Are the new banks on the block any different from the Big Five?
So will new players in the high-street banking game shake things up or just provide more of the same for beleaguered current account holders?Co-operative Bank
It is hardly a newcomer but the Co-operative 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 in 2009. And it is almost certain to buy the 632 branches Lloyds is being forced to sell to reduce its dominance in UK banking. The final total of 975 branches will see Co-operative Bank snapping at the heels of HSBC (with 1,250 branches the smallest of the Big Five) and will give it wide coverage over most of the UK.
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 that they can redeem twice a year. The same membership can be used in all 5,000 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.
Co-operative 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 about 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 – the level 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 cinema foyers in primary reds and blues, with staff at counters or desks and not a pane of bulletproof 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 you decide to open an account, a special gizmo will produce your debit and credit cards on the spot. Both cards boast 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 new bank, Virgin, bought Northern Rock from the Government and its 75 branches and four million savings and mortgage customers are now part of Virgin Money. Northern Rock sites will be rebranded by September and they too will be called ‘stores’ rather than branches.
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 banks. The Big Five still dominate, with 85% of all bank branches and probably 90% of all accounts. Moving your current account can seem daunting. But the process is now much quicker and easier. Any standing orders and direct debits will be moved automatically to the new account. Some banks will also inform firms that pay you regularly – such as your employer or pension provider; with others you may have to do this yourself. Monitor the process to ensure you do not miss payments out of or into your account.
These new banks are after your business. If you are a rate chaser – moving your savings every six months for a whisker of higher interest or if you juggle credit cards to get back-to-back zero-interest deals – you may not be attracted. But if you want a more personal or different sort of banking, you could be tempted away from the Big Five. The more people who move, the more those old dinosaurs will have to evolve.* Read Paul Lewis's money articles every month in Saga Magazine.