I was invited in for user testing last week. Overdrafts offered to those eligible as they begin to run out of funds via a realtime notification. Proposal is that overdrafts of up to Ā£1,000 max will be available to start with (subject to a credit check), the first Ā£20 would be free, thereafter the cost would be 50p per day regardless of amount ie any amount between Ā£20.01 or Ā£1,000.
No mention of interest rate / EAR etc for comparison purposes in the UX I saw (perhaps this is possible given there is no interest being charged, only fees, but I thought it was a regulatory requirement regardless).
Going to be a divisive product in my mind, on the basis that (1) if you need to borrrow Ā£25 you might as well borrow Ā£1,000 because it will cost you the same each day (which is encouraging people into greater debt) and (2) 50p per day for relatively small amounts is more expensive than payday lending (which is legally capped at 0.8% a day) - and this for an authorised bank overdraft.
Somewhat at odds with previous comments from @paul when he wrote a blog on this subject, who was talking about unauthorised overdraft:
Over the past few years many banks seem to have concluded that their customers donāt understand percentages, and so they charge 50p or Ā£1 per day for going overdrawn. You do the maths! I reckon thatās more like 200-400% in terms of interest. And I thought payday lending was supposed to be expensiveā¦
Personally I think itās disappointing for Monzo to take a lowest common denominator approach on this, perpeptuating the injustice of UK current accounts: those that struggle in the red will be subsidising free accounts for those In the black to a disproportionate degree.
If I recall correctly, a fixed cost per day works out cheaper than a tiered fee, that increases as you borrow more.
Either way, itās my preferred option because I know exactly what Iāll pay at the end of the month if I borrow & donāt have to worry about my spending (especially delayed payments) bumping me into the next, more expensive tier.
But obviously this is subjective & there will be lots of different opionions on this.
Iād wait until Monzo reveal more details before worrying about this too much.
Iām not sure how you came to this conclusion? It looks likely that Monzo will offer loans for large one-off purchases as well, which presumably most users will want & that will earn them revenue too.
Monzo wonāt charge punitive fees which do disproportionately impact the less well off & that alone will reduce the revenue they make from the current accounts by about 50%.
Obviously the interest rates will have to be competitive, otherwise users wonāt use the product & 7/10 people use an overdraft of Ā£700 each month anyway so itās not just minority of users subsidising the rest. And theyāre only expecting to break even from the overdrafts so theyāre obviously not being greedy here.
Lastly, no one will have to take out an overdraft if they donāt want toā¦
How would you address the perception that loans are unfairly subsiding otherās accounts - given the fact that Monzo needs to provide this product in order to earn revenue?
Despite all the discussions here, I havenāt seen one part of transparency come up. Iām an overdraft user and I pay Ā£6 a month to Lloyds for using it, plus a %age interest. My main qualm is not knowing how much it will be when the charges come.
For me, just being able to see current and predicted total fees is the most beneficial thing. If I was overdrawn for 15 days at Ā£600, you can predict a total cost, especially when a regular income is coming in.
Personally Iād rather a percentage. But why not an option? Pay for an account and have one type of charges, donāt and have another?
I hope that they donāt have the 50 pence a day fee. If Ā£20.01 is borrowed and stays in overdraft with that same balance for a month. It will cost Ā£15.00 which is 3/4 of the overdraft balance. Shakes head
There is nothing stopping you from maxing out your overdraft as itās 50 pence per day regardless of if the debit balance is Ā£20.01 or Ā£500.00.
I am not going to even get started on the huge buffer they are planning to offer. I would prefer Monzo to keep that token offering and charge debit interest on overdraft balances and call it a day.
The 50 pence per day charge does it cover debit interest or will that have to be paid for separately?
Another thing is for some people it will save them money but for most it will cost them dearly.
For the person that uses their overdraft for maybe 3 days a month it might save them money. (Only if their usage is really small and for a really short period of time otherwise itās a terrible deal. Itās a lot better to stick to debit interest.)
*Nothing is finalised so there might not be a 50 pence per day charge. I am just offering my opinion to why that is a terrible idea.