Challenger banks turning up the heat
As M&S Bank confirms the launch of its new mass market current account Andrew Hagger of moneycomms.co.uk looks in detail at how the challenger banks have raised the bar and are offering customers a credible alternative to the established high street banks.
The likes of Metro Bank and Post Office may still be in the early throes of rolling out their banking proposition across the UK but just like M&S Bank they come out favourably when you lift the bonnet and take an in depth look at their competitive low cost current accounts.
There’s not one current account that works out best for everyone, so it’s worth looking at the individual key components (see attached comparisons) of what’s on offer to see how the banking players old and new stack up.
Agreed overdrafts
It’s difficult to pinpoint the cheapest overdraft as it depends on how much and how long you’re in the red each month; however those accounts charging interest only as opposed to daily or monthly fees are the cheapest when you look at the attached account comparisons.
For example if you only use an overdraft of £400 for four days each month, the total annual cost is less than £10 with First Direct, M&S Bank, Post Office, Metro Bank and Nationwide Building Society FlexAccount. Compare this with a yearly bill of around the £80 mark for the same borrowing scenario with Lloyds Bank (Club Lloyds), TSB Classic Plus and NatWest and RBS Select.
Unauthorised overdrafts
Not many people purposely set out to go into unauthorised overdraft but for those that mistakenly stray outside their agreed limit the financial penalties can be harsh.
M&S Bank has boldly decided that it won’t charge any fees for unauthorised borrowing – you’ll simply pay the same interest rate as per your agreed overdraft at 15.9% EAR with no paid referral fees, unpaid fees or daily or monthly charges. Not only is this approach is a breath of fresh air, but also the financial benefit for consumers is huge.
Unauthorised bank charges may be a useful revenue stream for the banks but the flipside is that they simply upset and alienate those customers that they worked so hard to attract in the first place and pretty much destroy any chance of future loyalty.
Putting it in hard cash terms if you make two debit card payments on the same day that put you into unauthorised overdraft by £120 for three days, M&S Bank will charge you just 15 pence.
At the other end of the charging spectrum Lloyds Bank and TSB will both charge you £36.20, Norwich & Peterborough Building Society £49.18 and Nationwide Building Society( FlexAccount) £50.19 for the same short term oversight or indiscretion.
Debit card charges abroad
This is an area that’s often overlooked by current account holders until they return to the UK and see the costs in black and white on their bank statement. The M&S Bank decision not to charge for ATM cash withdrawals overseas helps put it in the top five cheapest accounts to use abroad along with Norwich & Peterborough BS, Nationwide BS and fellow challengers Metro Bank and Post Office.
The research attached shows that a family holiday scenario could easily set you back nigh on £100 in charges with the likes of Lloyds Bank, TSB, Santander and Halifax.
Credit Interest
There’s no credit interest payable with the new M&S Bank account – or with Metro Bank or Post Office.
But it’s interesting to note that the banks that are offering the top deals for in credit interest/rewards (Lloyds, Halifax and TSB) are also the most expensive for debit card charges abroad and at the more expensive end of the table for overdraft costs, so it’s akin to robbing Peter to pay Paul.
Incentives
An introductory one off payment shouldn’t be the basis on which you choose your bank account, the £100 golden hello may seem like a good idea at the time but opt for the wrong account for the way you manage your day to day banking and you could soon end up paying over the odds in charges and more than wipe out the value of the initial freebie.
M&S Bank is offering a £100 M&S gift card for accounts switched by the switching system – and if the rest of the account components work for you, then it’s a nice to have and makes the switch that bit sweeter.
Customer service
Good customer service is essential if new banks want to attract new customers year after year and is an area where the challenger banks have a real opportunity to differentiate themselves from the patchy and mediocre service offerings from the established banks.
M&S Bank (23rd) and Post Office (92nd) were two of only eight financial players to appear in the top 100 brands in the latest Nunwood customer experience excellence results (details attached) and both are also amongst the four banking brands shortlisted in the Which Awards 2014 where again the focus is heavily on customer service.
Summary
There are plenty of positive aspects to the M&S Bank account and if it can maintain and build on its reputation for good value and good customer service its share of the UK current account market along with fellow challenger banks could grow rapidly over the next few years.