Mainstreet banks normally borrow money using the fractional reserve system, basically lending 10 times the amount of money available from the deposits.
However this dutch bank called Bunq is allowing the customers to decide what to do with their own money, if they want it to be borrow for mortgages, companies, green initiatives or just keep it on the Central Bank and not borrowing it at all.
I think this is a great idea, and I am aware that the amount of interested could be drastically reduced, but also some customers would value more the security and the value of choosing what to do with their money.
Also need to consider that for some people there are religious implications on lending money on interest so for them also would be a good thing.
I would like to know the thoughts of the community about this issue and maybe we can suggest Monzo to implement something similar in the future.
Itâs worth pointing out, though, that whatever a bank does with its deposits, in Europe âŹ100,000 of each customerâs savings is guaranteed to be protected.
Instructing bunq to use your savings as they see fit, or to leave them alone, makes absolutely no difference to this âsecurityâ.
When Monzo does start paying interest themselves, or even as a way of distributing interest between marketplace partners without forcing customers to choose one specific partner for their pot, this would be great to see at some point. I assume your interest rate is dynamic and depends on the performance of the assets you tick? So a little more like stocks and bonds than simple interest paying accounts.
I like this idea. Itâs a great form of customer engagement and transparency.
Interest rate wouldnât need to be dynamic - but would have to be reflective of an overall average net interest margin.
So in other words if this was one of the only sources of revenue then if over time customers chose the lower yielding products then he interest rate may get reduced, however one option would be to offer clients to chose how their funds are allocated for a certain % rather than the whole amount (say 50%). Also some customers likely will not be engaged by this feature or prefer to go for the default option.
Finally I see banks like Monzo looking for quite different revenue models compared to traditional banks - developing different fees and other producers you can easily buy in App for instance, and Monzo may end up being a lot less reliant on Net Interest Margin (the difference between savings interest and lending interest) than most banks are, as Monzo will often be the intermediary or gateway to the products rather than the provider themselves.
Wouldnât it? If not, wouldnât people that donât want to invest in, say, âgreen companiesâ be earning interest gained from such investments on behalf of those that do?
