Santander 1|2|3 Current Account CCS 006 – Certified Case Study October 2015.

Santander 1|2|3 Current Account CCS 006 – Certified Case Study October 2015

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 2 Confidentiality Our clients’ industries are extremely competitive. The confidentiality of companies’ plans and data is obviously critical. ICG will protect the confidentiality of all such client information. Similarly, management consulting is a competitive business. We view our approaches and insights as proprietary and therefore look to our clients to protect ICG’s interests in our proposals, presentations, methodologies and analytical techniques. Under no circumstances should this material be shared with any third party without the explicit written permission of ICG. Disclaimer ICG has made good faith efforts to ensure that this material is a high-quality publication. However, ICG does not warrant completeness or accuracy, and does not warrant that use of the material ICG’s provisioning service will be uninterrupted or error-free, or that the results obtained will be useful or will satisfy the user's requirements. ICG does not endorse the reputations or opinions of any third party source represented in this material. Every effort has been made to ensure information in this case study is as accurate as possible. If anyone is able to improve it in any way please contact the Author of this CCS (Giorgio Baracchi) and provide your suggestions : giorgio.baracchi@internalconsulting.com Copyright Notice While third party materials have been referenced and analysed in this material, the content represents the original work of ICG's personnel. This work is subject to copyright. ICG is the legal copyright holder. No person may reproduce this material without the explicit written permission of ICG. Use of the copyright material in any other form, and in any medium whatsoever, requires the prior agreement in writing of the copyright holder. The user is allowed ‘fair use’ of Certification ICG works for many clients around the world. ICG certifies that its review of this Case Study confirms that it contains only material that has been sourced through public sources and mystery shopping. The author(s) have similarly certified to ICG that this is the case. If anyone can identify any information that is in this CCS, that does not satisfy this test, please contact ICG immediately.

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account Agenda 3 SectionComponentDescription 1Overview Santander 1|2|3 - What is it? Why Santander 1|2|3 is an ICG Certified Case Study 2Context Santander 1|2|3 business model Relevant regulation Global market (peers and substitutes) 3Detailed Description Santander 1|2|3 value proposition 4Relevant Media Media coverage and relevant quotes Case studies and detailed interviews 5 Marketing Collateral and Brochure ware Marketing Campaign Collaterals Videos Social Media 6Appendix Other ICG source of insights

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 4 KEY FEATURESWHAT IS IT Source: Santander Website, Santander 2014 Annual Report, ICG Santander 1|2|3 Current Account: What is it? The current account that pays the customer cashback on the household bills and interest on the balance, for a £2 monthly account fee. From 11 January 2016 this will change to £5 per month for both existing and new customers Launched on March 5 2012, 1|2|3 has been taken up by 3,6 million customers (out of 9 million current accounts, 5 th largest in the UK) The current account was built on the success of the 1|2|3 credit card that was launched in 2011. Since September 2013 (Current Account Switch Scheme launch), one-in-four customers who switched current account provider in the UK moved to Santander 1|2|3, gaining more than any other UK bank. Monthly cashback on selected household bills. Monthly interest of 3% AER (variable) payable on the entire balance up to £20,000, when the customer has at least £3,000 in the account. Access to 1|2|3 World offers, including preferential rates and special deals on other Santander products. To get cashback on the household bills and interest on the balance, the customer has to: Fund the account with £500 a month (excludes internal transfers). A minimum balance of £1,000 is needed to receive interest. Have at least 2 active Direct Debits. The monthly cashback on selected household bills is given when they are paid by Direct Debit

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 6 RETAIL BANKING REVIEWS (2000-2013) Source: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/470032/Banking_summary_of_PFs.pdf ; http://www.bacs.co.uk/bacs/corporate/resources/pages/factsandfigures.aspx ; http://www.gocompare.com/money/midata/#current-accountshttps://www.gov.uk/government/uploads/system/uploads/attachment_data/file/470032/Banking_summary_of_PFs.pdfhttp://www.bacs.co.uk/bacs/corporate/resources/pages/factsandfigures.aspx Regulation has forced banks to increase easiness to switch… The UK banking industry has been subject to many reviews that raised concerns regarding competition in retail banking. Sir Donald Cruickshank’s review of retail banking (2000) Office of Fair Trading and Competition Commission (2002 and 2007 reviews) The Independent Commission on Banking (ICB) chaired by Sir John Vickers (2011) which made wide-ranging recommendations including the introduction of a switching service (the seven- day Current Account Switch Service (CASS) was launched in 2013) The Parliamentary Commission on Banking Standards (2013) recommended a review of account number portability and a voluntary code to provide free basic bank accounts (BBAs) and free use of automated teller machine (ATMs). CURRENT ACCOUNT SWITCH SERVICE (CASS) Launched in September 2013, CASS is a free-to-use service for consumers, small charities, small businesses and small trusts that makes switching current accounts simple, reliable and hassle-free. Only just over 2 million customers switched their current accounts since 2013 Launched in 2011, the Midata initiative provides a means for consumers to gain this information by downloading their usage history in a file from their bank’s website. Its current application is not fully effective and its usage remains very low. Gocompare.com has been launched in March 2015 to compare checking accounts MIDATA (2011) AND GOCOMPARE (2015)

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 7 Source: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/470032/Banking_summary_of_PFs.pdfhttps://www.gov.uk/government/uploads/system/uploads/attachment_data/file/470032/Banking_summary_of_PFs.pdf …but preliminary findings from the CMA review (October 2015) points suggest that, still, too few customers are switching 1.Low level of engagement, with 57% of the respondents being with the current account provider for more than 10 years. Further, 79% of customers had neither searched nor switched in the last year. 2.A lack of trigger points because PCAs have no contract end date, which means that customers are not required periodically to consider if their current account is best for them. 3.High levels of stated customer satisfaction with their existing account despite differences in the prices and quality of service offered by different banks. 4.Low level of perceived gains from switching, despite substantial potential gains especially for overdraft users. 5.There are barriers to accessing and assessing information on current account charges and service quality despite the Midata initiative 6.Consumers still perceive significant barriers to switching account despite the introduction of CASS.

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 9 Source: Investor Day presentation, 2015 Thanks to the 1|2|3 offering, Santander has gone from a Challenger to a serious players with 9mil current accounts, 5 th largest in the UK

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 10 KEY FEATURES IMITATORS Source: secondary data, ICG analysis. 1|2|3 has been so successful that similar concepts have emerged since its launch On April 202015, Barclays launched the Barclays Blue Rewards program. For a fee of £3 per month, customers will receive fixed cash rewards, regardless of how big their credit balance or monthly income is. Customers can earn up to £15 cash rewards each month (£180 per year) and receive even more with cashback through SmartSpend partners such as Expedia and Boots. With Barclays Blue Rewards, customers collect their cash rewards into a separate digital Rewards Wallet. On 4 September 2015, TSB launched 555, a new offer giving its Classic Plus current account holders cashback on contactless debit card payments and a high rate of in-credit interest. Five per cent interest on the Classic Plus account on balances up to £2,000 and unlike other banks TSB won't whip the five per cent interest away after the first year. Five per cent cash back on the first £100 of contactless debit card payments made from a Classic Plus account each month. Five per cent interest on the TSB Monthly Saver account Halifax offers up to £160 in the 1st year of switching to the Reward Current Account made up of: £100 for switching and, 12 monthly rewards of £5 as long as each month the customer pays in a minimum of £750, pay out at least 2 different direct debits and stay in credit. Plus up to £60 each subsequent year. On October 12 215, NatWest/RBS launched the Reward account, which carries a fee of £3 a month, will offer customers 3% cashback on seven types of household bill – council tax, gas, electricity, water, phones, TV and broadband – with no limit to the amount that can be earned.

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 12 SANTANDER WEBSITEWHAT IS IT Source: Santander website, Santander 1|2|3 Current Account is one of the offering of the 1|2|3 World The 1|2|3 World provides benefits to several customers segments, including students 1|2|3 offers both current accounts and Credit Cards

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 14 LOYAL AND SATISFIED RETAIL CUSTOMERSKEY POINTS Source: Annual Report, ICG 1|2|3 World customers are key to Santander’s strategy KPIs were set in 2012 and aligned to Santander strategic priorities The customer base grew further, supported by the continued success of the 1I2I3 Current Account. Total deposits held by primary banking customers increased 34%, to £70.3bn at 31 December 2014, enabling us to manage a reduction in higher cost, less loyal customer deposits. Made a significant improvement in retail customer satisfaction, which was one of the most challenging areas for Santander. The gap between Santander UK and the average of the three highest performing peers reduced to 0.7 percentage points in December 2014 from 3.8 percentage points a year ago. Santander has the most improved bank for customer satisfaction since December 2012.

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 16 INTERESTS CASHBACK Source: http://www.santander.co.uk/uk/current-accounts/123-current-accounthttp://www.santander.co.uk/uk/current-accounts/123-current-account Cashback and Interest offers Payable on your entire balance up to £20,000, when you have at least £1,000 in your account.

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 17 HOW IT WORKS Source: http://www.santander.co.uk/uk/current-accounts/123-current-accounthttp://www.santander.co.uk/uk/current-accounts/123-current-account How it works and what you get A £2 account fee will be taken from your account each month. From 11 January 2016 this will change to £5 per month. Fund the account with at least £500 per month - transfers between Santander personal accounts won't count towards this Have at least 2 active Direct Debits - you'll receive cashback on any qualifying household bills you pay by Direct Debit When you fulfil these conditions - and have the minimum £1,000 balance required to start earning interest - we'll automatically work out how much cashback and interest you've earned and pay it into your account each month. If you'd like to switch to us from another bank or building society we'll move all your Direct Debits, standing orders and your salary. We'll close your old current account and make sure any payments to and from your old account are redirected to your 1|2|3 Current Account for 36 months. WHAT YOU GET What you can get Visa debit card - a quick and secure method of buying goods and services at home and abroad Contactless payments with an iPhone 6 (or later) or Apple Watch by linking your card to your device and using Apple Pay. Arranged Overdraft - usage fees apply Chequebook Visa debit card and Arranged Overdraft are subject to status

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 18 Source: http://www.santander.co.uk/uk/current-accounts/123-current-accounthttp://www.santander.co.uk/uk/current-accounts/123-current-account Examples of suppliers eligible for cashback

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 19 Source: https://www.wearesantander.co.uk/documents/16600/7215102/Employee+Handbook The Santander Way puts the customer first

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 20 Source: http://www.publications.parliament.uk/pa/jt201314/jtselect/jtpcbs/27/27ix_we_j06.htm Sandander’s sales incentive scheme is focused on customer relationship and linked to value created to customers (in terms of cash back and interests) and branch rather than individual performance Santander thought that previous reward schemes were overly focused on sales at the expense of a more diverse set of objectives such as customer satisfaction, customer retention, service quality and risk (pre 2009). From 2009, Santander refocused their approach to incentives so that their aspiration to put their customers first in everything that they do is clearly embedded in the incentive schemes. The scheme was changed so that the reward for providing excellent customer service became independent of sales reward. In particular, no individual can achieve any level of reward unless they and their branch team meet certain minimum customer outcome standards. Effectively, we have a “gateway”. They review those standards on a quarterly basis and seek to raise them over time, so the bar becomes ever higher. A pilot scheme in 2013 introduced a “value” element to the scheme. For this part of the scheme Santander will be directly rewarding the branch staff in relation to the amount of true value (cashback and interest) that they create for their customers. Hence there will be greater alignment of the benefits that staff create for customers with the benefits that colleagues can obtain. The scheme for Q1 2013 was therefore designed to continue to encourage branch staff to focus on building relationships with customers to find the right products to suit their needs and offer them value in their lives. SUMMARY OF KEY POINTS

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 21 Source: http://www.publications.parliament.uk/pa/jt201314/jtselect/jtpcbs/27/27ix_we_j06.htm Core business reward scheme key principles (2012, Santander discussing changes since 2009) 1.No individual can achieve any level of reward unless they and their branch team meet certain minimum customer outcome standards. Effectively, we have a “gateway”. We review those standards on a quarterly basis and will seek to raise them over time, so the bar becomes ever higher as we evolve as a bank. 2.Once through the “gateway”, any sales are assessed for customer outcomes; for example, did the customer use the product in the way intended, and where we find evidence that that is not the case, the sale does not count towards a reward. Any trends are investigated, and employees disciplined if appropriate. 3.There is an independent and separate customer reward, based on a range of customer outcomes. Satisfaction is an element of this, but we recognise that customer outcomes are more important than pure satisfaction and therefore there are a range of customer outcome metrics. 4.Customer retention is as, or more, important than sales. Over the past few years, the sales elements of our schemes have fallen to now represent around a third of the overall incentive scheme. We believe that our customers demonstrate their confidence in our people, processes and products with their loyalty in continuing to bank with us, and we also believe that it is key to treat existing customers and new customers similarly. 5.Branches and branch managers are ultimately responsible for our customers, but our customers are encouraged and enabled to bank with us through all channels. Therefore our incentive schemes are based around the customers allocated to a specific branch and our colleagues are rewarded no matter where those customers transact with us. That way, we seek to eliminate any behaviours that would prevent our customers using the channels or branches with which they feel most comfortable. 6.Our Regional Managers to whom our branch managers report are now on a discretionary scheme that reviews their performance across customer outcomes, operational risk, commercial performance, colleague engagement, and other management metrics. This seeks to ensure our people are focused on a broad set of objectives and are not incentivised to take “short cuts” in pursuit of sales.

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 22 Source: http://www.publications.parliament.uk/pa/jt201314/jtselect/jtpcbs/27/27ix_we_j06.htm Core business reward scheme pilot test (2013) A new pilot was run in around 100 branches from January 2013. The pilot programme looks at performance and customer outcomes for the branch team as a whole. (Text sourced from the link below) 1.We will continue to apply a “customer gateway” to the scheme. If an employee does not meet minimum standards for customer satisfaction, operational risk, advice quality and complaints handling they get no discretionary incentive payment, irrespective of their performance across other metrics such as sales. 2.Importantly, we will be introducing a “value” element to the scheme. For this part of the scheme we will be directly rewarding our branch staff in relation to the amount of true value (cashback and interest) that they create for their customers. Hence we will seek to align the benefits that we create for customers with the benefits that colleagues can obtain. 3.There will be no “step up” in reward at 100% achievement of target; rather we will be releasing reward on a linear basis. 4.An earnings cap will be introduced for all roles to ensure variable pay as a percentage of total pay can be controlled more closely.

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 23 Source: http://www.consumersinternational.org/media/1529404/sales-incentive-report_riskybusiness_final2_151014.pdfhttp://www.consumersinternational.org/media/1529404/sales-incentive-report_riskybusiness_final2_151014.pdf Frontline bank staff at Santander portrays a better sale culture than in other major banks (small sample)

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 25 Relevant media The 123 account, which was launched three years ago, has been the most popular deal for people moving their current account, attracting hundreds of thousands of customers through the industry switching service. Rival bank Lloyds estimates that Santander now has 20% of the current account market by value. – The Guardian, Hilary Osborne, 14 September 2015 Nicolas Frankcom at uSwitch.com says: “An almost threefold increase in fees is a huge kick in the teeth for Santander 123 customers. Many will feel cheated by the bank moving the goalposts, and those drawn in by tempting cashback offers will have to spend more on household bills to break even.” – London Evening Standard, 22 September 2015 AT THE ANNOUNCEMENT OF FEE INCREASES (SEPTEMBER 2015) AT THE LAUNCH (MARCH 2012) Kevin Mountford of MoneySupermarket.com said the account aims to provide a consistent deal with no introductory incentives, and this innovation in the market is a very good thing. What's the catch? Account holders pay a £2 monthly fee. Customers must also have at least two direct debits paid from their account and credit a minimum of £500 a month. - Financial Times, Elanie Moore, 3 March 2012 The bank has launched a new set of rewards for existing customers who recommend friends to open a Santander 123 Current Account, or 123 Credit Card. If the referral is converted into a new current account, the bank will pay the referrer a GBP20 Amazon voucher. Customers can recommend up to five friends to receive up to a total of GBP100 in Amazon vouchers. - Global Banking News, 9 November 2012

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 26 Source: http://www.employeebenefits.co.uk/resource-centre/case-studies/santander-reshapes-reward-in-quest-to-be-the-best/100385.article http://www.employeebenefits.co.uk/resource-centre/case-studies/santander-reshapes-reward-in-quest-to-be-the-best/100385.article The press is positive in regards to Sandander’s changes to rewards and culture (2012) Regarding the key changes: “One, which will bring a fundamental cultural change for both employees and managers, is a greatly simplified pay framework and job families structure. The bank’s acquisitions had seen it accumulate 45 different job families and 1,200 pay ranges. Not surprisingly, it was keen to simplify these into a much clearer structure comprising just 12 job families.” “Under the new framework, managers have a bigger role to play in identifying where employees under their remit fit in terms of job role and pay levels.” “The portal will include all elements of the company’s HR, from career development and performance management to reward, benefits, and employee health and wellbeing. It is branded in line with its global employer brand, Santander Is You, and content is divided across four sections: Welcoming You, Developing You, Supporting You and Rewarding You.” THE REWARD STRATEGY AND NEW PORTAL

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 28 Source: Facebook Facebook campaigns (2012)

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 29 Source: https://www.youtube.com/watch?v=Cogy_WDjtwkhttps://www.youtube.com/watch?v=Cogy_WDjtwk Youtube video (2012)

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 30 Source: Facebook Facebook campaigns (1/2)

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 31 Source: Facebook Facebook campaigns (2/2)

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 33 Source: http://www.santander-products.co.uk/banking/calculator/123ca.htmlhttp://www.santander-products.co.uk/banking/calculator/123ca.html Cashback and Interest calculator

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 34 Source: http://www.santander-products.co.uk/banking/calculator/cashbacksearch.htmlhttp://www.santander-products.co.uk/banking/calculator/cashbacksearch.html Supplier search engine

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 38 Source: http://www.santander.co.uk/uk/123-customershttp://www.santander.co.uk/uk/123-customers Two ways to earn cashback

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 39 Source: http://www.inajiffyuk.com/products/oystercard-wallet-santander-123http://www.inajiffyuk.com/products/oystercard-wallet-santander-123 Oystercard wallet

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 40 Source: Moneysupermarket website Comparison search engine (1/2) MONEYSUPERMARKET WEBSITE

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 41 Source: http://www.santander-products.co.uk/banking/calculator/123ca.htmlhttp://www.santander-products.co.uk/banking/calculator/123ca.html Comparison search engine (1/2) COMPARETHEMARKET WEBSITE

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 42 Source: https://youtu.be/qDQ4IfI5ELo ; http://www.moneysupermarket.com/c/news/santander-123-customer-you-could-soon-be-paying-more/00171028/https://youtu.be/qDQ4IfI5ELo Moneysupermarket questions whether 1|2|3 is still the right choice after the new fee increases

COMMERCIAL IN CONFIDENCE | © Internal Consulting Group 2015 CCS 006 – Santander 1|2|3 Current Account 44 ICG IP products cover a range of depth and frequency ICG IP PRODUCT TAXONOMY KAR – Knowledge Area Review Synthesised and structured publically available knowledge from across the global on your chosen topic. TIR – The Insight Review Cost: USD$100/PAX/ year The Insights Review presents timely editorial commentary on the most relevant “open published” perspectives and research reports from the world’s leading branded management consulting firms. CCS – Certified Case Study Best publically available information supplemented where possible with mystery shopping Global Local Scope Publication Frequency Upon Request or purchased from our catalogue Monthly Syndicated globally or locally–Specific Sector GIR – Global Industry Radar Global scan of relevant market evolution, trends, and important innovations and impactful case studies LIR –Local Industry Radar Local comprehensive and expert analysis of a chosen industry sector

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Santander 1|2|3 Current Account CCS 006 – Certified Case Study October 2015.

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Santander 1|2|3 Current Account CCS 006 – Certified Case Study October 2015.

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