I agree, in fact I’d go further and state Monzo has absolutely nothing to offer these customers.
I don’t agree.
For me Monzo offers a great app, decent customer service and real time updates on spending and credits.
Do i think monzo could offer a premium offering in the future, yes I do.
Previously metro were a people’s bank and they now have a private banking arm.
Ultimately the upper end of the market provides huge amounts of capital with which a bank can lend back out and profit from.
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I’d agree here (as of right now anyway) - the truth is the guys who are leaving more money in their accounts want to be rewarded for it - Just take AMEX cashback premier accounts (other accounts are available).
The benefit for the Bank is whilst they are providing further money to the customers who “don’t need it as much” for this customer anyway the Bank are privy to a large sum of money that probably only moves one way (upwards). Whereas on the other end of the spectrum, they’d rather have those who will have small balances be in the overdraft. It’s all a money making scheme.
Arguably they don’t have much to offer the very poor either.
Monzo are a caring bank that care about the unbanked/homeless but the application process (at this present moment) is so rigid they require documentation that must of the above probably wouldn’t have.
As for the 50 pence a day overdraft fee, with a fee that high £15.50 it’s likely that someone in real trouble will struggle to keep their head above water.*
*No charges for bounced Direct Debits does help a lot in this situation and that a great feature that Monzo offer but by the time you have Direct Debits bouncing you are in quite a bit of trouble anyway.
The £15.50 figure is if a person stays in their overdraft for a whole month, which unlikely in theory can be true in practice.
Monzo does have a vulnerable person’s team that hopefully would catch the above and stop it from getting any worse, but by then it’s closing the stable door after the horse had bolted.
Yes I am possibly being too cynical for my own good and I apologise but since the bank talks a good talk, now’s the time for it to walk the walk.
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I agree with the sentiment here that Monzo do and are actively seen to be caring about this part of the Market - but profitability wise it doesn’t make much sense (at this point anyway) to drive this as a main focus.
This is high, but naturally due to the size of Monzo and lack (or minimal) profitability per account cynically that’s why its high - but as we have discussed is being addressed. I think that those who are in real trouble are likely to be with a larger more established Bank to give them some flexibility.
I don’t think you’re being cynical I think you are just pointing out that Monzo (as it says) should work for everyone, whether that is someone who is financially stable or who is in need of a little help - but overall I think Monzo is doing well and is showing signs of wanting to do more.
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I’ve gone and had a read of the FCA consultation. It’s here if anyone wants to go back to source.
The FCA says that “fundamental change is needed in the overdraft market”:
We see harm to consumers – particularly to vulnerable consumers – from the disproportionate burden of high charges and the repeat use of overdrafts. In 2016, more than 50% of firms’ unarranged overdraft fees came from just 1.5% of customers.People living in deprived areas are more likely to incur these fees and in some cases unarranged overdraft fees can be more than 10 times as high as fees for payday loans.
This is shocking, but unsurprising - I’ve been saying similar things in the context of the ‘free’ banking culture of the UK, which relies on fees like this to generate profit.
Interestingly, this figure is about unarranged overdraft fees - which don’t exist for Monzo customers.
The FCA’s specific proposals are to “simplify the pricing of all overdrafts and end higher prices for unarranged overdrafts by:”
- stopping firms from charging higher prices when customers use an unarranged overdraft, because the difference in costs for providing unarranged and arranged overdrafts does not fully account for the difference in pricing
- banning fixed fees for borrowing through an overdraft (other than fees for refusing a payment due to lack of funds (‘refused payment fees’), which firms are entitled to charge for under the Payment Services Regulations 2017)
- ensuring the price for each overdraft will be a simple, single interest rate – no fixed daily or monthly charges
- requiring firms to advertise arranged overdraft prices in a standard way, including an Annual Percentage Rate (APR) to help customers compare them against other products
- issuing new guidance to reiterate that refused payment fees should reasonably correspond to the costs of refusing payments, and explain the costs that may be included, and
- telling banks to do more to identify overdraft customers who are showing signs of financial strain or are in financial difficulty, and to help them to reduce their overdraft use
Some interesting stats on overdraft use:
- Around 19 million people use an arranged overdraft each year
- Around 14 million people use an unarranged overdraft each year
- Around 7 million people use both anarranged and unarranged overdraft each year
Consumers who use their arranged/ unarranged overdrafts have, on average:
- 8 months out of 12 where they use an arranged overdraft
- 4 months out of 12 where they use an unarranged overdraft
Demographics:
- Median age for unarranged overdraft use (37) vs (42) for arranged overdrafts
- There is a 50:50 split between men overdraft use (42) and women using overdrafts
Amounts borrowed by arranged/ unarranged overdraft users:
- The majority of arranged borrowing is for under £250
- The majority of unarranged borrowing is for under £50
We estimate firms made around £2.4bn in revenue from overdrafts in 2017 (30% from unarranged overdraft fees)
The FCA makes it clear that they are trying to protect vulnerable customers:
We have established a strong, positive correlation between vulnerability of consumers and unarranged overdraft charges. Consumers who live in more deprived areas pay more in unarranged overdraft charges, and even more so for refused payment fees. We have assessed deprivation using the index of multiple deprivation in England 2015, the official measure of relative deprivation for small areas in England.
They have identified several drivers of this harm which require different approaches to reduce harm:
- high prices
- complex pricing structures and weak competition
- lack of awareness/engagement
- repeat use
There’s a lot of in-depth information and data to support the harm identified, including some interesting charts on fees by deprivation decile (basically this shows that the worse off are being hit by greater fees) and evidence to suggest that the longer you’ve been in your overdraft the more likely it is that you’ll continue to be overdrawn.
Particularly relevant to Monzo is the thinking on fixed overdraft fees (my emphasis):
We believe that requiring overdrafts to be charged by a single interest rate (where charges may vary by product or by customer) and requiring disclosure of a representative APR in certain financial promotions for arranged overdrafts will address harm by:
- reducing the complexity of pricing for arranged and unarranged overdrafts
- banning fixed daily fees which result in an unfair distribution and structuring of prices where prices are not proportional to the amount borrowed
- increasing transparency of comparative overdraft rates by requiring firms to publish their representative APR to allow consumers to easily compare offers from different lenders (including overdraft and credit card providers)
This means that the FCA is proposing a ban on any overdraft that is priced by anything other than a single APR - the only exception being a 0% buffer or allowance.
All of this will apply equally to unauthorised overdrafts. There should be no difference in cost between an authorised and unauthorised overdraft - including no one-off fees for going into an unauthorised overdraft.
The FCA specifically says they have looked at whether fixed daily fees provide the same benefits:
We have considered whether certain daily pricing structures could also deliver the outcomes we are looking for in terms of consumer understanding and comparability and concluded they do not.
The one exception to the ‘flat APR and nothing else’ model is a refused payment fee, which is specifically allowed under legislation. The FCA is looking at guidance to make this fee representative of the actual cost incurred by banks, rather than it being used as a revenue driver. (Monzo doesn’t charge a refused payment fee - and I can’t imagine it costing Monzo more than a few pence).
The last main area is for banks to help customers reduce their overdraft use. This boils down to each bank having to have a strategy:
We propose requiring firms to:
- develop a strategy to reduce repeat use – considering the harm that our proposals are seeking to redress, we have defined ‘repeat use’ in the rules as ‘a pattern of overdraft use where the frequency and depth of use may result in high cumulative charges that are harmful to the customer or indicate that the customer is experiencing or at risk of financial difficulties’
There’s a few extra things (like letting prospective customers understand if they’re likely to get an overdraft before opening an account, SMS or push messages when you’re in an overdraft / about to incur fees, and ensuring that your overdraft isn’t reflected in any ‘available funds’ figure).
These recommendations have been published following an initial consultation (and will be consulted on again). Some interesting points from the initial consultation:
- The original consultation asked whether the FCA “should we require firms to design tools in a way that could be provided through APIs to third-party providers so that the same comparison can be run for a consumer across different banks?” This has been dropped in the current version as it would take too long and for reasons of ‘commercial confidentiality’.
The consultation is open until March 2019. The target audience is for overdraft providers (so banks like Monzo) rather than customers. The FCA will then issue a final decision with implementation required by early December 2019.
Some references:
Last thoughts: the list of banks responding - and their actual responses - aren’t published. I don’t think this is good enough. To gain consumer trust, banks need to be seen to be saying the same thing privately and publicly. While exact figures might be commercially sensitive, the idea that Monzo (or whoever) has responded to a consultation should definitely not be hidden. Come on Monzo - publish your response and lead by example!
One last fun fact: references to Monzo in the main document: 0
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Am I right in saying that this is always the case? I know that the FCA do sometimes report on the feedback and provide the ‘typical’ answers they received. I agree it would be beneficial to see what specific Banks are saying but I can also see why its not published - I’d settle, like you say, with just who has responded not necessarily what they have responded with.
I guess I see no reason why the transparent Bank wouldn’t say no to publishing this in their blog - it shows they talk the talk and walk the walk.
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Typically government consultations publish who responded (like this one) - or even publish the responses in their entirety (like this one).
It seems like all banks that responded - with the honourable exception of Danske - asked for confidentiality. This would include Monzo if they were to have submitted a response. Which, let’s face it, would have been a bit remiss of them not to do.
We make all responses to formal consultation available for public inspection unless the respondent requests otherwise. We will not regard a standard confidentiality statement in an email message as a request for non-disclosure.
Despite this, we may be asked to disclose a confidential response under the Freedom of Information Act 2000. We may consult you if we receive such a request. Any decision we make not to disclose the response is reviewable by the Information Commissioner and the Information Rights Tribunal.
Freedom of information request, anyone?
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The cynic in me is wondering whether Monzo’s idea of profitability through loans/overdraft has gone out the window,which would be why they haven’t responded as they don’t know what to do
I’d be surprised. Monzo isn’t going to stop offering overdrafts - it would be super important for them to put the case that a fixed fee is the most transparent and best solution.
As it stands, they’ll have to adopt a fixed APR model by this time next year.
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Thanks for this - great help in working out the mess of the FCA!
I’m unsure if Monzo would respond, bearing in mind they’re not operating unarranged overdrafts but I guess the fixed fee charge would be what they’re interested in.
I really think that a fixed fee makes more sense to those that don’t understand APR and interest rates.
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The interesting thing is that the FCA has come at this from the perspective of an unauthorised overdraft does the most harm, but that the resolution should be that unauthorised overdraft fee = same as authorised overdraft fee. So far, so good (and so Monzo).
What they then say, and this is where Monzo is definitely affected and would (in my view) have replied, is that to stimulate the market and ensure that it’s easier for people to switch accounts, you need to have the same charging mechanism across both overdraft types. And that it’s unfair to have a daily fee as it unfairly penalises those who are only slightly in their overdraft. This is where it becomes absolutely of interest to Monzo, being directly counter to their current model.
(Interestingly, the FCA say 2/3 digital challenger banks replied. I’m assuming those are Monzo and Starling - but who’s the other one?!)
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That was my intuition, too. But the FCA are saying otherwise. I think one of the recommendations (which I didn’t pull out because my previous post became huge) is that banks should provide a calculator on their website/app to let people know what an APR means in pounds and pence. And to have standard comparative text (something like “a £200 overdraft would cost you Xp per day, assuming you’re overdrawn by £XXX”).
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There where I end up. If banks have to work from an APR figure, then ensure they display a standard £ and p fee for a common overdraft figure for easy comparison.
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For the most part I kinda agree with the consultation - unarranged overdrafts don’t care how much you’re in as long as you’re in (fixed fee ones anyway).
I can see why Monzo would reply - but it appears that the FCA are planning on taking a firm stance on APR > Fixed fees.
For me the balance is between what works for business (naturally where Monzo has a stake) vs what’s best for customers on a fairness perspective (they don’t seem overly bothered by understanding although they are making it so banks provide some help).
Oh interesting! Two thirds or two of three? Slightly confused here!
I can’t see any other way that demanding using APR would work (I’m an advocate for it aswell) - for the person who this will likely most affect they will tend to need this visualisation more - the good thing is that the transparency will hopefully breed more competition in what else the bank can offer.
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yeah I think empowerment and education is the most important thing. Empowerment through allowing people to chose the Overdraft that makes sense to them and education so that people understand what APR etc is. I would love Monzo to a set of adverts about common money things such as “What is APR” as it could educate people but also advertise Monzo. I’m thinking they could be like 3 minutes long and go ahead of youtube videos. As I’m getting rather bored of the N26 ones. They could call It Monzo Money shorts
Both! 2/3 of 3. So 2. Out of a total of 3:
I should say that these aren’t consultation responses - this is (I think) a separate survey to help the FCA with some of the background data to make informed decisions.
(PCA here is Personal Current Account).
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In that case is it not Revolut? They got their EU Banking License last week I think? Can’t see any others who would fit that category?