Guy Stephenson has worked with expatriate banks for more than 20 years. He believes that the market consolidation has opened up new business opportunities
If there’s one person with experience in marketing financial services to expats, it’s Guy Stephenson, Director at Nacelle. Having targeted expatriates since 1988, he has worked with many of the big expat brands in the market.
In an interview, Guy explains why more than 50% of British expat banks have disappeared in the last decade, and how this consolidation has opened business opportunities for new products and services.
Guy, you have been working with expat banks for more than 20 years. How has the market changed?
Before 2005, there were more than 10 independent banks and building society subsidiaries targeting British expats for their savings and mortgage business. Expat customers could save their money either with the five big expat banks – HSBC, Lloyds TSB, Barclays, Nat West or Santander – or with a range of smaller, specialist banks and building societies, like Bradford & Bingley International, Derbyshire Offshore, Scarborough Channel Islands, Halifax International or Alliance and Leicester International.
Since then, many of these small banks were taken over, such as Alliance, Leicester International and Bradford and Bingley International, by larger players like Santander. Those that were left were hit by new financial regulations which made many of the previous business models unsustainable. Today, around half of British expat savings banks have disappeared.
How did financial regulations impact the expat banking industry?
Previously, specialized expat savings collected savings from expats and lent them to their parents companies in the UK, a process called upstreaming. The parent companies then used the money for investments with high returns, usually mortgages.
In 2010, the rules around upstreaming were changed. The UK Financial Services Authority, the regulator, now requires the parent to hold a similar amount of high quality liquid assets as the funds supplied by the offshore deposit taker, on call with The Bank of England. In the current market, the parent would be lucky to receive around 0.5% on deposit, while the subsidiary is paying out 2.50% or more on some accounts, so the model does not work any more.
Does this mean that the market for British expat banking is dead?
Not at all! Banks should simply adapt to a new business model. For example, the subsidiaries can lend out the money themselves and become proper banks. An example would be Skipton International. They are a mortgage provider in Guernsey and Jersey, and they have been doing this very successfully for many years, becoming Guernsey’s largest lender of new funds last year, outstripping the major banks.
Could they also use the money for financing mortgages of British expats abroad?
Cross border lending is very complicated, such as having a bank in the UK lend on a property in France. Banks shy away from it for good practical reasons. But there are other opportunities. For example, there is currently a shortage of banks providing mortgages to expats wanting to buy property in the UK. If you are a non-resident, your choice is limited and many of the mortgages available are not as competitive as those for domestic UK buyers, which is hardly a surprise given the lack of competition.
How will the market for expat banking change in the future?
Expats are still a huge and profitable market. If you take the average of the five main studies in the market, there are four million British expats, and half of them are working. They are high earners and they are looking for investment opportunities, so there’s money to be made.
There are also still very big opportunities for new expat products like term life insurance and pension products. These markets remain almost untapped.
Why does nobody grab these opportunities?
Many banks simply don’t know how to target expats any more. There are still as many expats as ten years ago, but the rising cost of print production and distribution means that the old way of reaching them through print publications has died.
Take the FT Magazine Residents Abroad – gone, Expat Investor with 50,000 copies – gone. Even the international editions of mainstream papers such as the Daily Express and Guardian have seen their quoted readership figures fall considerably, as distribution costs have risen.
But why didn’t the eyeballs and the budgets simply move online?
In theory, the web should have taken over and up to a point it has. However, personal finance is quite a daunting task for many, so people do not log on and browse in the same way that they previously would have in a magazine.
Potential customers also like the regularity that was associated with press media. If you saw an advertisement often, that reassured you that the brand was reliable. On the web, it is quite hard to regularly find advertisements for the same providers.
Then how do you target expats for new banking products?
Our research shows that shows that most expats choose their savings and mortgage providers by word of mouth recommendations in their community …
… which is not very helpful for new players looking to enter the market.
It shows that you have to get your brand into the local community, for example through a small local office. You can then start with local advertising and low-cost sponsorships, for example golf tournaments or other sports events. These can be easy to organize and very low cost as many expats are looking for entertainment, particularly on a family, fun or amateur level.
And this local groundwork is profitable?
It is! We saw this with one of our clients in Dubai who went sponsored a local golf contest to promote and support their local office and of course sell their products. Over four years, just two people attracted around 2,500 customers who were responsible for millions in deposits and mortgage lending – one year , nearly £40 million of new lending was written.
What would be your main advice to companies targeting the expat market?
First of all, they need to research the market, that could mean attending the right exhibition, fair or some form of cultural event. It will certainly mean meeting and speaking to their target market on the ground.
Next, be aware that you cannot reach this market through centralized onshore media buying alone. If you really want to target expats, you have to work with specialized providers who understand the circumstances and needs of the market, how to talk to the market, where to find it. And you have to build a specific marketing strategy addressing these factors.