There’s no doubt about it – challenger banks are quickly winning the support of people who are open to switching bank accounts.
According to the latest figures from the Current Account Switching Service, Monzo and Starling gained 10,000 new customers between them in the last three months of 2018.
That's a seriously impressive return from outfits that aren’t exactly household names.
Unfortunately, for all the good that challenger banks have brought to the market, in some areas they display a disappointingly old school approach.
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Selective savings rates
As the FT last week pointed out, the tie-up between fellow challengers OakNorth and Monzo, which sees the latter offer the former’s ISA deals to its customers, is not quite as good as it may seem.
OakNorth’s ISAs are decent – its easy access cash ISA boasts a rate of 1.44% for balances between £1,000 and £250,000*.
That’s not a million miles off the market-leading 1.48% on offer from Skipton Building Society.
The trouble is that these aren’t the savings rates open to Monzo’s users. Instead Monzo users will have to make do with just 1.14% if they take out an OakNorth account through Monzo rather than going direct.
Let’s be honest, even in the current market, a rate of 1.14% is nothing to write home about.
It also means Monzo users are giving up a quarter of the potential return on their savings simply for the ‘convenience’ of being able to sort out your savings through the same app as your current account.
There is an even bigger differential on other products too.
Monzo defends this, telling the FT that while there may be better rates available in the wide market, it “strongly believes that making it easier for customers to save is worth it though”.
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What price convenience?
I’ll admit, I have been known to forego a better return here or there for the sake of convenience.
I have an ISA which I move a portion of my pay packet into for my tax bill, and I intentionally opened it with the same bank that I have my business bank account with.
I know full well that the ISA is a long way off the best in the market, but that convenience – being able to move balances around and see my various accounts in a single place – is worth it to me.
So one level, I have some sympathy for Monzo’s position here.
They can argue that allowing their users to swiftly open a savings account in the same place as their bank account makes it more likely that they will do so, and help them build the savings safety net that so many of us don’t have.
But really, Monzo is banking on its customers being lazy, taking the easy option and not bothering to shop around for a better rate.
That strikes me as an awfully old-fashioned approach to banking, rather than the hip, user-focused experience challenger banks are supposed to be demonstrating.
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We have to expect more than this
While my skin crawls every time I hear a financial firm describe itself as a ‘disrupter’, I am a big supporter of what they are trying to do.
We can’t just simply satisfy ourselves with the big high street banks, who creak along on legacy technology and are in no position to adapt to the changing demands of modern customers.
I want challenger banks who bring a fresh approach to banking, saving and mortgages.
These outsiders are in a position to do things differently, to design products and services that actually meet our needs now, rather than continue with deals that worked in the 90s so are bound to still do the job, right?
Which is why it’s so utterly infuriating when one of these challengers, who purport to be bringing a fresh approach and a customer focus, end up in indulging in exactly the sort of tactics that shortchange their customers that we have come to expect from the worst of the high street.
The big names have built up enough trust and customer confidence – no matter how misguided that may be - that even when they let us down, there will still be some people that will carry on using them regardless.
With the greatest of respect to Monzo and any other challenger bank, they are in no such position. If they carry on displaying such tired old banking attitudes then maybe people won't be quite so keen to switch to them in future.
*Note the Oaknorth rate had been pulled by the time this article was sent out to the loveMONEY newsletter audience