Student Account Management?


(Josh Davies) #1

Something that has been playing on my mind as a student, is how student accounts and overdrafts will be managed. With the launch of the current account looming and my anticipation building, I would love to switch solely to Monzo. #Monzoislife.

However, I have concerns regarding this area, First of all how someone would go about opening and providing documentation to open a student account in a reliable manner. And how student Overdrafts would work. One look at highstreet banks shows a vast variety in overdrafts available - from 100 - 1000 pound. Myself, I keep my overdraft small, but how will monzo provide interest free overdrafts for a large number of students (which you are targeting with allowing .ac.uk emails to skip the card que so on)?

Would you charge after a period of time, such as 3 years, following university as seen in graduate accounts in other banks?

I only worry as I feel Students are a target audience but not a huge amount of information relating to our accounts in the future has necessarily been released?


#2

I don’t see why they should have interest free overdrafts. There are many people in society worse off than students such as families where the breadwinner is on national minimum wage. To give one group the priviledge of a free overdraft while others are living hand to mouth is unfair, regardless of the fact that competitors cross subsidize free overdrafts for students by charging the working man more. This is particularly an issue when the bank’s whole business plan is reliant on overdraft charges for it’s income.


(Alex Sherwood) #3

As I think you probably know, the banks offer students interest free overdrafts as a ‘loss leader’ because they know that they’ll make the money back once the student is no longer a student.

At that point they’ll start paying interest on the pile of debt that they’ve (probably) taken on, while the same inertia that stops most people from moving banks will enable the bank to cross sell products to them.

As a result, most students end up more than paying back the interest that they would have paid during the interest free period.

So…on the one hand it makes sense for Monzo to offer students interest free overdrafts, in order to compete with the banks, particularly because viral marketing (which Tom’s said is key for Monzo’s growth) should work especially well in a university.
On the other hand, as Richard points out, Monzo is relying on the revenue from overdrafts in order to break even this year.

If Monzo doesn’t offer interest free overdrafts, students should still be able to track the majority of their spending (apart from what they spend from their legacy bank’s overdraft), by transferring their money to a Monzo account.

But I’m not sure which option makes most sense for Monzo’s business model…

Don’t worry - we don’t have much information about the current accounts in general yet but I’m sure that once Monzo have finalized their plans & the launch is close enough for us to be able to do something with the information, they’ll tell us more :soon:


(Josh Davies) #4

I am particularly invested in Monzo, I enjoy all the amazing features and helping build a new type of bank. So I will most likely switch over regardless of the overdraft situation.

While, I agree with this - Students Can essentially continue using monzo in a Prepaid card method, perhaps the complexity of this method will cancel out any good caused by the budgeting aspects monzo? When I have spoken to other students about Monzo Two main concerns have been raised.

  1. What happens when they accidentally go into their overdraft?
  2. When will their be a student account?

As 1) Is fairly solvable with a interest Free Buffer zone overdraft that I believe has been suggested elsewhere. Alot of students obviously rely on, or even live in, their overdrafts - Are we essentially saying that students wont be able to use monzo as their main bank for a couple of years? I think some people might lose interest :frowning:

This is an interesting point which I agree with - However, Once again other banks offer the graduate account now - Allowing students, like myself, to extend our fee free overdraft period by 3 years after graduation. I Imagine in a startup bank such as monzo, they would want to monetize faster than a larger more established bank? So once again this may drive students away from using Monzo as anything but a prepaid card?

I believe that free overdrafts should be a priority for people whom cannot afford their way of life and that breaking the debt cycle is vital. Too many lenders and banks, want you to become stuck in this cycle, and these institutions should take responsibility with better lending and perhaps things such as fee free overdrafts… However, I do wonder where you draw the line I.e earning 18,000 a year with a family, what about the person who earns 18,050 and has a family? However, I would argue students as mentioned by Alex, eventually pay of their overdrafts after graduation so end up paying for it themselves! Also, I do think the points exact example is a bit lacking - Someone in the example you provide would receive benefits and helped by their government (atleast in the UK). So, I would argue that the responsibility of cases such as this lie with the government not with a bank.


(Alex Sherwood) #5

The good news is users who don’t want an overdraft won’t have to take one. I don’t know whether there will be an interest free buffer but whether there is or isn’t, it sounds like users won’t be able to go beyond that into an unplanned overdraft which incurs fees & payments will simply be rejected instead. I think this practice alone is a massive improvement vs the majority of the legacy bank’s current accounts.

I don’t think we know either way, at this point.

Judging by the fact that Monzo’s no longer running the student ambassador program, my guess is that they found the Monzo offering - in it’s current form - a harder sell than was anticipated already. So perhaps overdrafts are key here but I’m sure there’s other factors too.

That makes sense to me too. But it just depends on Monzo’s revenue model so I don’t know what they’ll decide.

Just to clarify, once a student starts paying interest on their overdraft &/or buying cross-sold products, they’re on their way to paying back the cost of the interest free period & may finish covering that cost before they’ve paid back their overdraft.


(Josh Davies) #6

That is a great improvement on the current system and I would definitely promote that aspect in the uses of monzo again as a prepaid card for students on the night out! I know we could all do with that.

Also for further clarification I did mean students pay the bank back with interest after their graduation on top to the amount they loan.

I do worry, that for students less invested in monzo there may not be enough to draw them in? I definitely think it’s an area that will call for more clarity in the future.


(venkat srinivasan) #7

Hi All,

Good discussion. Overdrafts are a key feature when one looks at the student current account market( I must say when I was a student in India there was no overdraft, there was a complicated model that involved borrowing between friends :stuck_out_tongue_winking_eye:. )

As we stand we will initially look to develop our lending capability ( overdraft process and system ) and once we start the ball moving we will like to look at student overdraft. If we offer it should be an extension of the current account offerings with flexibility, transparency, and control and help students manage their finance.

Offering overdraft to students is different to mainstream lending since scores or income may not available to make decisions. This does mean it will be a bespoke strategy which will we need to develop as evolve the product. When we do we will surely need community’s help to develop a robust student offering.


What We Know About the Current Accounts & Debit Cards / FAQ :bank: :credit_card: (open Wiki)
What We Know About the Overdrafts / FAQ :moneybag: (open Wiki)
#8

I’ve seen a few Q’s from students assuming there will be a free overdraft and asking if it will be for longer than their current bank offers. I think it would be great if monzo took the approach that they are not going to compete with big loss leader incumbents who want to encourage student debt and gain lifelong customer ownership and they instead focus on the many other benefits monzo can offer which don’t cost hundreds of pounds to offer. The banks are luring students into their lifelong cross-sell mousetraps with big lumps of cheese but if monzo doesn’t have any lifelong cross selling to do (or if they do but it is at razor thin margin due to the marketplace model) then does it make any sense to offer huge bribes to get students?

When i was at uni, admittedly over 10 years ago :scream:, a fluorescent card, instant notifications, budgeting and maybe some built in student discounts at the local offy would have :poop:'d all over the 0% overdraft thing.

Monzo could call out the loss leaders and market themselves as the bank who doesn’t want to own you, lock you into long term indebtedness and sell you their rip off crap for life, they just want to make your life easier and help you get where you want to be.

At uni you should be focusing on living within your means, getting good grades, having fun and gaining a decent financial standing to graduate with, but with the loss leader overdrafts once students graduate they find themselves with a low income and lots of interest bearing debt as well as bad habits from the skewed economics of free overdrafts. After they graduate they are just stuck with the same shitty bank for years because if you have a £3000 overdraft and low income you can’t just open an account with a different bank and move the overdraft, and if you could you’d just be owned by another bank ripping you off for life.

Monzo has a great opportunity to be the only good bank and i don’t think they can do it by following the status quo of carrots and sticks and lifelong enslavement. Just my opinion, i’m sure there are millions of students who will say they don’t mind being monzo slaves for free overdrafts! :smiley:


(Alex Sherwood) #9

I think it’d be a tough sell, to try to convince students to take a Monzo account without an interest free overdraft. I certainly wouldn’t blame any students who went for the legacy bank option.

But hopefully either Monzo can make the accounts work alongside a legacy bank’s student account (in theory, PSD2 should help with this) or come up with a more suitable product.

You’re 100% right about the fact that being stuck with an overdraft & a legacy bank isn’t fun!


(Gareth) #10

I still think students should access to interest-free money, since the govt student loans and grants alone are minimal to living. But it shouldn’t be called an overdraft, an overdraft for students should be like an overdraft for anyone else (maybe with a nicer buffer).

I’m imaging ‘Student Loan’ - you click in the app, read the conditions, get evaluated and a new Loan Pot appears. You can take from and return to the pot, but it’s proactive and you still see how you are living within limits (e.g. buying a laptop, last minute rent). During its use, Monzo could offer advice and tips. At graduation or soon after, the pot locks but does not require repayments until later. The student has their overdraft unaffected ready for the joys of life.

Bonus virtual pot: conversion - a pot that converts your term grant into a monthly pay for you, making it easier to control spending


(Tommy Long) #11

I largely agree with your post but I’d have gone with the interest-free overdraft (or realistically, I’d have had both). The terms of a student account prohibit you from having multiple but there’s nothing to stop you from using Monzo for your day-to-day spending whilst simply topping it up from interest-free debt from your student account.

It’s worth considering though, would we rather that someone graduates with £3k of debt to Monzo or to HSBC/etc.? Monzo’s transparency makes it a lot easier to pay off those amounts.

On some of the other points:

  1. it still makes absolute sense for Monzo to offer interest-free student overdrafts. Monzo’s entire business model is reliant on people operating some sort of overdraft (and using the marketplace) so someone running up debt is beneficial to Monzo (even if Monzo doesn’t push them towards it).
  2. you don’t start paying interest on your student account overdraft as soon as you graduate. My account got converted to a graduate account for 12 months which was still interest free. Maybe Monzo can find a better way of tackling this, by reducing the interest free amount by say £100 per month after graduation and helping people to get within that new limit.

(Josh Davies) #12

While I agree with alot of the suggestions here I believe a great deal of them actually originate from the stereotype that students spend recklessly or live in their overdrafts. I have a small 400 pound overdraft and I have never needed more. From my experience a great deal of students actually budget, which is where monzo can really stand out as an option. However, Not providing interest free overdrafts to students is a very silly idea. Every student, if justified or not, Will expect an fee free overdraft, not because we live in our overdrafts but because our loans come so intermittently that planning or disasters without additonal money is difficult so that safety net is vital.

@rarther, Alot of your issues with overdraft debts are solved with the new ‘graduate’ accounts allow students an additional period of time to pay off this overdraft while being employed. Barclays would offer this as a 3 year buffer. You need to remember that when you get a student they will often remain in your bank for their entire life. So going out of your way to cater to students will pay off in the long run. Furthermore, I believe that with responsible fees of overdrafts, even without a buffer period, students can pay off their overdrafts very quickly. Its also vital to remember the period after university is where the profit is made.

Students, are realistically one of the major targets of this bank being part of the APP age. So catering to them is unavoidable. I and I believe most students will understand that Monzo will not be able to offer interest free overdrafts for perhaps some years. However, Until it is available I dont expect many students will use the bank as more than a budgeting assistant with a prepaid card. So in the short term focusing on student based budgeting will be key. However, in the long term perks will need to be offered for them to switch from legacy banks… Nobody student or not will switch from fee free to fee paying.


(system) #13

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