e-mail Paul Lewis on paul@paullewis.co.ukThere is a new mood of banking competition on the High Street. Four new or expanded banks are trying to tempt us away from the big five – Lloyds/Halifax/Bank of Scotland, RBS/NatWest, Barclays, Santander and HSBC. But how are the new banks on the block making themselves different from the traditional banks we love to hate?
Cooperative Bank
It is hardly a newcomer but Cooperative Bank could soon be closing in on the
big five to become the sixth force in High Street banking. It has already grown
from fewer than 100 branches to more than 300 after taking over Britannia
Building Society. And it is almost certain to buy another 632 branches which
Lloyds is being forced to sell to reduce its dominance in UK banking. The final
total of 975 branches will see Co-op Bank snapping at the heels of HSBC, with
1250 branches the smallest of the big five. The branches it is buying will give
Co-operative Bank wide coverage over most of the UK and its logo will be a new
sight on many High Streets over the next year or so.
Co-operative is the only mutually owned bank – in other words there are no shareholders and all profits are ploughed back into the business. Any customer can pay £1 and become a member for which they will get points on banking products which they can redeem twice a year. The same membership can be used in all 5000 Co-op outlets such as supermarkets and pharmacies. It is also the only bank with a stated ethical banking policy. It does not invest or accept business from firms that fail its tests on animal welfare, human rights or environmental damage. It also supports mutually owned and community based firms.
Cooperative Bank has never had great savings rates but its loans and mortgages are OK and it does well in independent customer satisfaction surveys.
Handelsbanken
Handelsbanken is a 140 year old Swedish bank with around 120 branches in the
UK which it adds to by a handful each year. It offers the old-fashioned banking
that many Saga readers will remember. It has no call centre – customers ring the
branch and speak to someone who knows them. It pays no bonuses or commission to
staff so they are not trying to sell customers products. The terms of loans,
mortgages, savings, and current accounts are all decided at the branch. You
can’t just choose to bank there – the bank has to choose you as well. And you
need to have a certain level of income or borrowing before the bank will do
that. What that level is will vary from branch to branch.
There is a monthly fee for a current account – perhaps £10 or £15, and interest rates will not be the best. So if you want top rates on your savings or the cheapest mortgage this probably is not the bank for you. But if you have a decent income or savings, or you run a small business or your affairs are not quite straightforward then its very personal service might suit. Handelsbanken offers bespoke banking. And like bespoke tailoring it is not for everyone.
Metro Bank
Metro Bank is a brand new UK bank. It has just ten stores – it prefers not to
call them branches – and another dozen in the pipeline. They are all in
southeast England, and almost all are in London. The branches look more like a
cinema foyer than a shop or a bank with primary reds and blues and staff at
counters or desks with not a pane of bullet proof glass in sight. The Holborn
branch even has a broad, curved staircase just waiting for a starlet in a long
dress to sweep down, though it is more likely to be the Chief Executive whose
office is above the shop. There are dog bowls, a free machine to convert your
small change, and safe deposit boxes from £100 a year. Branches open 361 days,
8am-8pm in the week, 8am-6pm Saturdays and 10am-5pm on Sundays and Bank
Holidays. The UK call centre is open the same hours, closed only Christmas Day,
Good Friday, Easter Sunday and New Year’s Day.
If those things tempt you in and you decide to open an account a special gizmo will produce your debit and credit cards on the spot. Both cards the valuable feature that they do not charge you extra to use them abroad anywhere in the world. And while the rates on savings won’t attract many, the interest rates charged on its personal loans and credit cards are competitive.
Virgin Money
The newest of the new banks, Virgin has bought Northern Rock off the Government
and its 75 branches and their 4 million savings and mortgage customers are now
part of Virgin Money. The Northern Rock sites will be rebranded by September and
they too will be called ‘stores’ not branches. Promotional material promises a
warm welcome with no hard sell.
Virgin Money will launch its current account next year. It denies the controversy in the press about whether everyone would have to pay a fee and says it will charge in a simple and clear way for different customers – those frequently overdrawn, those always in the black and a third group who want to be in the black but may just occasionally stray into the red. No details of prices have been published but some current accounts will always be free. As with its credit card, some may come with deals on other Virgin products such as wine or flights.
A new Virgin Money savings account perhaps shows the way it is thinking. It offers a straight 2.85% on any amount with no introductory bonus. So the rate won’t plummet after a few months. The same rate is available online, by phone or in a branch. With only 75 branches Virgin will be a tiny player on the High Street. But it has promised to ‘disrupt the banking industry’. Perhaps it will.
Take action
None of this competition will work if customers do not change to one of the new
banks. The big five are still overwhelmingly dominant with 85% of all bank
branches and probably 90% of all accounts. Moving your current account can seem
daunting. But the process should happen much more quickly and easily than it did
in the past. Any standing orders and direct debits will be moved automatically
to the new account. Some banks will also inform firms who pay you regularly –
such as your pay or pension – with others you may have to do that yourself. You
should always monitor the whole process to make sure you do not miss payments
out of or in to your account.
These new banks are after your business. If you are a rate chaser who moves their savings every six months for a whisker of higher interest or you juggle credit cards to get back to back zero interest deals then you may not be attracted. But if you want a more personal or different sort of banking then you may find one or more of them offers you something to tempt you away from the Big Five. And the more people who do that, the more those old dinosaurs will have to evolve – perhaps into birds.
e-mail Paul Lewis on paul@paullewis.co.uk