FCA retail bank review highlights potential issues with overdraft charges


(Alex Sherwood) #1

https://www.ft.com/content/40c12acc-79ee-11e8-8e67-1e1a0846c475

Edit - here’s the BBC’s coverage -

There’s some pretty shocking findings in this report about the incumbents use of overdrafts to subsidise ‘free’ current accounts. In particular -

Just 2 per cent of accounts pay more than half of all overdraft charges.

So given that Monzo appears to be relying on lending (& initially at least, overdrafts) to cover it’s costs until the marketplace is generating significant revenue for the business, I’m keen to hear how Monzo is avoiding this type of scenario, which appears to be exploiting vulnerable users.

I know that Monzo has made a significant effort to make sure that users who are unable to pay off their overdrafts quickly, to help users manage their borrowing & to eliminate punitive fees. And Monzo’s lower cost base means that it doesn’t have overheads that are anywhere near as large as the incumbent’s to cover.

But even so can Monzo make the money it needs to from overdrafts by having a relatively large portion of it’s users pay a relatively low amount of overdraft fees or will it end up with a small portion of users paying most of the charges?

I hate using mentions but I think this question is important enough to deserve it - @tom @paul @venkat.


(Jack) #2

Wowza, didn’t think it would be quite like that!


#3

Before the conversation get’s too deep - Can I just point out that if you Google “FCA retail bank review highlights pressure for reform” - You’ll be able to read the article (for any non FT subscribers).


#4

“Despite repeated pushes to increase competition and encourage new entrants to the banking sector, the current account market is now more concentrated than before the financial crisis, with the six largest providers — Barclays, Lloyds Banking Group, HSBC, Royal Bank of Scotland, Santander and Nationwide — controlling almost 90 per cent of the market.”

I think Monzo, Starling and every other challenger bank have plenty of opportunity to gain customers…


(Jack) #5

I think Monzo have shown this not to always be the case especially with rates being so low:

The report said “this has created a barrier to entry and expansion”, as challengers “need to offer retail savings deposits with significantly higher interest rates than incumbent banks to attract and retain more price-sensitive customers”.


#6

Last comment from me - To coincide with @alexs’s original comment - It’s interesting that only 30% of profit comes from overdrafts and fees (for current accounts).

I would assume that Monzo will start introducing further ways to make profit moving forward, and not relying on simply partnering with people in the marketplace.

Just my opinion of course, and I’m not particularly well placed to make it! :smiley:


(Alex Sherwood) #7

Yeah that’s only an issue for ‘challengers’ like Virgin etc. who are still using the old banking business model.


(Alex Sherwood) #8

You might be right but I’m not sure how you’ve made the connection between those two things to be honest. I expect the marketplace will earn Monzo far more revenue than lending eventually. A) because marketplaces can make lots of money (to use an extreme example - Apple’s App Store) & B) because Monzo’s said they want to keep their balance sheet small, which implies not very much lending.


(Jack) #9

I think the marketplace will create a lot of income for Monzo, but they do have other ideas related around sensible lending in the pipeline


#10

Perhaps it will - Maybe the Marketplace will subsidise all future overdrafts and everyone will be happy.

But until the marketplace develops - It’s a long way from happening.

On that point (and I’m conscious I don’t want to stray too far off topic).

With the TW partnership - Do you think TW are hoping that their existing customers will use Monzo instead of them?

I would assume not, given that TW pay Monzo a fee (and yet the customer gets the same price).

So on the face of it, TW is losing out here - Unless Monzo is saving TW money somewhere (which I haven’t factored in).


(Alex Sherwood) #11

Yes that’s right.

I doubt it because of this

so I expect they’re hoping that Monzo will attract enough new users to offset that loss of earnings & then some.


(Dan) #12

TransferWise isn’t losing - it’s mutually beneficial. TransferWise effectively just gained 700k and growing prospective customers. If their partnership works out and TransferWise stays in the app for the long haul it could add multiple points of marketshare for them.


(Richard Cook) #13

7 posts were split to a new topic: Removed Posts - 27/6/18


#14

TW is losing out on any existing customer who previously used TW, but now uses Monzo (for their international transfers).

TW is gaining from any new customer who uses TW because of Monzo.


(Tom Halloran) #17

The other side of the coin worth noting here is that Monzo’s cost base is a lot lower than other banks - no branch network, no marketing spend, simple (relatively) and modern tech stack, no armies of people maintaining myriad other banking products. So the amount Monzo need to make from either lending or marketplace to break even is going to be a lot lower than the legacy banks


(system) #18

This topic is temporarily closed for 4 hours due to a large number of community flags.


(Rika Raybould) #19

(system) #33

This topic is temporarily closed for 4 hours due to a large number of community flags.


(system) #45

This topic is temporarily closed for 4 hours due to a large number of community flags.


(Richard Cook) #48

Hey all,

After a bit of drama, I’ll now reopen this thread.

Let’s keep this on-topic and discuss the points raised in the article - rather than each other :slightly_smiling_face:

As a reminder if this thread veers off-topic, or we see any trolling, we’ll have to lock it for good.

Thanks.