I feel that using £ and p is much more intuitive than trying to work out %ages.
Personally I think it would be good to have a couple of options?
“Emergency” overdraft for people who don’t typically go overdrawn, I have no idea how charges normally work out but maybe a few £ a week up to a maximum of x? Possibly after a max number of weeks/ max £ is hit folk could be moved onto option 2?
“Insurance” overdraft for people who like to know it is there - this would be an annual fee dependent on level of overdraft. Annual fee higher than emergency overdraft, but much less per week IYSWIM.
Following on from Rosie’s comment I’d much rather know the cost in £’s & pence too.
In a short term borrowing scenario I’m not really interested what the percentage is, as long as I know I can afford the fee. Obviously if the % is good then the fee’s going to be pretty attractive.
If the fee’s displayed as a % and the borrowing period is different to the one I was anticipating, I’m less likely to calculate the fee for the borrowing period and it feels like more of a surprise when I get the final charge. If I know that it’s going to be 50p per week, I don’t have to worry.
I’d only think about the % when I consider borrowing from :mondo: the first time and when comparing the rate to another supplier’s, if I ever wanted to consider my options.
Perhaps have a flat daily fee for unauthorised overdrafts, maybe 50p/day for one of up to £500. If someone “lived” in it, they would pay an effective rate of at least 36% or higher after compound interest. Perhaps after a certain number of days using an unauthorised overdraft someone could be offered an authorised overdraft (subject to preapproval, similar to what other banks like Barclays offer).
Then have an alternative lower fee for authorised overdrafts, perhaps a flat rate of 50p/day for £0-1k, £1/day for £1-2k etc. Easy enough for most people to easily understand what they are likely to pay if they use it.
I know the key word here is overdraft, but I think it would be great if you can have small loans for up to £1000 for example at a fixed rate. That would be useful for instance if you want to buy a new 4K TV or that latest gadget, or even for an emergency car repair.
Overdraft limits: The limit should be a percentage of your deposits. e.g. 20% of your monthly £2000 salary/deposits, gets you an overdraft of up to £400. Users could define their own percentage limits 5%, 10%, 15% up to a maximum limit set by Monzo. I think is is responsible behaviour for a bank, gives users control and is completely transparent.
Edit: User defined limits could be hard or soft limits.
Hard limit: User sets limit for a fixed period e.g. 3 or 6 months, where it is not possible to exceed the overdraft amount. After this period the user could change the limit.
Soft limit: User can set a limit, but can go over it, up to the maximum allowed by Monzo. Daily notifications when the user is over their defined soft limit.
Interest: Percentage are better, but must be coupled with the absolute cost. Normal banks just use percentages and the customer does not bother to calculate each month how much it will cost, especially when the balance in overdraft can move daily. I would like the charges to be x.x% above bank of england base rate and have a separate screen in the app to show the following details:
Current overdraft limit (with user setting as described above)
Current interest rate (x.x% rate + x.x%base rate)
Overdraft charges history e.g. £5.50 in July, £2.30 in July etc.
if I am in my overdraft:
Projected costs of this month’s charges at my current balance.
Projected costs of this month’s charges using the Pulse estimate.
If I am in credit but the Pulse thinks I am going to enter my overdraft, then an estimate of that too.
Notification also important - I would love to get a notification mid month saying “based on your normal spending patterns, it looks like you will enter your overdraft 6 days before payday, we estimate that this will cost £x.xx in interest”
I must be one of the few bad customers for any bank. I have never, ever been into any overdraft, planned or unplanned. Add to that the fact I am self employed, I have no idea some days how I manage it but I haven’t.
That being said, I do have a credit card that gets mullered from month to month, though I moved it to an interest free balance transfer a few years ago and that runs out next summer.
However, I think if give some clear pricing for it I could be tempted to get one when the current accounts launch. I know absolutely nothing about the current overdrafts on offer from current banks, and I have no interest in learning about them now. overdrafts, however, seem very appealing to me.
I will try and put a comment together to better detail my thoughts on how I think overdrafts could work well.
But I wanted to mention another possible revenue stream, a fee to bank with :mondo:
Hear me out.
If :mondo: can build a bank that has:
Excellent customer service
Intuitive internet banking
Crystal clear terms
Fantastic reliability
Constant informative updates when needed
Continuous innovation (where possible)
Access to personal insights and data
Superb community engagement and involvement.
I would happily pay an annual fee. I do this already for Other services and will continue to do so while I see the value in the service. Chances are if :mondo: can deliver all the above it would likely save me money as it’s more the lack of updates / reminders that would cause me to get charges.
This could then also offset for lower debit interest rates.
Should :mondo: get it right and build the current account of the future then there is a concern overdrafts may not be needed enough by users to sustain the business model.
IF and its a big if, all of Franks points were carried out, I too would be willing to pay a fee to use Monzo- not a large one - I use the Coop at the moment as a joint household bills account which “give” holiday insurance etc for current account holders for £15 a month ( I think - yes I know extortionate and daft to carry on with those charges, but Im almost married to my bank account ! ) - do most banks now charge for current accounts with the “offer” of free things linked to the account ?
Could Monzo link with insurance providers cheaper - do they want to ?
I have never used a bank overdraft, so probably won’t make Monzo much money with those fees, but if I did I would like to know how much it would cost me monetarily for a set time scale rather than a percentage ( but maybe include this as a comparison to other providers )
I have used Chaps service for two large payments in the past couple of months with Lloyds which cost me £30 a time - quite why its so expensive to press a few buttons I don’t know ?
You know what I thought would be a good idea, is if alpha and or beta users got some kind of perk on overdraft charges. As a thank you for our good faith.
Flat charges per day are good but the way banks like natwest do it is a total rip off. They charge £6 for using an agreed overdraft and £1 a day so the APR could be a thousand percent if the amount borrowed is small. It encourages users to borrow the maximum amount they can as it is still £1 a day.
It would be good if you made it something like:
<£200 = 10p per day
200-400 = 20p per day
400-600 = 30p per day
600-800 = 40p per day
800-1000=50p per day
Then you are still getting around 20% APR but it is more transparent and customers can’t be ripped off like they can when paying £36 a month to borrow a few quid.
What about some kind of referral rate, like if you refer 5 people to Monzo who sign up you get charged 10%, 20 people 9.5% etc. Or there could be other benefits to referral.
Agree it has to scale like this if you are using fixed numbers.
Banks that use a flat £1 a day end up extortionate for those who may be only a few pounds in overdraft, whilst being absurdly cheap for those who keep a large balance (compounded by the problem that it may be a week or more before you realise as everything in banking appears to happen so slowly*)
From this thread it’s easy to see why banks like flat fees… but there have been times in my life when £30 a month meant the difference between eating or not (and sometimes the only thing keeping me in overdraft was the fees). I don’t want my free banking to be on the back of people struggling.
Except monzo, who have taught me that waiting 2 weeks for payments to show on my balance is not normal.
Wow, thanks everyone some amazing and really interesting points being made and I’d like to pull out a few threads if I may. First of all, we have been incredibly well trained to know that if we want to borrow at the end of the month we get an overdraft, for expenses it’s a credit card, a car is a loan, a fridge is point-of-sale finance and a house is a mortgage. Why? Well it makes it easy for the with credit scoring, policy rules and it also makes balance sheet management easier. At something different is planned. First up, as @JamesBell mentioned, we have started on supporting and encouraging good financial behaviour, we call it Targets New Targets feature now live! and it’s great to see the community benefiting from this already.
Secondly, pricing. Whilst I think @anon6625950 and others have a great point that many people don’t calculate or even understand the cost of credit, I firmly believe that should be a force for good here. No apologies we will make money from lending although we will do this at a ‘fair’ price. Personally I believe this means setting a rate of interest (somewhere in the 20-50% space) although crucially showing this in app in £ and p - predictively as well as retrospectively (does that make sense). In the longer term @JamesBell has the most likely view that we become a data/identity platform/financial navigator/hub and earn a margin for referrals - whilst tackling another little bugbear of mine…ADVICE (oh no another nest ).
Thirdly, when we do start to lend it will be very simple in true style although it will be the first step of many. However, in the future imagine if you knew what your personal credit line was and that you could buy what you wanted when you wanted and then in the evening over a or decide how you wanted to pay the money back, thereby solving @anon90478425’s point about small ‘loans’ - think about it…an overdraft that is repayable over a period of time is…a loan
Finally, as a little thank you for your participation in this thread. I’d like to give you a @hugo style ‘sneak peek’ (can you spot his magic touch?) on a screen, one of many that could be working its way to you over the coming months:
Hi,I would favor a small ‘free buffer’ of no more than £50 as an overdraft. This would cover most spending and that end of month blip sometimes. Whilst I have ‘free’ banking and don’t use my overdraft, my account sits with about £1500 in it for a good portion of the month,which in sure is well used by my bank to make more money than I cost them.
A daily fee as suggested send fair with bands up upto £200 20p per day £200-400 30p a day etc.
I doubt this will affect Monzo (as I don’t expect them to impose the punishing fees that we see from the legacy banks) but this is encouraging to see -
Having said that, I expect the legacy bank’s fees & charges will go up as a result…& that will only help attract users to Monzo
yes, we can say upfront we will not have punishing charges.Monzo model is all about giving the control to the customer by creating features like pulse graph, budget tools, real-time notification etc. We are currently looking to meet our customers ( look out for a possible invite ) and evolve a model where the customer pays for the services S/he gets while remaining in complete control of the what they use and pay. The worst thing is to find the charges creeping up in a surprising ( rather a nightmarish ) way.
give some clear pricing for it I could be tempted to get one when the current accounts launch. I know absolutely nothing about the current overdrafts on offer from current banks, and I have no interest in learning about them now. 
- I use the Coop at the moment as a joint household bills account which “give” holiday insurance etc for current account holders for £15 a month ( I think - yes I know extortionate and daft to carry on with those charges, but Im almost married to my bank account ! ) - do most banks now charge for current accounts with the “offer” of free things linked to the account ?
with credit scoring, policy rules and it also makes balance sheet management easier. At 
something different is planned. First up, as 
nest 
).
or 
decide how you wanted to pay the money back, thereby solving 
touch?) on a screen, one of many that could be working its way to you over the coming months:
touch’ be included in all future SWOT analysis? No incumbent bank can compete with that.