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Financial service in the United Kingdom


Banking Sector structure

The opportunities available in the UK banking sector

The threats facing the UKbanking sector
Commonalities and differences service marketing strategies of the major players within the UK banking sector
Marketing strategy of Barclays Bank

Key strategic service marketing issues for Barclays Bank, during the next 5 years
The relationship between the service marketing issues identified and theoretical principlesof service marketing

Reference List


The financial services industry of the UK provides three basic services: intermediation between borrowers and savers, payment services and insurance against risks. The financial service industry in the UK has a number of players including banks, insurance companies, saving firms, and stock exchange markets. These services support capital allocation the production process as well as exchange of commodities and services within the economy. These different areas of functionality are very important to the proper functioning of the UK economy. While the financial services mentioned are fairly timeless, the characteristics of the industry and the systems offering them changes endlessly. These changes are guided by both regulatory and economic developments (Amel, Barnes, Panetta and Salleo 2004).
This paper will track the changes of a core part of the financial services industry in the UK, the banking sector, focusing on one player’s major strategic service marketing variables. The paper will also explore the association between these strategic variables and , theoretical principles of service marketing. The paper will also explore the transformation caused by technology in the economics of banking. Focus will also be directed to the deregulation of the 1970s and 80s, which freed financial institutions, to take advantage of emerging opportunities through financial innovation and globalization (Amel, Barnes, Panetta and Salleo 2004). The results caused by all these changes include the emergence of outsized, geographically and functionally diverse banking groups. This has resulted in public-policy attention, targeting the issue of the costs of the banking industry, which is dominated by large, complex institutions that are evidently too strong or too important to fail (Dale 1999).
Banking Sector structure
The structure of the United Kingdom’s banking sector is highly determined by the changing role of banks in the financial system and services industry over the years. By the end of the 1950s, about 100 banks offered information, collected to evaluate the working of the UKs monetary system. Of the total number, the 16 Scottish and London clearing banks controlled about £ 8.3 billion in the form of assets, which accounted for about 85 percent of the assets held by the UKs banking sector. The amount also accounted for about 30 percent of the GDP of the UK (Piesse, Peasnell and Ward 1995).
Chart 1: Financial intimidation during 1958 (Figures in £ billions)
Clearing banks were comparatively focused on commercial lending, deposit taking services and the provision of payment services. They were also primarily funded by customer deposits: 60 percent of the total held in current accounts, which do not offer interest. Another 35 percent came from interest-earning time deposit accounts. These deposits funded liquid and low risk assets (Piesse, Peasnell and Ward 1995). During 1960, 35 percent of the assets of the London clearing banks were held in treasury bills, cash, and discounted bills. A further 28 percent went to gilt-edged securities, while customer loans comprised about 30 percent (Buckle and Thompson 2004).
During the years between 1962 and 1979, the sterling assets of banks and building societies grew steadily, from about 50 percent of the GDP to 65 percent. This could be associated with the emergence of London as an international financial center. During the 1960s and the 1970s, foreign-owned banks started expanding their existence in the UK. By 1979, UK financial and monetary institutions owned £ 172 billion in foreign currency assets – which constituted above half of their total assets. Foreign-owned banking institutions were mainly engaged in wholesale activity, which partly mirrored the rise of the Eurocurrency market (Piesse, Peasnell and Ward 1995).
The structure of the UK banking sector was further affected by the consolidation sector between 1960 and 2010. At present, more than 3000 building societies and banks are allowed to accept deposits in the UK. The provision of retail banking services is considerably concentrated. Among the 16 clearing banks that were operational in 1960, fifteen is owned by the four major banking groups in the UK: Barclays, RBS, Lloyds Banking group and HSBC (Wolgast 2001. These banks, together with San tander and Nationwide account for about 80 percent of the total UK customer deposits and lending.
Chart 2: Lending and Deposit-taking services by clearing banks 1960 and 2010
(Percentages of total deposits and loans)
As clearing banks continued consolidation and growth over the years, they have also adopted a wider range of functions. The largest of the banks have become highly universal: their business encompasses trading, securities underwriting, derivatives trading, fund management, and general insurance. This expansion has come with a period of significant growth in the markets for derivatives and foreign exchange as well as that for securities. UK banks have established themselves as principal international players in these markets (Singh 2007). For instance, three UK banks were among the top ten globally, in a number of markets: foreign exchange trading, bond underwriting, and interest rate swaps. The shift to universal banking mirrored in the growth of non-interest income to the earnings of banks. At present, it accounts for over 60 percent of banks’ total earnings, despite being a minor component decades ago (Piesse, Peasnell and Ward 1995).
Peer rankings of UK banking groups in selected market segments 2010

International bonds
Corporate bonds
Foreign exchange
Interest rate swaps




UK bank’s sources of earnings
Collectively, the balance sheets of UK banks amount to more than 500 percent of the annual GDP of UK. Much of the growth has taken place during the past one decade. Individually, three of the largest banks own assets exceeding the annual GDP of the UK. The nature of the efficiency causing this growth was primarily driven by financial innovation, technological advances, and the globalization of markets. Also, the ability of these banks, in taking advantage of these developments has also evolved. For instance, in the past, regulatory and institutional restrictions on banks made it impossible for them to respond to economic drivers. Financial deregulation helped break these forces, as well as bringing into operation stronger competitive forces across the UK banking sector. This encouraged them to move to markets presenting higher margins (Christiansen & Baird 1998).
For this study, focus will be directed towards exploring the Barclays group, which is headquartered in London. The bank runs operations internationally, in more than 50 territories and countries across Asia, Europe, Africa, South America and North America. As of 31 December 2010, the bank held assets totaling to USD 2.33 trillion. It is the fourth largest and the 6th oldest bank in the world. The focus of the bank is split into two: retail and business banking and corporate and investment banking together with investment and wealth management (Barclays Bank PLC 2011). p and (Ferran & Goodhart 2001).
The opportunities available in the UK banking sector
The opportunities available to the banks operating within the UK banking sector of include that banks could increase their base profitability through venturing in international financial markets. This was made possible by the consolidation of the UK banking sector, which made it simpler local banks to venture beyond the local market. Another opportunity to the players within the UK banking sector is the liberalization of the banking services sector, which allows them to deliver a wider range of banking services. Particularly, in the UK, banks are allowed to offer a range of services ranging from foreign exchange trading, bond underwriting, and interest rate swaps. The incorporating of new technologies and and banking approaches in the UK banking sector has created areas of business expansion (Slattery and Nellis 2005). Examples include trading in international transfers , which are receiving most usage during the present time of international business transactions. The UK banking services market is fully developed, which offers different lines of business expansion for banking institutions within the sector (Slattery and Nellis 2005). For instance, UK banking sector consumers are high financial services performers, as compared to the banking industries of other developed nations as well as developing or underdeveloped nations.
The recent collapsed of weaker UK banks within the banking sector created space for more market share acquisition among the stable banking groups like Barclays. During the liquidation of collapsed banks also created an avenue for asset acquisition among the banks that remained stable during the economic downturn. Another opportunity for bankers within the UK banking sector is that they are allowed to impose relatively higher interest rates, which may not be available at other national banking markets.
The threats facing the UKbanking sector
The marketing strategy of the Barclays group is primarily based on implementing a product development and market penetration that captures the current account market portion of the banks that have been weakened by the economic crisis. The group’s strategy. The acquisition of the assets as well as the business of collapsed banks, which collapsed during the crisis, could prove to be a great error, despite it positive side, in the case the economic downturn prolongs. At the UK banking sector, bankers face the threat of legal suits, in the case they fall victim to the situation of moving loss-making investments related to the sub-prime market of their accounts. Due to the shift to more universal banking services delivery, there is a threat that customers may opt to move to bankers who are more specialized, despite that they are few in the UK. Anotehr UK banking sector threat facing UK bankers include that UK banks are in a less strong situation, as compared to industry leaders at their overseas operational centers.
Commonalities and differences service marketing strategies of the major players within the UK banking sector
            The commonalities of service marketing strategies existing between the major players within the UK banking sector include the adoption of a service models that focus on individual banking as opposed to corporate banking. The underlying fact in this case is that these palyers are developing services that are customer-population oriented. For this reason, the focus of many players is savings products, current and transaction accounts, small business lending, consumer lending, lareg business lending, and mortgage lending. Among the prodyucts that are not offered by many of the major players include security lending and security insurance. These major players are also similar in te area of value delivery to their employees. The services included in this case are employee development, neighborhood improvement projects and employee retention. Through these services, the major players seek to create a favorable image among the customer population, as well as offer high value services by keeping their employees motivated (Moran 1991). Among the main players, there was a commonality that all were in pursuit of setting profit levels that were not neccesarily exorbitant but those that could enable them continue service provision andproduct development. The different players also employed an integrated strategy, where market and non-market comoponents are incorporated into service and product development. In essence, these banks research both the market as well as the non-market environment for strategies (corporate social responsibility), implementation coordination and strategy formulation (Moran 1991).
Differences in service marketing strategies among major players within the UK banking sector include that the outlook of investing in international markets is not shared among all. In essence the international invetsing outlook of the different major players differ, in that some are more reserved than others. For example, Barclays and HSBC hold a fairer outlook, therefore have invested more in international diversifictaion than the other major parties (Turner 2010). This is mainly the case, when focus is placed on investing at developing countries. In the area of diversification through acquisitions, some players like Barclays were more open to acquiring collapsed industry players. That was the case, especially after the crisis, where Barclays as compared to the others was more open to acquisition negotiations. For instance, Barclays ventured in partial acquidition of Lehman’s despite fears among other major players, that in the case the crisis prolonged, the move would prove detrimental. Another foundamental difference is evident in their price setting outlook, as players like Barclays were more likely to enforce questionable interest rates as compared to the others. The focus of these other major sector players was imposing rates that will allow for service continuity. For example, Barclays faced the threat of legal suit, contesting the interest rates it had imposed.
Marketing strategy of Barclays Bank
The, also, focuses on the development of products that counter non-traditional financial institutions. An example was the group’s launch of a prepaid card service, which marked a milestone in the current account market. Like before, the group’s strategy entails trying innovative sales and marketing mechanisms at London, which it uses to stage entry into its overseas market. The group has historically identified with the use of a differentiation strategy, which allows it to capture a larger market share from industry players that are weakening.
Key strategic service marketing issues for Barclays Bank, during the next 5 years
In the area of market positioning – which entails imposing the company and its services among the customers – Barclays positions itself in differentiating ways, which enables it to remain a competitive brand within the UK banking sector. The bank has done this by ensuring that it remains a truly, globally linked bank, which incorporates its international networks in service development. In the area of market segmenting and targeting, Barclays focuses on addressing the needs of customers will similar pressing needs and wants. For instance, it recently launched the student card service, which offers value to the particular segment, and an area which has not been exhausted by its competitors (Devlin 2005). Regarding the furture of Barclay’s positioning and market segmentin, the bank will remain a competitive banker, as it launches its services and products after a duration of effectiveness testing. For example, the student card services was tested at UK alone for over six months, before it could be extended to other markets. From the banks market outlook, it has secured its future by capturing the market of collapsed competitiors like Lehman’s. By doing that, the bank exapands its customer coverage and it more market influence for future competitiveness (Devlin 2005).
Among the key strategic marketing issues of the bank is the area of researched product development. For instance, before developing the student card, the bank sought to encourage prudence in spending, by reducing levels of overspending. The bank has also capitalized on the strategic development of banking services with unique features (Fletcher 1985). An example is the case of their prepaid cards: budget manager and financial manager, which are designed to enable customers transfer their their spendable money from the bank to the card. Other banking services that will form part of the future of Barclays banking services is online banking, which allows customers the flexibility to change their standing orders as well as the amounts to be tranfered to the spending account. Based on PESTEL analysis, Barclay Banks price setting is guided by a number of factors. These factors include profit maximization, survival, market share maximization, personal objectives, and social considerations (Fletcher 1985). These factors helps the bank establish the balance between price reduction and ensuring business success, which is astrategic marketing service issue, which is likely to keep the bank ahead of its competition in the future. In ensuring that it keeps its competitiveness among customers, the bank has invested in the development of its employee-base, to ensure that they attend to customers as the bank would expect. Through these strategies, the bank will be able to reach its customers as well as address their changing, unique needs in the future.
The relationship between the service marketing issues identified and theoretical principlesof service marketing
The principle of service marketing place emphasis on the fact that services differ from other products in a number of ways (Lovelock and Wright 2001). These ways include that services are comparatively more hoterogenous and intangiable in their very nature. Therefore, due to these characteristcics, it is important for a service delivery organization to develop specific marketing and management approaches that differentiate them from competitors. Bearing in mind that the banking sector is primarily service based, the players within the UK banking sector have sought differentiation based on customer outlook (Brockman and Morgan 2003). For example, in the case of Barclays bank, the management have continually worked on the development of services that are unique from those of their competitors. An example is the case of the student card, which is designed to limit aand control the expenditure of the banks customers. Through service differentiation, it is clear that the bank will receive familiarity among its customers as well as potential customers. Therefore, the link between service marketing issues and principles of service marketing is the ability to break the homogeneity that is perceived between different services (Lovelock and Wright 2001). In the case of Barclay bank, they have been able to achieve in many cases, therefore remaining highly competitive at the UK banking sector (Christiansen and 1998).
The UK financial services industry provides three basic services including intermediation between borrowers and savers, payment services and offering insurance against risks. These service areas are very important to the effective functioning of the UK economy as they touch on various critical areas, including production. However, due to technological and regulatory changes, the structure and the nature of the systems offering them changes constantly, which forces industry players ro review market approaches. Of particular importance to the financial services industry is the UK banking sector, which has changed in structure, market coverage and its contribution to UK’s GDP.
The structure of the sector has changed due to technological and regulatory changes, resulting in opportunities and threats among the sector players. The opportunities include the expansion of service sinto the international market, and the collapse of market players, which created further market. The threats facing the sector include the adverse nature of acquisitions during financial crises and the threat of customer preference for institutions more specialized in their service delivery. The commonalities existing among major industry players in the areas of service marketing include the imposition of rates that can sustain continuation of service delivery. Among the differences in service marketing strategies evident among major sector players are that some place focus on developing services with the customer in mind. The marketings strategy of Barclays relies on market positioning and differentiation, to ensure that they keep a major portion of the UK banking services market. The relationship between service marketing issues and the theoretical principles of service marketing is that – service institutions should ensure that they differentiate their services, so as to overcome the hurdle of service homogeneity.

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