and the way they have a lot of other industries with lotta great success. What are the new entrants in the fin tax base? Would they stand about the consumers that the incumbents, the bigger banks, haven't understood and processed. The fin tax have a great advantage coming into the market. have more like a sea, so they're, not let the old banks of more with their decades old systems, all profit fools. They come in with a freshly a paper. The challenges that, unless you have a balance sheet of the capital of scales, to really permit the sum of the Mai, crazy handle flop, noise around customer experience and want to have tapped into is a certain knowledge about how to make things easy for customers at two percent information
in such a way and how much you pick one programme and solve it really well, there's lots of them but we can learn from the fin tax and if you look at you, experience have in fact she ground. Some have had no marketing at all in terms of its being word of mouth and I've got to see they would Captain the millennium, the earlier doktor segment, and maybe that social media to grow their business, but what they already do is solving a customer problem and that's where banks can learn if they solve customer problems, and I made at the first goal as successful come behind them. The challenge for the fin taxis whether they have enough balance sheet was scaled, really solve more than one customer problem. Lot of incumbents in large banks have tried to acquire that fanatics sensibility inside their firm and build up their own fanatic. Arms Gorman has done this with Mark S. Brother eggs have done something similar talk, a bit the dynamic of operating a start up within a large financial detention? What are the trade off? If I think of the positives? First of all,
you have all the fun of start up with the backing of, in our case, a hundred and fifty year old company behind you. So you have enough lost purity, have investment behind you and you will have a lot of governance behind you see, have the rigour and challenge and the risk control that makes you that little bit safe for him a little bit more round. Didn't answer you off right. The naked sometimes is that can slow you down a little bit in the smaller intact start up, Three more nimble. Do they get involved in more faster it you don't mess. We have as many people in the conversations that has positive signs. In times your speed Caesar Rico of some of those conversations I always have the best of both worlds. In terms of how I afraid I run a fact, we start up business with lots of energy, great culture, great people, but I've got the backing of this firm behind based. I've got like a big brother were begun. Call he's as their arms, That's me. They want me to succeed. I may put an awful lot of time and effort behind the company, so we agree
position, given the trans you describe, what is the future of consumer backing? Look like? Will we be doing every in the future on our phones in some countries they moved further ahead and that than others, notably China, or what still be some of the things We grew up with certainly retail Banks with actual stores on street or checkbooks unlike or is this can be completely mobile experience. I think it's very hard to predict the future with any accuracy up here. Why would say is the industry's change matters the over time, and it feels today like the mobile phone, will be everything. So I looked Diana, maybe in ten years time, on the back and think Why would anyone looking at their mobile phone and it's a different world, but why I do see is that people want things to be faster. People want things to be Asia, its not mess you about. Technology per se, is about the experience that they have and if we can deliver things quicker. I would think, about Amazon and the uniqueness of Amazon
says today. Their opening branches on high street structure get things so given to you. I wish that unregulated wireless Baptist, written products faster to people. So I don't think it's necessarily about. Are we can we are mobile. I think it's just about that will consume products faster and whether that, mobile, whether its and fast way to get to the high street. It doesn't matter, but why do know is that there is a whole generation. People who don't use mobiles, who uncomfortable online that still need to be served by branches, generational would use over time by making it easier a mobile because more of your life more be done over that ensure This will be a great example. If you look at the We chats of the world who are doing, everything on the phone there's a part for that, but I don't think the branch he's dead yet took a little bit about the security risks for consumer banking in the digital age, just like Goldman thinking about the risks to mobile banking and how governments responding as
We have an inherent responsibility to look after our customers money. They information that data and that doesn't change with you, a physical bond with digital fonts, it's the same inherent responsibility. The Tec energy that people can use to play. Came to online things this tends to landscape, but it hasn't changed a problem, in terms of where we are so we're in a constant fight to actually take security and to keep ahead of protecting that your customers, data and money. We invested full of time and effort to make sure we're ahead of the curve, but something that I think will never stop for us in terms of there will always be people who don't want to do good. Things be such protect monies and thank started hundreds of years ago, with thousands of years go looking after people's money. That's what we do now Do it in a different landscape younger
since the beginning, a banking begin in the industry like that it feels like a sea yet along tenure, space. Take us a quick tore through your career. How you ended up here, ECHO Man, leading the charge on Marcus. I fell into banking, really the necessary my ambition in life to be become a bank about. It took us some job in that west Once in the mid eighties- and I never left- I started off in branches- I moved into the head offices- I went on a management proof which gave me good general management training. Then I moved into private banking, so I went for coots and hope for a while and then moved into direct banking. So I help launch ninety direct in the UK, which was one of the early start up. Direct banks spent and use their farming may marketing, and I think the cool I probably like the most was marketing and products communication with our customers developing products. Developing of a suicide customers really wanted and understanding what their needs. Wasn't she delivering that am, I being forced me to run a number of products.
Savings lanes, business banking across a few banks now that I've mainly be naive, hey banking sector in that area, so we think back to the early job, not west in the summer and you're doing then how you're, interacting with the customer today what's changed the most of hunting back first wanting it really grounded me in terms of what we do such we look off. The customer When we look at the gospels money and their lives, we help them thrive and that, as always,. it was made in terms of that coal grounding in terms of what we do, what in some ways in terms of how we deliver that everything is fast and now here when I first started banking, it was a much more personal service. We knew the people it with local bank, it was on a high street. You knew the custom he came in every week. There was left me combat Nations and relationships merits much more in person, but you're still doing the same thing for people say you transact was much more people. Much faster is efficient.
See now, rather than the actual personal service, but I still think if you think back to what they are trying to achieve, and you think there's a customer at the end of it. It's not about ten pounds moving it. Some was wages, it someone's paying for something if you always think about what they need for their money and what they're doing with the euro. A better price going again back to the early days. What surprised you the most in terms of the landscape has changed. I think just this. Of change. The number branches of disappear It atm arrived telephone banking, arrived mobile, apps arrived contactless payment survive every please as new innovation in the world. We Jesse don't change nothing. Banks have been fantastic, adapting and at the same time, over that very slowly to that's hard to say not things they found very well that the whole thing is looking after customers you
urging you started a branch of not West back then talk a little about your family. Were they savers? How did you learn to save? How did you get interested backing in the first place? I'm recharge her to say my family would be nervous immigrants who came out in the fifties and literally by look but who is probably a fantastic, save ass. She saves all her life. She always tell me when she came to his country. She was enough money saved for the boat and see needs to go home. That was her main so starting point, but they said they bought house, they strive. They took their kids for education and OPEC and was very much around working managing a money. Looking after our money, I mean growing helping. I think that many immigrant families it was that starting a life and then Bill from there and creating a platform for future. I have teeth now ass, what my values, in terms of how can I get them the best start in life with theirs. Thank you, but for joining us today. Thank you very much Jake that can cause
this episode of exchanges common sacks thanks for listening, and we hope you join again next time. This part, Ass was recorded on March Fifth, two thousand nineteen despots gas should not be copied distributed, published or reproduced in whole or in part. The views expressed in this body cast are not necessarily those of Goldman Sachs and Goldman Sachs. Not providing any financial, economic, legal, accounting or tax advice or recommendations in this part? Gas the information contained in the spot cast was prepared for general information purposes only does not constitute research advice. or a recommendation from any Goldman Sachs Entity to the listener and is not a substitute for personalized financial advice.
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Transcript generated on 2021-09-19.