Self-confessed banking anorak Paul Beadle, who has five bank accounts himself, considers why big banks are bothering with spiffy digital offerings when they need to fix basic issues instead.
For the first time ever Monzo has been named the number one destination for customers switching their bank account. During the last three months of 2019, Monzo saw a net gain of over 20,000 switchers, beating long-time leader Nationwide into second place with a net gain of 15,000 switchers.
Does this mark a turning point for challenger banks? Is this finally the start of a revolution in digital banking? I don’t think so, at least not yet.
The Current Account Switch Service (CASS) figures show that 260,000 customers switched their bank account during Q4 last year, with more than a million people using the service in the 12 months up to the end of March. While this only captures switchers and not all those opening a new account, these numbers are really still a drop in the ocean of a market with an estimated 70 million accounts.
Of the other challenger brands, Starling Bank only saw 9,200 net gains over the period and even Monzo saw 2,800 customers leave it. Co-operative Bank actually recorded a net loss of 4,600 accounts, followed by Clydesdale, which now includes Virgin Money, with a net loss of 4,100. Ethical Bank Triodos had a net gain of 539 switchers, with the other low volume participants recording a total net loss of 2,800 accounts. The CASS figures don’t include Metro Bank, and because fintech poster child Revolut doesn’t have a UK banking licence, it can’t be part of the CASS scheme.
The bottom line is that despite all the positive PR around challenger banks and government talk about breaking up the monopoly and giving people more choice, the big five banks still dominate.
This is despite the tens of thousands of customers who are clearly fed-up with their bank, based on the CASS figures detailing the number of accounts lost by the big banks. Lloyds was the third biggest gainer in Q4 with just over 13,000 switchers, but this should be weighed against a total of nearly 23,000 lost customers. The biggest loser during Q4 was HSBC, which saw nearly 40,000 customers switch away against 44,500 gains, so a pitiful net gain of 4,500 during a period where the bank was offering a cash incentive for new customers. But even this is better than Halifax which recorded the biggest net loss of over 22,000 accounts during the last three months of 2019.
Even so, based on the CASS figures, the rise of the challenger bank and digital-only bank is somewhat overstated, particularly as banks don’t make money from current accounts. Neither Monzo or Starling have turned a profit yet, primarily because they don’t do much lending, while German digital bank N26 left the UK with its tail between its legs blaming Brexit, although its customer numbers were pretty low.
This doesn’t mean the incumbents aren’t worried by the new digital entrants. RBS spent £110 million launching its digital bank Bó, with its Monzo-like app, bright primary coloured card and Instagram influencer fan base. But the account didn’t work that well, senior staff left the project and last week RBS pulled the plug on the whole thing after only five months in operation.
Quite why RBS felt it needed to launch a new brand is baffling. Including its NatWest customers, it already has the third largest share of the UK current account market after Barclays and Lloyds. It would have been better off putting that money into making the experience better for its existing customers, rather than chase a brand-new audience that quite frankly might not even make it money.
But here’s my confession, I’m a banking anorak with loads of accounts: Monzo, Starling, Revolut, N26 (before it went pop), and Atom Bank – remember them? I even applied for an HSBC account earlier this year to take advantage of its cashback incentive, but the process took so long, including actually finding an open branch to prove my ID, that I gave up. Compare that with the ease of opening a digital account.
However, my main account, into which my salary gets paid and most of my standing orders come from, remains with Nationwide. This is partly a hangover from when I worked there and got a discount on the packaged account’s monthly fee, but also because I get a credit card with fee-free overseas purchases and preferential savings rates.
Now that Nationwide has axed the 3% interest rate on FlexPlus, I’m no longer sure the £13 per month fee is worth the benefits such as travel insurance, breakdown cover and phone insurance. I can also usually find better savings rate elsewhere and the credit card is no longer the best in class.
And here’s the thing, every month I transfer a chunk of money from Nationwide to my Monzo account and use that for everyday spending because I like the speed of notifications, the money management tools and access to other products and services. I might be tempted to go full Monzo if I could be bothered to move all my direct debits and payments over. Which brings us back to the Current Account Switching Service, so I have no excuse.
For me the big issue with the UK banking sector is not the lack of competition, because there are plenty of options for consumers. And it’s not even the hassle of switching, because that’s what CASS was created for. It’s the fact that, even with a virtual monopoly, the big banks seem distracted by what’s happening in niche areas of the market rather than focussing on boosting their core services to existing customers.
Instead of frittering away millions of pounds trying to emulate fintech start-ups, they should make their current banking apps better. They should strip away the confusing range of mediocre products, add new features and services. Crucially they must improve customer service, which once again has come under scrutiny during the coronavirus outbreak, starting with all those people looking for payment holidays and small businesses in desperate need of loans to get them through lockdown. Because if the banks don’t sort out their service and finally start to rehabilitate a reputation that has been in the dumps since the financial crisis of 2007/08, it won’t be a revolution that brings them down. It will be death by a thousand cuts when people like me drift away to an alternative that feels more in-tune with the way they want to bank.