Card charges push consumers to challenger banks

Extra credit and debit card charges will be outlawed in the UK by January 2018 but some argue this is not enough. While the EU has banned the use of Visa and Mastercard charges, the UK Treasury went a step further on July 19 banning charges on PayPal and American Express too.

“The rules unveiled by The Treasury today are a welcome step designed to bring more transparency into the payments process and above all puts the consumer at the heart of it,” says Lu Zurawski, head of consumer payments for EMEA at payments firm ACI Worldwide.

The ban on surcharging aims to make it easier for consumers to compare prices and makes it cheaper to shop online. “On balance, it is a sensible outcome. As well as eliminating the much-reviled surcharges, it provides more choice to consumers in how they make payments,” adds Zurawski.

It’s not only debit and credit card charges that are turning consumers away from mainstream banks. Overseas card charges are diverting them from traditional banks towards digital alternatives, the financial consultancy and money app, deVere Vault has argued. A recent deVere Vault poll of 856 users found 91% believe overseas debit card overseas fees are “unacceptably high”.

“Nine out of 10 people told us that they found the fees for using their cards overseas were ‘unacceptably high.’ You can see why: 6% for accessing your own money when outside your country of origin is a scandal,” says Nigel Green, deVere Group’s founder and CEO.

“The banking sector is dragging its feet. It is looking increasingly archaic due to its failure to adapt to an ever-more mobile population who want, need and expect free, borderless financial solutions,” he says.

The telecommunications industry has recognised this “far-reaching, fundamental shift” by reducing or scrapping their roaming charges in many countries, Green argues.

“The arrogance of traditional banks is such that they believe that they don’t have to change with the times and meet evolving client expectations”

“However, the arrogance of traditional banks is such that they believe that they don’t have to change with the times and meet evolving client expectations so are continuing to impose ridiculously high charges for using your bank card abroad,” he continues.

Consumers’ growing negativity towards traditional banks was supported in this year’s edition of the World Retail Banking Report (WRBR), which surveys over 16,000 customers across 32 countries. “Fintechs are now earning higher positive customer experience scores than traditional banks, and banks are openly seeking to collaborate with fintechs,” said Anirban Bose, co-author of the report and global head of banking and capital markets, Capgemini.

It’s little wonder that on May 16, Monzo, a UK challenger digital bank that does not charge overseas fees, reported more than £250m ($326m) has been spent through Monzo cards by more than 200,000 customers since its inception in 2015.

“PSD2 will crack open the whole industry and give much more visibility around what each product is really costing”

Tom Blomfield, Monzo CEO, spoke to GTNews’ sister-publication Bobsguide, arguing: “I think if we do our jobs right, it will make some of the high street banks extinct.

“The traditional business model of a high street bank is basically focused around attracting customers at a young age, often through incentive-driven marketing schemes. And then you give those customers student loans, and a credit card, and a car loan, and a pension, and an individual savings account (ISA), and a mortgage – you cross-sell them all these products and you rely on keeping them ‘locked in’ as a customer,” he says.

Monzo, like many other challenger banks, is trying to redesign the banking loyalty system for customers. For example, instead of offering existing customers mortgages, Bloomfield wants to offer apps that help customers to buy the best product, similar to comparison sites.

“I also think the EU’s Payment Services Directive (PSD2) will crack open the whole industry and give much more visibility around what each product is really costing,” he adds.

However, Paul Thomalla, ACI Worldwide global head of corporate relations and development, does not believe this is the end for high street banks. “Challenger banks usually meet the needs of the more tech-savvy, younger generation who require less complex services, tend to reside in cosmopolitan cities, and like to control their money from the palm of their hand. But as this does not apply to all, customers who require more from their bank than just a current account and debit card may have to look elsewhere. The traditional high street banks will, therefore, remain relevant,” he tells GTNews.

“Not only can traditional banks cater to a wider array of fiscal needs, comparatively, they tend to have greater credibility and loyalty from their customers. In fact, figures from BACS reveal that just 3.5 million people have switched bank accounts since 2013 (when challenger banks were on the rise), out of an estimated 70 million active account holders in the UK.”

“Today, more and more traditional banks are now partnering with, or even acquiring, fintech companies to ensure that they do not fall behind and can appeal to every demographic at any stage in their lives,” says Thomalla.

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