Big boys are fighting back in the battle of the banks
THE BRITISH have been grumbling about poor quality of service and products from their high street banks for years, but it is only in the last decade they have been able to do much about it.
It is exactly 10 years since Metro Bank threw down the gauntlet to the big four – Barclays, Lloyds, HSBC and Royal Bank of Scotland/natwest – by being the first to launch on the high street in more than a century.
Metro promised superior service with seven-day opening and dog biscuits for pets, but cut expansion plans after an accounting scandal.
However, a host of new names are also taking up the challenge to compete with the big banks.
Dozens have entered the fray including Aldermore, Masthaven, Marcus from Goldman Sachs,
Paragon and Shawbrook, and household name brands such as M&S, Tesco andvirgin Money.
They have been followed by the new breed of financial technology or “fintech” banks, including Monzo, Starling and Revolut, which offer banking online or via an app.
Millions have signed up to their services, but customer inertia makes the big banks hard to dislodge.
THE SWITCH
David Black, banking specialist at DJB Research, said “small and agile” challenger banks bring real advantages: “They are not handicapped by cumbersome legacy IT systems, and can target niche segments rather than offering the full range of services.”
The big challenge they face is persuading people to switch current accounts, as most of us stick with the same account for life. Black said: “This is still the key relationship builder, allowing banks to cross-sell other products such as savings, mortgages and insurance.”
The Current Account Switch Service, launched in 2013, has made moving banks easier by allowing customers to transfer their current account services within seven working days.
Roughly one million a year switch but that is a small proportion out of a total of 50 million accounts, while switching fell by two thirds during the pandemic, with fewer than 100,000 moving in the three months to June.
GREAT SAVINGS
Challenger banks have enjoyed greater success in attracting new savings customers, by dominating the best-buy tables.
The big four have largely abandoned savers. Last week, Barclays cut its easy-access savings rates to just 0.01 per cent, and Anna Bowes, co-founder of savings adviser Savings Champion, said: “Halifax, HSBC, Lloyds, Natwest and Santander also pay just 0.01 per cent on their easy-access accounts.”
Today’s best rates are almost all available from the challenger banks. Renault-owned RCI Bank pays 0.72 per cent on easy-access, followed by Paragon Bank at 0.50 per cent.
However, they struggle to compete with National Savings and Investments (NS&I), which offers market-leading rates as the Government looks to protect savers, and raise £40billion for its coffers.
NS&I pays a variable 1.16 per cent on its Income Bonds, and 1 per cent on its Direct Saver.
Challenger banks lead the field for best-buy fixed-rate bonds, with United Trust paying a fixed 1 per cent over one year, and Paragon paying 1.20 per cent a year for five years.
Some are wary of an unfamiliar name, but Bowes said you get exactly the same protection under the Financial Services Compensation Scheme, which pays up to £85,000 if your bank goes bust.
COMPETITION
David Hollingworth, associate director at mortgage broker L&C, said challenger banks have broadened mortgage choice and boosted competition on rates. However the big banks are fighting back, with Barclays, Halifax, Nationwide and HSBC regularly featuring in the best-buy tables.
Some challengers have found the competition too hot, with Sainsbury’s Bank and Tesco pulling out last year. “On the other hand, TSB and Virgin Money are now in a position to compete with the big lenders,” he said. Challengers also offer niche products: “Metro is one of the few lenders currently offering mortgages up to 90 per cent loan-to-value. Aldermore and Kensington help applicants who fall outside narrow high street lending criteria.”
TECH TROUBLE
Digital-only fintech banks are starting to shake up the market with a plethora of niche offerings.
Will Hurst, head of commercial development at Monevo, said the big banks may struggle to keep up: “Starling has been voted best British bank three years in a row. In contrast, Natwest pulled the plug on banking app Bó after less than six months.”
We may grumble about the big banks, but we have not given up on them yet.the latest figures show Starling,triodos and Monzo gained the highest number of customers for each one lost, but Nationwide, HSBC and Natwest also won business.
John Crossley, head of money at Comparethemarket.com, said a good rate attracts custom, regardless of which bank offers it. As always in banking, it’s money that talks.
‘A good rate attracts custom no matter who it is with and, in the end, money talks as it always does’