m.economy research from mud orange reveals never before found insights on British Muslims’ financial behaviours.
Mud orange, the award-winning creative agency helping brands to connect with diverse audiences, today launches findings from its m.economy research, which looks into British Muslims’ attitudes and behaviours towards banking, pension schemes, car finance, international money transfer, and will writing. This is the first ever report to be published providing a holistic view of British Muslims’ views on the financial landscape and how their religious beliefs impact their decisions when it comes to managing finances.
With four million Muslims living in Britain today, there is still little known by financial sectors of the dynamic financial circumstances of British Muslims. According to the survey, 85% of British Muslims would be more loyal to a mainstream brand if their financial needs and lifestyle choices are catered to directly.
Banks and fintech companies have the opportunity to engage British Muslims by better aligning with their financial and lifestyle needs
British Muslims are very conscious of how they manage their finances, due to the Islamic financial framework which defines how money should be saved, borrowed and invested; favouring profit-sharing over interest. The ethical and interest-free facets have huge implications across money matters for British Muslims. Our research found that over half of British Muslims don’t want to receive interest on their bank savings, which becomes more important for those older and the more affluent.
Pure play Islamic banks, such as Al Rayan bank, have been in the UK for over 15 years, but according to our research, one third of British Muslims feel these banks are old fashioned, whilst two thirds cannot recall an Islamic bank when asked. 59% of British Muslims said they felt Shariah-compliant bank accounts focused too much on religious ruling rather than their actual banking needs, in addition 55% perceive pure play Islamic banks to be less reliable.
According to the research, 83% of British Muslims under 45 say they would prefer to have an Islamic Bank account than a mainstream bank account. If not available, over half would consider an ethical bank (such as Triodos Bank) that could offer services better aligned with their values. There is a clear opportunity for financial institutions to brand and market themselves with better consumer insight to build a compelling offering that resonates with modern British Muslims.
Car financing predominantly follows conventional interest payments, which limits accessibility for British Muslims
A huge obstacle for British Muslims to buy a new car is the one-dimensional financing option provided by dealerships which isn’t compatible with their religious needs.
According to our research:
- 72% of British Muslims say they would only consider buying a new car if the dealership offers interest-free finance.
- 52% of British Muslims above the age of 25 actively look online for interest-free finance deals from car dealerships.
- This increases to two thirds of men above the age of 35, and many are willing to spend more to find a suitable financing option.
These financial obstacles have forced British Muslims into the second-hand market and more recently has driven demand in car-sharing and long-term hire, especially for those living in cities.
The need and access to will writing for British Muslims
The average Brit writes their will when they’re 47, however the m.economy research found the average British Muslim considers writing theirs before they’re 40, with 86% saying their will needs to be written according to Islamic law.
However, from our research we found that 40% of British Muslims said they don’t know how to set a will up whilst 43% say they find it confusing, complicated or too expensive.
Money transfer services are yet to engage modern British Muslims
From research conducted by Aziz Foundation, 93% of British Muslims say that the UK is their home, which includes the 40% who are born overseas, however the majority of money transfer services branding is focused around “sending money back home”. 77% of British Muslims say someone in their family uses money transfer services, with the two main reasons being; to sustain family members living abroad and to pay the religiously mandated charity donation, Zakat. According to the findings 85% of Black Muslim families and 77% of South Asian Muslim families also frequently use international money transfer services for remittance or charity giving during key religious moments, such as Ramadan.
Money transfer services need to reconsider how they market themselves to British Muslims and consider factors such as the speed, security and ease of withdrawal which are vital to the recipients who have strong influence in the decision process.
Arif Miah, creative director and founder of mud orange said: “The research clearly shows that there is a huge opportunity for the financial industry to holistically align better with British Muslims’ needs and requirements – from savings, car financing to transferring money abroad. The lack of effective brand activity creates a huge window for the financial industry to start building an authentic relationship through relevant, contemporary and data-backed insights, so they can lead the way in offering effective solutions that meet the religious and lifestyle needs of British Muslims today”.
A quarter of banking customers noted an improvement in customer service over lockdown, research shows
SAS research reveals that banks offered an improved customer experience during lockdown
This represents some good news for banks in an extremely challenging time, with 59% of customers also saying they’d pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.
The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of banking customers using a digital service or app has grown by 11%, adding to an existing 58% who were already digital customers. Over half (53%) of new users plan to continue using these digital services permanently moving forward.
Brian Holden, Director, Financial Services at SAS UK & Ireland, said:
“It’s notable that in times of need customers value being able to communicate with their bank and place an even higher value on good customer service. A rise in the number of digital customers means banks can now reach a wider audience online, leveraging AI and analytics to offer a more personalised experience.
“There is work to be done, though. Even greater personalisation is needed if banks are to win over the 12% of customers who felt banking services deteriorated over lockdown. And this personalisation will need to get right down to a segment of one to properly reflect the unique circumstances some individuals now find themselves in due to the pandemic.”
While the number of digital users grew over lockdown, there is still a quarter (24%) of the banking customer base that have chosen not to make the switch to digital services.
Meanwhile, failure to offer a consistently satisfactory customer experience could prove costly for banks, with a third (33%) of customers claiming that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service, so this just underlines how much retail banks can win or lose in these difficult times.
For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer?
Swedish Bank Stress Tests in Line with Recent Rating Actions
The Swedish Financial Supervisory Authority’s (FSA) latest stress test results show major Swedish banks’ robust ability to absorb credit losses. The results support Fitch Ratings’ view that short-term risks have abated in recent months, and are in line with Fitch’s assessment of major Swedish banks’ capitalisation at ‘aa-‘, which was a factor when Fitch removed the ratings of Handelsbanken, Nordea (not covered by the FSA’s stress test) and SEB from Rating Watch Negative in September.
The FSA estimated about SEK130 billion of credit losses over 2020-2022 for the three largest banks (Swedbank, Handelsbanken and SEB) under its stress test. This represents about 220bp of their loans, or about 70bp annually. However, the banks’ pre-impairment profitability in the stress test could absorb credit losses of up to about 110bp of loans annually. Fitch’s baseline expectation is for credit losses below 20bp of loans in 2020 and 8bp-12bp in 2021.
Capital remained strong under the stress test. The average common equity Tier 1 (CET1) ratio fell by only 2.8pp (1.9pp if banks did not pay dividends) from 17.6% at end-June 2020. The capital decline was not driven by credit losses, which could be absorbed by pre-impairment profitability, but by risk-weighted asset inflation.
The three banks’ 3Q20 results showed that capital has been resilient despite the coronavirus crisis. The banks had a CET1 capital surplus over regulatory minimums, including buffers, of almost SEK100 billion (excluding about SEK33 billion earmarked for dividends). SEB had a CET1 ratio of 19.4% at end-September, Handelsbanken’s was 17.8% and Swedbank’s 16.8%.
The SEK130 billion credit losses under the latest stress test are lower than under the FSA’s spring 2020 stress test (SEK145 billion), which also covered a shorter period of two years. However, they are still larger than the actual losses incurred by the three banks during the 2008-2010 crisis. This is despite tightened underwriting standards by the three banks in recent years, including, in the case of SEB and Swedbank, in the Baltics, the source of most of their loan impairment charges in the previous crisis.
In its baseline economic forecasts, the FSA assumes a harsher shock to Sweden’s GDP in 2020 and 2021 (-6.9% and 1%, respectively) than Fitch’s baseline (-4% and 3.4%), although it assumes a similar recovery by end-2022. It also assumes real estate price corrections, which appears particularly conservative in light of a 11% housing property price increase over January to November 2020.
The ratings of Handelsbanken (AA), Nordea (AA-) and SEB (AA-) are on Negative Outlook due to medium-term risks to our baseline scenario. The rating of Swedbank (A+) is on Stable Outlook, reflecting significant headroom at the current rating level following a one-notch downgrade in April due to shortcomings in anti-money laundering risk controls.
Future success for banks will be driven by balancing physical and digital services
Digital acceleration due to COVID-19 has not eliminated the need for bank branches
Faster service (23%), smaller queues (26%) and longer opening hours (31%) are among customers’ biggest asks of their bank branch, new research from Diebold Nixdorf today reveals. But with 41% consumers saying they would be comfortable to engage with all banking services via an app, it is vital that banks respond to the full spectrum of customer needs – balancing and evolving their offerings on multiple fronts.
A third (35%) of customers say they will always want access to physical, in-branch banking services in some capacity and one in ten (10%) consumers will never bank predominantly online in the future. This demonstrates that there remains an important role for the services a branch provides. This role, however, continues to shift away from purely transactional banking:
A quarter (26%) value face-to-face advice when it comes to their banking needs
One in five (18%) seek advice on different products
17% want to speak to the staff or other customers.
Matt Phillips, Diebold Nixdorf vice president, head of financial services UK & Ireland, said: “The majority of banks have spent the last decade focusing on their digital strategies and investing in improving – or establishing – their online customer experience. However, the data shows that there is still an essential role for physical branches. Banks now increasingly face the challenge of continuing to provide customers with access to a range of physical and as well as digital services, giving them the flexibility to choose the best service for them at any given moment in time.”
When looking beyond the impact of COVID-19, planned branch visits by customers are expected to rebound to 28%, following a dip to 11% during lockdown. And when asked about the new services they’d like to see inside their bank, sixteen percent of respondents said more self-service machines would improve their in-branch experience.
Matt Phillips continues: “In a world that is fast evolving and where the future is digital, there’s no doubt that high street banks must, and are, responding to the needs of highly digital customers. But not every customer requirement is digital. There is still a strong need for physical bank branches and the interaction and services they offer, and striking this balance between physical and digital is where the industry must come together to provide solutions. For example, building a strong, leave-behind strategy is something we’re seeing across the board when banks have to close branches, ensuring customers have access to self-service machines to complete all their transactional needs.”
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