Bob Hunt, chief executive of Paradigm Mortgage Services, is watched Abbey’s bundled strategy with much interest.
It is intriguing to see the effective launch of ‘bundled products’ in the mortgage sector with Abbey’s trial of its personal account switcher product range through mortgage intermediaries. Under the pilot Abbey is offering preferential mortgage products to those customers who either have their main personal account with Abbey, but don’t have an Abbey mortgage, or those who are willing to switch their main personal account to the bank
This is an intriguing concept and one which definitely has the Santander stamp all over it. In the UK the marketing of a suite of products to individuals is in its relative infancy however on the Continent consumers are much more likely to have a significant number of products from one institution rather than spread out amongst many. There is therefore a more concerted effort to provide special deals on a variety of other products to those who have one or more products with the bank already
Clearly banks are aware that they can increase their individual customer profitability if they are able to tempt them into taking multiple products. To some extent the bundled product has been available in the savings sector in the UK it is relatively commonplace for those with current accounts to be offered higher savings rates although often the customer will have to lock their money in or save a certain amount each month for a set period in order to access the full benefit of a higher interest rate
The other interesting factor in this pilot of course is the use of intermediaries and advisers to distribute the products. Will there be an appetite from the broker community to provide the bundle? For those clients who already have their main personal account with Abbey it is perhaps an easier sell given that they already have access to the product range. However, one wonders if brokers will be willing to advise their clients to move their account to the Abbey if the preferential mortgage products on offer appear to be the most suitable and cost-effective?
As has already been pointed out, most consumers have had their current accounts for a very long time and are loathe to change because of the perceived hassle of changing standing orders/direct debits, etc. Having said this, changing current accounts is now a much smoother process than it once was, and if Abbey can deliver effective customer service in this area then it may well appeal, particularly if there are significant savings to be made on the customer’s mortgage payments
And there lies the rub. How big would the savings need to be to warrant the bank account move? If it is a few pounds then it is unlikely that the client will want to take up the offer because of the ‘hassle’ however if it is a significant saving running into the hundreds, perhaps thousands, of pounds over the term of the mortgage then brokers will certainly have a duty to flag up the opportunity and clients will have to think seriously about it
The bundled product range is likely to grow in popularity – regardless of whether or not Abbey’s pilot proves to be a success for them. Organisations with an appropriate scale and quality of distribution will undoubtedly play an important part in taking this type of offering to market. Lenders will not want a scatter-gun approach to marketing and for example distributors who have strong management information and influence over their advisory members are likely to be able to provide a much more targeted push of the ‘bundles’. This could be a sign of things to come, however, lenders will need to ensure the numbers are attractive if they are to get the most out of these new initiatives.