New Banks Marketplaces

December is catch-up month, and each week I'll be publishing an article that I wrote a while back but never got around to making public. Some are still current, but others might look a little dated. Up this week is an old article on the marketplaces of the new banks.

Today’s post is the second in a series on digital banks. Today we look at New Banks Marketplaces.

New banks

A couple of years ago I wrote about the AltFi London Summit 2018, which was held back in March 2018.

• The focus of the show was on the rise of the New Banks, and what’s in store for them.

My take on banking is:

1. The most basic need is for a free current account.
2. Next comes a credit card, perhaps with cash back.
3. And you might want a savings account with a decent interest rate.
4. For those who travel a lot, free cash abroad / good FX rates and fees are important.
5. For those with a company, free business banking is attractive.
6. Younger people especially will want a slick app, a breakdown of their spending into categories, and perhaps budgeting tools.

I’m less interested in mortgages and overdrafts, but some people will be.

My banking products

The high street banks do a fair job of providing a free bank account, though perhaps without the slick app and analysis that some people might want.

I’m still with Lloyds at the moment, and have been for around 40 years.

• It’s such a simple product that I see no big reason to change (though I could be persuaded by, say, a decent rate of interest on an unlimited amount of cash).

I have the Yolt app attached to this account for analysis, though I don’t use it very much.

I have a cash back credit card from Tandem, though it only pays 0.5% pa.

• Other than the low rate, I really like it.
• Some people don’t like being sent paper statements each month.

I have a savings account with Marcus, though I don’t keep much money in taxable cash.

• Thanks to the Savings Allowance and Marcus’ interest rate of 1.5%, I could shelter £66K here without paying tax.

I also have Premium Bonds, which are limited to £50K per person (I have less than that).

I have a free business account from Starling.

• I also have a business account (with fees) from BarcIays.
• I will migrate away from this once an ongoing long-term project completes, somewhere between now and mid-2019.

I have a business savings account from Virgin Money (now part of Clydesdale).

Other new banks

Revolut became popular on the back of its FX features (which use a prepaid card).

• Starling and Tandem offer similar – and sometimes cheaper – services.

Revolut has had recent problems with security and lockouts.

• And it’s not a real bank, so doesn’t have FSCS protection.

Monzo – a breakaway from Starling which has more than 1M customers, most aged under 30 – is similar to Revolut, but is a real bank.

Atom Bank is the only other digital player that I have heard of – they offer fixed savings accounts and mortgages.

• I prefer instant access accounts to fixed savers.

The marketplace

For the new players, it’s all about the marketplace.

• This will allow them to try to substitute commission income for the loan income (interest) than drives most incumbent banks.

They are planning to replace the comparison websites.

• Instead of you going to visit a website to find a better utility provider, cheaper insurance or a new mortgage, your digital bank will suggest alternatives to you, based on what it knows about your lifestyle.

Alongside this, there will be chosen partners in complementary fields (pensions, investments, FX etc – perhaps P2P lending).

• For business accounts, there will naturally be business marketplaces (accounting, payroll, tax services etc).

There are privacy issues here, too, but as with Google ads, the customer’s data is being used to their advantage.

Let’s take a look at the offerings from:

1. Tandem
2. Starling
3. Monzo
4. Revolut, and
5. Atom

Tandem

Tandem doesn’t have a marketplace. They offer:

1. An app, which can be used to manage / analyse all your bank accounts.
   • The app does offer “better deals to save you money”, which covers the comparison side of the marketplace, without the partnerships.
   • I could use this to replace Yolt – more thought needed here.
2. A cashback credit card (which I use).
   • I have an app for my credit card, but it hasn’t yet made any suggestions to help me save money.
   • That’s probably because I largely use it for food shopping, bars and restaurants – I don’t pay household bills with it.
3. Fixed-term saver accounts.
   • 1 year pays 2%
   • 2 years pays 2.25%
   • 3 years pays 2.4%

Starling

Starling offer:

1. A current account (personal or business – I have the business account).
   • The personal account pays 0.5% pa interest on the first £2K, then 0.25% pa above that.
   • 0.5% on £2K is just £10 a year.
2. A contactless debit card (this comes with the account).
3. An overdraft.
4. And a marketplace.

On the website, the marketplace contains:

1. Wealthify – ISAs and taxable investment accounts.
2. Wealthsimple – very similar, but more expensive.
3. PensionBee – pensions (I like them)
4. Flux, which replaces paper receipts with digital ones.
   • At the moment, it seems the only shop this works with is Eat.
   • They also plan to handle loyalty rewards for shops.

I’ve also read about:

• personal loans
• mortgages (via Habito)
• travel insurance (Kasko, part of AXA)
• Yolt
• Yoyo wallet (a loyalty and rewards app)

But I couldn’t find any of these on the website.

On my phone app, I can only see:

1. Flux
2. Tail
   • This is also categorised as a “loyalty and receipts” app, like Flux.
   • But it seems to offer discounts at London restaurants via cashback.
   • There were nine food shops listed on the Tail website, but I had never heard of any of them.

It’s possible that I have a shorter list because I have a business account.

Monzo

Monzo doesn’t appear to have a marketplace, though it is planning one:

Currently it offers:

1. A credit card, tailored towards international use.
2. A current account, with an overdraft.
3. Savings pots – a one-day notice savings account that pays 1% pa (paid monthly) on a minimum £1K.
   • This is operated by Investec, so it’s a marketplace-style partnership.

I’ve read that Monzo also has relationships with Emma (“a money-management app that helps you avoid overdraft fees and cancel subscriptions” – I think this works as a bot on Facebook) and MoneyBox (one of those “rounding up” savings apps that sound like a good idea but have very high charges).

• I couldn’t see any reference to these on the website.

Revolut

Revolut has no marketplace. It offers:

1. A current account (personal or business).
2. A debit card.

I have read that within the app, you can:

• borrow money using peer-to-peer loans from Lending Works
• take out various types of insurance (Simpelsurance, Thomas Cook)
• consolidate their pensions using PensionBee
• hold and transfer crypto (Bitstamp)

I don’t have the app, so can’t test this.

Atom bank

Atom (the one that uses will.i.am as an ambassador) has no marketplace. It offers:

1. A current account.
2. Fixed Savers, from three months at 0.9% pa to five years at 2.5% pa.
3. Mortgages, via a network of brokers (not very FinTech).

Conclusions

It’s been a fairly disappointing afternoon.

• Considering that the Alt-fi show was eight months ago, the marketplace offerings of the new banks seem to be developing at a glacial place.

I’ll revisit this subject next year, or sooner if an interesting development catches my eye.

Until next time.