Traditional high street names are trying to fend off competition from newer contenders
NEW banks on the high street have been hitting headlines recently, with Sainsbury’s announcing it is in negotiations with Lloyds to take full ownership of the Sainsbury’s Bank joint venture; Metro Bank claiming the number of customer accounts increased by 183 per cent in 2102; the Post Office and Tesco both announcing they will launch a new current account this year; and the chancellor saying he wants to see “new faces on the high street”. It all sounds like good news for these new entrants, but does it make financial sense to switch away from the big five?
While the rise of new financial contenders – Metro Bank, Virgin Money, M&S Bank, Aldermore and new supermarket banks – has helped raise awareness and increase choice, Michael Ossei of uSwitch doesn’t feel they offer anything new in terms of products. “Virgin Money, for example, just took on the Northern Rock back book when it acquired it in 2012,” he says. What they do offer is more convenience – Metro Bank, which launched in 2010 as the first new high street bank in Britain for 100 years, is open seven days a week, is pet friendly, and offers free overseas transactions. Supermarket banks are enabling customers to bank and shop at the same time.
The current account market is still dominated by traditional banks, and the new entrants typically offer a narrower range of products. Additionally, with credit cards, “if you want to transfer a balance, the market rarely features smaller providers offering long-term 0 per cent deals – it’s dominated by the bigger names,” says Sally Francis of MoneySavingExpert. Still, many of the newer faces have topped the best buy tables in the last couple of years, particularly with savings accounts. And loans are offered by fewer new providers, but still remain competitive.
The Post Office, for example, which has been offering financial products for the past ten years, offers loans with a 7.4 per cent annual equivalent rate. And Ossei lists Shawbrook Bank, which underwrites its own loans and offers competitive savings products, as the “only new bank bringing something truly forthright to the market”. But it is still very much a digital offering, which may not appeal to all consumers. Ossei believes Metro Bank has yet to deliver as much as it could. But already, its current account has no monthly fee, and its mortgage deal offers a two-year 2.79 per cent interest rate (for a 60 per cent loan-to-value mortgage) with a follow on rate of 4 per cent.
THE RISE OF SUPERMARKET BANKING
And over the past few years, supermarket banks have begun to take advantage of disgruntled customers. M&S Bank, run as a joint venture with HSBC, has a MasterCard offering 0 per cent for 15 months, and a standard APR of 16.9 per cent thereafter. Sainsbury’s Bank, launched in 1997 as a joint venture with Lloyds, is offering 0 per cent on purchases for six months with its Cashback credit card, and 0 per cent balance transfers for 15 months. But MoneySupermarket has warned that “there are often old banking names behind these new operations, creating transparency issues”. And traditional high street banks are starting to offer more competitive rates to stop customers from switching. “Already, Santander has become quite aggressive in the offers it is making to customers,” says Ossei. Halifax, part of Lloyds, is now offering £100 to switch back your current account; First Direct, a division of HSBC, is doing the same. And many of these banks are cropping up in shopping malls, giving people the increased flexibility they had previously sought from newer contenders.
Many consumers choose not to switch because they worry it will incur hidden fees. It explains why recent Santander research found that people in the UK hold the same bank account for more time than the average length of a romantic relationship. Currently, if you do switch and direct debits are missed, you will bear the cost. But the Payments Council is introducing new rules in September that mean switching banks will be an easy process that won’t take longer than seven days. The ease of access may lead to a surge in consumers switching – but to get the best deal possible, do your research and shop around.