This chapter defines the UK retail financial services sector, highlighting the links between this sector and the other main financial services sectors, viz: corporate financial services; the City of London; and the business services sector. It outlines the pressure for change, analysing the major business challenges which face the industry, and the responses of retail financial services companies in this period of transition. It highlights the need to realise the potential of IT to enable the kind of change and transformation required for survival and future success in new markets.
Taken together, the financial services and business services sectors are amongst the most successful sectors in the UK economy in terms of employment creation, output, growth and profitability. Since 1980, the number of jobs in the sector has risen from 1.6 million to 2.8 million; the real output has doubled from 11 to 20 per cent of current-price GDP, and gross profits to almost £90 billion (CSO, 1995). This expansion was due to several factors, including growing consumer wealth, deregulation and demographic changes, as well as the trend in advanced economies towards services. Financial services output, as measured by percentage of GDP, was predicted to overtake that of manufacturing some time in 1996 (McRae, 1995).
The financial services sector is made up of three interlinked and interdependent subsectors: retail, corporate, and City of London (see Figure 2.1). It includes banks, building societies, insurance companies, mortgage lenders, securities houses, unit and investment trusts and increasingly a large number of non-bank institutions engaged in financial activity.
The business services sector includes a wide range of professional firms such as solicitors, management consultants, accountants and computer specialists. Although both these sectors are usually considered separately, they are interlinked in two critical ways: