Evaluation of Banking Services for International Students

ABSTRACT

The main aim of the study was to evaluate the major banking institutes in Newcastle and distinguish the services and account types offered to international students. For the study, four banks were selected among which three were United Kingdom based and one was an international bank. The banks included in the study were HSBC, Lloyd’s TSB, Barclays and National Westminster (NatWest). By using two questionnaires; one from the international students and other from the bank personnel, the present study assessed the important factors that were considered significant in selecting the bank and the importance of students as customers for the banks. The results suggested that there was little different in the basic facilities offered by the four banks, but Lloyds TSB was the most popular among the international students due to its variety of student accounts. In conclusion, the research offered an insight into the management and the marketing strategies that banks can make use of to attract international students as potential customers.

CHAPTER 1

INTRODUCTION

The aim of the present study was to evaluate the major banking institutes in Newcastle and distinguish the services and account types offered to international students. For the study, four banks were selected among which three were United Kingdom based and one was an international bank. These banks were:

HSBC

Lloyd’s TSB

Barclays

National Westminster (NatWest)

The researcher compared the services, interest rate, few charges and the ease of accessibility of these banks to the international students with they region they resided and attended their respective colleges or universities.

The topic of the present research was selected by the researcher because the issue of how international students select their banks in Newcastle has been given considerable attention by researchers. The reason for this is that most international students who come to Newcastle are without local bank accounts and in the long run most students need such a facility to work on completing transactions such fees payments, living expense, accommodation and fulfillment of other financial needs. Investigating such information would assist banks to recognize the suitable management and marketing strategies required to attract new students as customers and keep hold of existing ones (Kaynak & Kucukemiroglu, 1992). The relevant literature indicates that a great deal of research effort has been put into investigating the bank selection decisive factor for international students in the United Kingdom.

Researches on bank management and marketing are not a new phenomenon. In fact, a lot has been written on the subject of bank management and marketing with the bulk of the literature relating to banking behavior of general customers. A broad range of marketing paradigms related to customers has been examined, including market segmentation, attitudes, purpose, inclinations, bank loyalty, bank selection choices, bank representation, bank service value, contentment and multiple bank users (Garland 2002). One marketing concept related to customers that has fascinated abundance of researches has been the thought process of customers or the grounds on the basis of which customers decide to interact with particular banks (Anderson, Cox & Fulcher, 1976; Evans, 1979; Kaynak, 1986; Boyd, Leonard & White, 1994). A thorough examination of the present literature ascertains the generalization related to the thought process of retail customers. The population of interest in the vast bulk of such customer researches has been the general customer. Only a few of researches have intended for younger age groups such as the undergraduate section of the market though over past few years, the bank management have started to take vast interest in this section of the population (Mokhlis, Nik Mat & Salleh 2008).

Even though greater parts of undergraduate students are unemployed and their earning comes largely from educational loans, they offer an exceptional business opportunity for banks. First, in regards to their buying power, the student segment is growing and has turned lucrative (Ayadi 1996). With the development of educational services in United Kingdom, the amount of international students in further and higher education has been increasing rapidly over the years.

Secondly, students are expected to require a bank account to settle their tuition fee or parental funding and might be taking care of their personal financial matters for the first time (Kaynak & Whiteley 1999). Those students who do not yet hold bank accounts would be required to open one as they begin college because all transactions are done through the students’ bank accounts. Regardless of their comparatively basic banking requirements, students are considered an important segment in the market at the level in the buying cycle where they might be more receptive to marketing strategies from financial institutions (Thwaites & Vere, 1995).

Another important feature of the student market is the possibility for above-average profitability. Lewis (1982) suggested that banks understood that ‘it is important to attract students to open accounts when they begin college, in the expectation that they would stay with the after graduation, and be lucrative, in the long run, for the bank.’ The fundamental reason for this observation is that college student is the section of the population who has the likelihood of earning a larger income than any other section of the population. As stated by Duncan, Smeeding & Rodgers (1992), only individuals who are studying have a considerably greater probability of rising from the low income strata into the middle class. Specially, as contrasted with non-graduates of similar age group, graduates usually secure more highly paid jobs, achieve a more developing career and thus, grow a need for a greater variety of personal financial services as they go by their own life cycle. The skill to build up an existence in the student market through suitable attainment and maintenance strategies is thus expected to have an effect on banks’ future market share and revenue (Thwaites & Vere, 1995).

International students signify as a significant market for financial institutions such as banks. The skill to value, comprehend and deal with the precise needs of this segment section of the population is now a vital market reality (Cicic, Brkic, & Agic, n.d). Bankers can no longer maintain their conventional belief that only business and salary earning customers will bring revenue to the bank. They must understand that student customers are also possibly lucrative market section and prospect market earnings will be attained by banks only if they target this up-and-coming section and win them (Grady & Spencer 1990). Banks that would get hold of student segment must know the significant factors that decide the basis upon which students choose between financial institutions (Kaynak & Yavas 1985). Bank marketers must be capable of discerning what is central to student customers in the market and how their force compares with those of their competitors (Cicic, Brkic, & Agic, n.d).

United Kingdom has an extensive history of inviting international students to educate themselves in its colleges and universities. According to UCAS (2009), “In the UK in 2009 there were 1.8 million full-time undergraduate students in higher education, which included over 104,000 international students.â€? The rapid growth in the amount of international students in the past few years has become a significant supply of export revenues, and it surely has the ability for further rapid growth. It had been recommended that provided with the right support, the amount of international students studying in UK universities could more than double in the next few years (Higher education’s importance goes well beyond teaching 2009).

There are numerous factors involved in offering of student accounts in nearly all financial institutions. It might be due to growing the customer base or acquiring the new customers in the budding stage. In the contest to get hold of more and more customers and attract the younger generation, the financial institutions are offering various types of products and services.

International students studying in the United Kingdom need to look after numerous things once they have arrived at their respective colleges and universities. These include accommodation, health, money matters, registration, etc. But the first and the foremost duty of a student on arriving in United Kingdom is to open his or her account in order to carry out the required financial transactions. Even though, the student cannot open a bank account until he or she has arrived and enrolled at the college or the university, but Barclays now offers a bank account that can be opened before arriving in United Kingdom (International Student Handbook 2009).

In order to open a bank account, an international student needs to first decide on the bank and the account that he or she requires. Some banks offer first-time students a Student Account with special advantages. However, each bank offers different facilities, and the student would need to compare and decide which one will be best for him or her (International student: banking Information 2009). Once the bank has been chosen, the student needs to take his or her passport along with his or her student visa to the chosen bank. If the student belongs to EU, then he or she is also required to take the national photo identity card as well (Opening a UK bank account 2003). Furthermore, the banks also require a letter or certificate from the university confirming the student’s United Kingdom study details. Moreover, in order to open an online or a telephone account, the bank may require more proof of the student’s identity (You can bank on it: opening a bank account in the UK 2004). The reason for banks requiring proof of ID is because the law of UK states that all financial services companies must do everything they can to ensure their services are not being used for financial crime. Because of this, banks must avoid accounts from being opened under fake identities. They must ask each and every individual who wants to open or operate a bank account for documents to prove their identity (International student opening a UK bank account, n.d)

As Newcastle has gained the one of the top most position in the United Kingdom for further education, therefore the need for the student to open bank accounts to carry out their financial transactions has risen as well. This is because most international students who come to Newcastle are without local bank accounts and in the long run most students need such a facility to work on completing transactions such fees payments, living expense, accommodation and fulfillment of other financial needs. Thus, the banks have recognized the significance of international students as potential customer and it is due to this fact, the banks in Newcastle are aiming to improve their clientele by attracting students to open bank accounts in their respective bank through different marketing strategies and incentives. As a result, numerous bank representatives are seen roaming around in the first week of the academic year in various universities and colleges marketing their benefits to the potential customers. These bank representatives provide students with information regarding various services and benefits that are offered at their respective banks. They would also provide information regarding the different accounts that can be opened at the banks. The most common type of accounts are:

Deposit account or ‘basic account’

Current account

Student account

The banks also offer a number of facilities to their customer to make their financial transaction more convenient and easier. These facilities include:

Cash withdrawals available at Post Office

Debit Card

ATM

ATM Card

Direct Debit

Online Banking

Telephone Banking

1.1 Research Aims

The basic aim of the research was to:

Find the cheapest bank account students can open.

Compare HSBC, Lloyd’s Plc, Barclays and NatWest in Newcastle for their international student services.

Availability of banks/ATM’s within the student area of Newcastle.

1.2 Research Objectives

The objectives of the present research were to:

Evaluate the best account type to open for international students.

Investigate the majority of bank accounts used by international students.

Investigate the reason for international students choosing a certain bank to open their bank accounts.

Study the geographic locations and ease of access to the banks within the region designated to students and their life styles.

Study the 4P’s (Product, Price, Promotion, Place) of the banks.

Investigate the importance of students as potential customers for the banks.

Find out the marketing and management strategies employed by the four banks.

CHAPTER 2

LITERATURE REVIEW

The banks in today’s world are trying to attract students to open their accounts at their banks. The reason for this is that the banks think about it in the long term point of view. To them a student is not a student: a student is an individual who would have a career some day and this particular individual would be a loyal customer, would pay back his or her overdraft (sometimes with charges), need a loan or a mortgage and so on. Therefore, the perception of the student account summed up by the banks, is to facilitate the banking needs of the students who are working towards undergraduates. The basic banking needs that would help students fulfill their financial needs vary from bank to bank as different banks offer different products and services, such as cards, deposit slips and cheques, to its student customer.

A small number of researches regarding the subject of bank selection decisive factor of international students in the UK have taken place over the years. Gray (1977) examined student behavior regarding bank services in the UK. He suggested that convenience was the most vital factor affecting the students’ choice of bank.

Another research by Lewis (1982) analyzed the banking behavior in students studying in the UK. A total sample of 716 students in 11 universities and colleges in the Greater Manchester area were inspected for the research. From findings of the study, it was discovered that 92 per cent of students thought they would remain with their current bank until their course finished while 44 per cent considered carrying on with the same bank. Moreover, it was discovered that convenience of site of the bank and its facilities to college was the main factors influencing on students’ choice of bank.

A study by Thwaites and Vere (1995), also taken place in UK, illustrated that nearness of an ATM to the educational institution, free banking service and student offers were the main three reasons used by students in choosing the banks to deal with.

The present study was focused on researching the main facilities provided by HSBC, Lloyd’s plc, Barclays and NatWest in their “student account”. Furthermore, the researcher also studied the extra facilities provided by each of the bank in the ‘student account’. The study helped the researcher get a general overview of the banking facilities provided to international student that were offered by HSBC, Lloyd’s plc, Barclays and NatWest. Thus, the researcher was able to move forward and decide upon the most feasible and the optimum choice of international students regarding the bank and the bank account.

The review of the literature was mainly focused upon the products and services offered by the four banks – HSBC, Lloyd’s plc, Barclays and NatWest to international students. Furthermore, the extra facilities that differentiated one bank from the other were also thoroughly studied in the literature review.

National Westminster Bank Plc or generally known as NatWest is a part Europe’s second largest bank, the Royal Bank of Scotland Group. In order to make the students’ financial transactions convenient and easier, NatWest has fifty five branches in the country’s largest universities. Moreover, NatWest also has 1650 branches that are more than any of the commercial banks in the country. To benefit the students who come to study in the United Kingdom from overseas, NatWest has offered a Blue International Account that charges a fee of 6.95 pounds monthly. This account facilitates international students by offering them an International Student Identity Card (ISIC) which enables the full time students more than 40,000 travel, online and lifestyle discounts within the region and abroad. Furthermore, the Blue International Account provides with a useful guide that contains information on banking in the UK and advice on how to manage finances as a student. The guide is available in 5 different languages. NatWest has also made transfer of funds for students easier as now they can easily receive money from their home country and pay their bill online. Moreover, the bank also offers both online and telephone banking to international students to keep a check of their finances during any part of the day. NatWest also offers the students mobile phone top-up facility along with mobile phone banking and text alerts regarding the finances. Another significant aspect of Blue International Account is insurance which allows students to insure mobile phone and other gadgets. Also, the bank offers the students an Orange SIM card for the mobile that dials to more than 50 countries for 5p per minute. NatWest also provides it student customers with discounts like saving 1/3 on rail fares if the student’s age ranges between 16 and 25 all the way through Great Britain for a whole year. Also, if the tickets are booked through the NatWest Box Office, then students receive a 25% discount on tickets to the plays, concerts and other events (Advantage Blue International: student option 2010).

The world’s ‘local bank’, HSBC’s international network comprises of over 9800 offices in 77 countries along with 59,000 Link ATMs in the United Kingdom (HSBC Passport 2010). The bank offers a dedicated package known as the Passport Account for international students with 24 hours access to their money but with no credit or draft facilities. Students holding a passport account at HSBC are charged 6 pounds a month for a period of 12 months after which renewal of the account is mandatory (HSBC Passport 2010). The bank further provides passport holders with a Western Union Gold Card on which the students can earn points and make saving on transaction fees when sending money bank home. Also students can receive a discount of 4 pounds on international money transfer fee. The Passport Account at HSBC also offers its students’ customers with both internet and telephone banking. Moreover, the bank provides the students with Maestro Debit card and Direct Debit or standing orders and access to saving accounts with high interest (Comparison of banking facilities offered in Oxford by the major banks 2009). There is a special UK relocation service offered by the bank with relocation advice in eight different languages. The students can also receive a UK SIM card with 10 pounds of free credit along with low cost international calls. International students can also open a Basic Account at HSBC which is easy to comprehend and administer. The benefits of opening a Basic Account are that firstly, students can check balances, get statements and make withdrawals of up to 200 pounds with their basic bank account card at HSBC bank cash machines in UK. Secondly, students can also access up to 200 pounds per day over Post Office counters with basic bank account card and PIN numbers. Regular bills can be paid; standing orders and direct debits can be set up on the account. Also students can enjoy free internet and telephone banking (HSBC Passport 2010).

The Lloyds TSB Group is a renowned UK-based financial service organization that offers complete banking and financial services in both United Kingdom and abroad. There are thirteen branches of Lloyds within the designated area for international students within Newcastle (Student Account 2010). There is a variety of Lloyds TSB student accounts to select from, depending on the requirements and situations. It has the most number of accounts available to offer to international students for free and minimum of 7.95 pounds monthly is charged for silver account and accounts such as gold have a higher fee rate with more facilities (Student Account 2010). The Lloyds Student Account has been presented with 5 Star Rating by Defaqto for its outstanding variety of attributes and advantages. There are three types of student accounts that students can choose from at Lloyds (Student Account 2010). Firstly, the Student Account offers a Debit Card and a Master Card. Also it provides with a free NUS Extra card and a year’s free mobile phone insurance. The students can receive up to 75 pounds cashback and free music downloads while using the Lloyds Student Bank Account. The facilities of internet banking, phone bank and free text alerts is also offered along with the benefit of saving the change in which surplus cash is moved into a savings account each month (Comparison of banking facilities offered in Oxford by the major banks 2009). Another type of student account offered is the Islamic Student Account which carries the same benefits as the Student Account but with the guarantee that the money will be held in reserve in accordance with Shariah (Islamic Law). Moreover, the student is given the option to utilize other non-Shariah benefits if they wish. The third type of bank account offered to students is the Graduate Account which receives a Classic credit card with at least £500 credit limit. The facility of internet banking is also provided and commission-free travel money is given as well (Student Account 2010).

Barclays is one of the world’s top most banks. Their status has been created on over 300 years of services. Barclays is an international bank with its branches in more than 60 countries. Barclays offers an International Student Account known as the iBank Student that can be opened before arriving in United Kingdom (iBank Student and foreign student bank accounts with Barclays Wealth International 2010). iBank Student is offered for a small monthly charge of £5 and a opening balance of £1,000. The iBank Student account is an international account also available in sterling, US dollar and euro. The VISA debit card can be connected in sterling and is accepted in 22 million locations around the world (iBank Student and foreign student bank accounts with Barclays Wealth International 2010). Students can also receive discounts up to 25% on Hewlett Packard laptops, desktops and accessories. The account offers easy access and a savings account in which funds can be deposited and withdrawn whenever the customer wishes. The savings account can also be opened to earn higher interest by the student (Comparison of banking facilities offered in Oxford by the major banks 2009). The student can also gain access to complete collection of savings and investments or balances of £10,000 or more. International telephone and online banking is available 24 hours to operate money in diverse currencies and time zones. The bank also offers expert advice from our mortgage advisers to help the student or his or her parents to buy property in UK (iBank Student and foreign student bank accounts with Barclays Wealth International 2010).

The literature review on the different services offered by HSBC, Lloyd’s TSB, Barclays and NatWest indicated that all of the banks provide students with the basic services that are required to fulfill the financial transactions, however, the Student Account product is structured in various ways, in accordance with the style, strategy and control affairs of each bank.

CHAPTER 3

METHODOLOGY

3.1 Sample

The present study was an investigation into student banking arrangements at four major banks- HSBC, Lloyd’s plc, Barclays and NatWest- in the Newcastle area, and recommendations as to which provided the best services to international students. A sample of 100 subjects, including both males and females, ranging from the ages of 18 to 28 years, was drawn from different areas in Newcastle, United Kingdom. All the subjects were international students belonging to Newcastle university dormitories, Northumbria dormitories and Newcastle college campus in Newcastle. Another sample of 40 subjects, both males and females, was drawn from bank personnel of HSBC, Lloyd’s plc, Barclays and NatWest. 10 employees from each bank were drawn as a sample. Further information from both international students and bank personnel was gathered regarding age, gender, education, accommodation, etc.

3.2 Sampling Strategy

The sampling strategy employed in the research was Stratified Random Sampling. Stratified Random Sampling also referred as proportional or quota random sampling, is separating the population into uniform subgroups and then drawing a simple random sample from each subgroup (Trochim, 2006).

The reason for employing Stratified Random Sampling was that it enabled the researcher to draw a sample of international students from the total population and then draw a random sample among the international students to administer the questionnaire. Same was the case with the questionnaire from the banking personnel.

For the present study, both primary and secondary researches were carried out. The use of both primary and secondary researches enabled the researcher to not only gather facts and figures about the products and services the different banks offered but it allowed analysis of the arrangements that the banks offered to international students through these products and services.

3.3 Primary Research

3.3.1 Questionnaire for Students

A questionnaire was distributed among international students of Newcastle to find out which of the bank accounts was used most by the students. The questionnaire also had questions concerned with why the students chose a certain bank among HSBC, Lloyd’s plc, Barclays and NatWest and what features of that bank attracted them the most. There were questions designed to investigate the geographic locations and ease of access to these banks within the region designated to students and their life styles.

The questionnaire was divided into three sections. The first section dealt with gathering the information regarding the student respondent. This section included questions on age, gender, and educational level, how the student was funding his/her education, his/her tuition fee, maintenance cost, etc.

The second section of the questionnaire was designed to gain an insight in the respondent’s history of banking. This section included questions on the number of accounts the student held previously and the type of account he/she held.

The next section that is the last section was regarding the respondent’s experience of banking in Newcastle with the four banks; HSBC, Lloyd’s plc, Barclays and NatWest. The questions in this section also dealt with the importance of different offered services to the respondent, factors that were involved in the student’s choosing a certain bank. Furthermore, questions on comparison of the four banks in Newcastle that is, HSBC, Lloyd’s plc, Barclays and NatWest on the difference of the services and the type of accounts the respondent held at these banks were also included.

3.3.2 Questionnaire for Bank Personnel

Another questionnaire was designed to gather data from the bank personnel of HSBC, Lloyd’s plc, Barclays and NatWest. These questions were related to how important potential student customers were to their organization. Furthermore, the questions also investigated the management and marketing strategies these banks used.

This questionnaire was also divided into three sections. The first section of the questionnaire was designed to provide a profile of the bank employee who responded to the survey. Questions on age, gender, the bank they were currently working for and their designation at the bank were included.

The next section was regarding the importance of students as customers to these banks. In this section, the banking personnel were asked questions regarding whether it was important to have students as their customers, the type of accounts held by the students, why the students chose their bank over their competitors and the significance of different types of services offered at their banks.

The third section was related to the marketing strategies, that is, the 4Ps that the banks used to attract students. This section included questions on the product, price, promotion and place of the products and services offered to the international students.

3.3.3 Consent Letter

All the participants in the study were given a consent letter, which gave them the right to withdraw any information at any stage of the research. Also the authority and confidentiality of the people was confirmed

3.3.4 Cover Letter

A cover letter was attached to both the questionnaires which explained the aims and objectives of the research to the respondents. It gave information about the time that the questionnaire would take to complete. Furthermore, it explained the privacy and the confidentiality of the information gathered. .

3.4 Secondary Research

Secondary research was also employed in the present study. The purpose for this was to gather data regarding each bank from internet, books, articles and international account handbooks. The use of secondary research enabled the researcher to gather information regarding the various products and services offered to international students by these banks. Furthermore, it also enhanced the level of objectivity involved in the research as the data was gathered from other sources.

3.5 Research Design

A comparative research design was employed in the study. A comparative research design evaluates two or more groups on one variable (McMillan 1991). This was employed because the research is an investigation in to student banking arrangements at four major banks in the Newcastle area, and recommendations as to which provide the best services to international students; (HSBC, Lloyd’s plc, Barclays and NatWest). Thus, it was a comparison of the four banks as to which offered the best and the cheapest services to international students.

3.6 Procedure

In order investigate into student banking arrangements at four major banks- HSBC, Lloyd’s plc, Barclays and NatWest- in the Newcastle area, and recommendations as to which provided the best services to international students, a sample of 100 subjects, ranging from the ages of 18 to 28 years, was drawn from Newcastle, United Kingdom. All the subjects were international students belonging to Newcastle university dormitories, Northumbria dormitories and Newcastle college campus in Newcastle. Another sample of 40 subjects was drawn from bank personnel of HSBC, Lloyd’s plc, Barclays and NatWest. A comparative research design was employed in the research which is aimed the comparison of two or more groups on one variable (McMillan 1991). Stratified random sampling was used. First of all written permission was taken from the heads of educational institutions and the banks. They were briefed about the research, its significance, time involved and the procedure. Furthermore, the sample population was informed and consent forms were distributed. Also the authority and confidentiality of the people was confirmed. Individual testing was carried out. One time approach to the participants was used for data collection. The subjects were administered the questionnaires. The testing e