Employment and IT in the UK retail financial services sector

The retail financial services sector consists of four main subsectors: banking, building societies, life and pensions, and general insurance, but it also includes companies dealing with a range of associated services such as credit cards, finance and unit trusts which are not dealt with in this survey. The largest sector, in terms of employment, is banking with over 370,000 employees (BBA, 1995), followed by the insurance sector with 270,000 employees, split roughly equally between the general and life sectors. In addition, the insurance sector employs a further 100,000 in associated industries plus 32,000 working on a self-employed basis. The building society sector employs 104,000 in total.

All of these subsectors are major spenders on technology and employ large numbers of IT professionals; for example, the top ten banks in the retail banking sector invested an estimated Ј2.5 billion in 1995 and employed 15,000 IT professionals (Watkins, 2003). Estimates of IT spending in the insurance sector are: Ј1.7 billion in the life assurance sector (Insurance Marketing Review, 2002); and Ј600 million in the top six composites which dominate the general insurance sector. The top ten building societies spent an estimated Ј800 million on IT (Spikes Cavell, 1995). Retail banking in the UK is dominated by the eight major banks according to total liabilities/assets. The structure of this sector has changed considerably over the past five years as banks streamline their branch networks and introduce new technology in an effort to cut their costs and remain competitive. As a result, employment in the sector, which had increased dramatically in the 1980s peaking at 460,000 in 1989, has been reduced by an estimated 90,000. Leading figures in the industry predict a further 75,000 job losses over the next few years. The major banks have also been cutting back on their expensive high street outlets and it is predicted that 20 per cent of the branch network will have been cut between 1988 and 1995 leaving an estimated 12,000 branches by 1996 (excluding Girobank). The growth of telephone banking and ATMs has also had a major impact on the number of branches. ATMs in particular increased from 11,739 in 1988 to 18,000 in 1996. Although telephone banking is still on a relatively small scale, it is predicted that it will rise rapidly in the near future.

According to the Association for Payment Clearing Services (APACS), fewer than 10 per cent of the population have no bank or building society account and fewer than 25 per cent have no bank or building society current account. As the ‘unbanked’ are concentrated amongst those on state benefits, and other non-working people and the unskilled working classes in social class D, most commentators predict that the holding of current and other accounts has reached saturation level. This area is still dominated by the big five banks, Barclays, Lloyds, NatWest, Midland, and TSB with an estimated 28 million of the 54 million account holders. The banking sector has 80 per cent of all current accounts as compared with 20 per cent held by the building societies. With regard to interest-bearing accounts, banks have 30 per cent of the market. The Building Societies Act (1986) gave building societies greater freedom to extend their products, unsecured lending, cheque accounts, and to abandon their mutual status and become public limited companies. One of the areas they have targeted is current account business. However, many building societies are either converting or considering converting to banks and in certain areas, such as current accounts, they are making considerable inroads into retail banking. Among the main problems facing the banking sector over the next five years will be: continuing over-capacity in the market with the building societies in particular extending their retail banking services, the continuing drive for further productivity improvement with automation and rationalisation leading to more job reductions and branch closures, the difficult task of maintaining earnings momentum in a low interest rate, low growth environment. To achieve this, banks are now trying to push up non-interest income. This can be done in several ways: for example, through selling insurance and investment products to bank customers; through a better, more personal and more accurate service on basic banking; and through advisory services such as drawing up wills and giving advice to small business customers.

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