ATM Fees Abroad: Asking the Monzo Community to decide pricing

Monzo Chat
1261

So firstly I’m not a current customer, but was just about to become one when I found the post on your blog. Big attraction of Monzo is that you look neat and transparent with a business model that isn’t rooted in the last century. An important manifestation of this is fee free withdrawals and if I’m honest was the thing that was about to make me overcome inertia to sign up.

It is a pain point with all of my current cards bar one (that card gives totally fee free European withdrawals but has a different pain point). This isn’t because I do vast amounts of transactions by value, but just that I feel utterly ripped off when I do, so waste time making life harder than it should be by collecting currency in advance which is a total anachronism in 2017.

If I was to vote for any of those options it would be (1) under the KISS principle and matching fees to costs to avoid cross subsidy or incentivising particular behaviours.

I very much don’t like any of the Free (up to a certain limit, terms and conditions apply, lots of small print) type options as these aren’t transparent and would always leave me wondering whether I had hit a threshold on a particular transaction.

My only question would be: are your costs flat rate per transaction or based on a %age of the transaction (or both).

Favoured option 4 would be a flat rate per transaction of say EUR 1.00/USD 5.00. That way I can modify my behaviour to minimise the costs (hopefully to both of us) by making a smaller number of larger withdrawals when outside the country.

1262

The bank incurrs both types of costs

1263

That would cost Monzo money.

If you take out €500 and it costs Monzo 1% they pay €5 so they would lose €4 if you only paid €1

If you take out $500 and it costs Monzo 2% they pay $10 so they would lose $5 if you only pay $5

1264

Option 3 makes the most sense. As you say, only 13% of users are racking up the unsustainable costs to Monzo by insisting on using cash overseas when its simpler and more cost effective to use the card at point of sale. Everything about Monzo is so brilliant and elegant so far, and that is what has attracted users. No fees is a big factor of this. So ensure where you do start charging fees it is targeted to where your key loss is. This is why charging everyone generally is not a good idea, it takes away from Monzo’s original concept. Most people should still be able to use it the way it was when they signed up. Those that take out too much cash at ATM’s overseas (over £200) will need to start contributing to the burden that they are creating. Nudge those people that are doing unsustainable behaviours to start using the card in the way it was intended and that is sustainable. That is fair.

1265

No it is not fair. Monzo have said it costs them approx 1% per withdrawal in Europe and approx 2% per withdrawal in rest of the world, so only that is the fair option. If you end up charging users a higher amount such as 3% they are unfairly being overcharged just to subsidize free withdrawals for others.

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1266

IMO, Monzo’s USP is it’s usability. The customer experience, and therefore simplicity and transparency are the most important aspects of the offering.

Option 2 maintains this. It also avoids any edge cases: e.g. what countries are in Europe? And future proofs the solution: e.g. what happens post Brexit?

I’m also a fan of the idea that the exact ATM charge is passed on, with an in app map (and note on the welcome to country X notification) that provides an estimate of what percentage that fee may be. This would be ‘fairer’, but adds complexity.

What I would love to see is (anonymised) data, detailing what spending patterns actually exist (rather than speculating/using anecdotal evidence) and the actual cost to both Monzo and it’s users. But then, I am a massive data nerd…

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1267

The Monzo app could pop up with “Welcome to France - Europe” or “Welcome to Peru - Rest of World” the current exchange rate is approx x.xxx to the £ or something like that when you enter a country. If it gives the region after the country name that would help those who don’t know where Europe ends and Asia starts

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1268

I can’t see how to vote. But Option 1

1269

Unless I’ve missed something you just can’t make that assertion from the data presented in this discussion. To know that you would need numbers for all the following:

  1. Fixed cost to Monzo of each transaction
  2. %age cost based on transaction value
  3. average size of transaction

If not we have no way of comparing any of the options in cost terms and certainly can’t state that a fixed cost would uniquely loose them money. If you do have that information then it would be very illuminating.

My vote in any case would be to have the costs charged exactly model the costs to Monzo. Customers generally are economically rational and will minimise costs to themselves and their provider if you line these up.

Free (with conditions) is just having one group of customers subsidise another.

1270

the voting is done at the post at the top of this thread by clicking on one of the bulletpoints

1271

I can make that statement as it is based on data Monzo have and verbally confirmed by Tom at an Open Evening. They have said their costs are a mix of both a fixed cost and a percentage cost but it equates to about 1% in Europe and 2% elsewhere, therefore using the 1% figure for the EUR example and 2% for the USD example. Using the percentages Monzo incurr in costs it shows how much money they would lose if users were paying the fees you proposed. It is maths not opinion.

1272

People who are saying that inactive uk users should be charged more or whatever- How does that make sense? Where does it show that inactive uk users are the ones abusing the cards abroad?

For me, Monzo was marketed to me as a travel card not a bank and even from their app/interface that’s the impression I get. Travel card. Up to now I still don’t see a way to transfer money between cards like other banks do, you can charge the card and that’s that. For me this is a travel card.

When I’ve traveled I’ve never actually withdrawn any money. I always have changed money at a money changing service or taken my currency there to change when needed. I’ve never not had my card accepted and I’ve traveled to many small out of the big city places.

There is also another card that doesn’t charge abroad, metro and the reason why I’m using my Monzo abroad and not metro is because I like the travel card feeling Monzo gives with the breakdown.

So clearly as a person who doesn’t use Monzo in the UK, I am not abusing the system.

It’s not hard to take money with you if you need it so desperately.

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1273

Here’s an explanation of why interchange charges are complex, I guess ATM charges are similar.

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1274

I appreciate the opportunity to have my say! For me Option 3 works best, but my second choice would be Option 2 - easier to remember and for people (me!) who travel in both Europe and the rest of the world it just makes more sense. I tend to try and mainly use the card at POS anyway and only have enough cash for sundries. I’ve really enjoyed my Monzo experience so far - 4 currencies in 3 months and all have given great rates as promised and excellent customer service, thanks.

1275

I think it is pretty pointless continuing this debate as I think we both agree that the universal 1%/2% proposal that apparently most accurately mirrors costs is the best choice, but I can’t let you get away with the statement that

Previously when asked whether the actual costs were fixed per transaction or value % based, you answered:

Your maths is predicate on there being no fixed cost per transaction, only the 1%/2%. Which statement is true?

OK, so lets give the benefit of the doubt and say the earlier statement about there being fixed costs is misleading and the 1%/2% is actually an accurate cost model as the fixed cost is insignificant. Your maths is math proof that the bank looses money on the transactions on a fixed transaction fee only works because you arbitrarily put a large number (EUR/USD 500) into your average transaction size estimate (are there ATMs that will dispense EUR 500 in one transaction? muggers paradise!). Again that is opinion not maths. If I choose to put say EUR/USD 80 as the average transaction size then the same maths shows that the bank gains money. Both of us are merely expressing an opinion. I have no idea which of us is right.

BTW, the reason that I’m getting hung up on this is that rationally the costs should be transaction cost rather than value based. By and large the costs of providing an ATM full of cash and settling financial transactions to dispense it are proportional to the number of transactions, not the size of the transactions. Each customer spend as much time in front of the ATM whether they are withdrawing £10 or £1000 and the cost of servicing them is the same: capital for the machine divided by the number of customer transactions a day it can service, telecomms and server costs of transactions, maintenance of the machine, even the truck to fill it with money (doesn’t cost appreciably more to put 10x the notes in it, assuming a large enough a capacity) are all based on number of transactions not the size of the transactions.

Perfectly happy to accept that this isn’t how the banking industry actually settles these costs and that %age is the way the cookie crumbles, but one of the things that is broken about the current retail banking industry is that transaction costs are often based on slicing a “cut” of other people’s money (because we can) rather than the strict cost+ value add of the service provided.

A good place for a disruptive new entrant to position itself would be to challenge this.

Just saying.

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1276

I think monzo was maybe marketed as a travel card by the likes of hukd and mse but not really by monzo themselves.

1277

As I have said before Monzo incurr both fixed costs of a set monetary amount and a percentage cost which proportionate to the withdrawal sum. Monzo have said that adding these together means them incurring approx 1% on European transactions and 2% in rest of world. This is of course an approximation and in reality it may work out slightly less on European transactions and slightly more on the rest of the world, but it is based on the aggregated data from all transactions at overseas ATM by all their card holders so that is as accurate as we will get at this point

1278

Wrong. The fixed costs are the same regardless of withdrawal amount whereas the percentage costs are proportionate. Therefore smaller withdrawals in reality cost proportionately more. It would cost Monzo MORE to pay for ten withdrawals of €10 than one withdrawal of €100

1279

Actually, I am one of those who barely uses this facility. This year I went on two holidays. One to Iceland and one to Denmark and Sweden. On those holidays, I withdrew nothing in Iceland, 600DKK and 1,000SEK (around £180 total at the time). I used EPOS for every other transaction.

Coincidentally, when I originally typed up that reply, I was thinking that an annual allowance of £500 would be fair - although now that you mention it, £600 EU/£300 RoW actually sounds fairer since EU withdrawals tend to cost less. My thinking was that because most people only go on one or two holidays each year, they would not be able to draw anywhere near the potential £2,400 limit (if they maxed it out every month), they would probably only be able to use around £400-600.

If this was an annual allowance, the fees collected by Monzo would be roughly equivalent, though perhaps they would lose a little from people who only use cash withdrawals if they are absolutely necessary. However what they lost from those people, they would make bank from regular travellers who were using the facility in 6-9 months of the year up to our beyond the £200 per month limit. This seems fairer as it would:-

  1. Take the average user out of the chargeable bracket;
  2. Discourage those abusing the facility by making charges apply to them more often;
  3. Maintain roughly the same level of revenues, but from fewer customers;
  4. End up charging the most frequent users more and the less frequent users less.

If there is an aim is to reduce overall ATM usage thus reducing overall fees incurred by Monzo, this would still be an effective method of achieving this aim. If there is an aim to charge as few customers overall, this is a better method of achieving this aim. If there is an aim to charge the most frequent users over the less frequent users, this is also a far more effective way to achieve this aim.

As an aside, I also voted for option three. But only because an annual allowance was not an option, and the other two options seem to amount to charging everyone to pay for the few people who overuse the facility. Option three is clearly the fairest of the options presented, but the fact that ‘a lot of people are asking’ for an annual allowance is proof that this would probably be a fairly popular option too.

In any case, this won’t affect me greatly since I’m unlikely to go over the £200 monthly limit. But it would be nice to have slightly more freedom of I ended up in a country where EPOS technology was not quite so widespread. In the UK, I seldom have more than £30 in my wallet in case I absolutely need it. Monzo gives me the option to behave like this abroad, too. I would prefer that not to change.

1280

There is no rationality to banking and the reality of the situation is that Monzo does incurr costs on a value based formula as well as transaction based. There are many parties to a withdrawal including owner operators networks and their intermediaries plus the card scheme holders that there is no way Monzo are (at least on their own) going to shake up and change this system.