Challengers get competitive over zero fees

Cheap offerings and unique app based financial management define new strategy

by | July 20, 2018 | bobsguide

Competition has ramped up around ‘banking abroad’ with retail banks – challenger and legacy – vying for the shoparound holidaymaker, most open to trialling new and different financial services for their holidays if it saves them from those hidden fees.


For years, the lack of collaborative infrastructure or competition in the area led to high currency exchange rates and fees to withdraw local currency.

But now the challengers are aggressively attacking this corner of the market and offering a zero-fee alternative in a bid to lure customers away from the traditional strongholds of the big five banks. Here’s what the challengers say:

Monzo: “Spend with your Monzo card anywhere in the world, for free. We don't add any fees to the exchange rate and you don't need to tell us in advance.”

Starling: “Next stop: a debit card that goes the distance. Map out your holiday and travel funds with zero fees from us, safe card-locking capabilities and 24/7 in app support. When we say zero fees, we mean exactly that.”

Metro Bank: “At Metro Bank, we’re always looking for ways to make our customers’ lives easier. Fee free transactions across Europe, both when it comes to withdrawing cash from an ATM and paying on card, mean customers can get on with their holiday and not worry about additional charges or fees.”

Monese: “We never charge any hidden fees and we use the real, wholesale exchange rates that banks get – and pass the savings on to you! This makes us up to 88% cheaper than banks.”

The major UK banks typically charge a little under 3% for overseas purchases with their debit cards. Standard current account holders with Barclays, HSBC, NatWest and Santander charge 2.75% while Lloyds and Halifax charge 2.99%. Santander, TSB, Lloyds and Halifax all add nominal charges in addition (50p – £1.25) as a purchase fee.

An opportunity in the market

With many holidaymakers looking to do a last minute shop around for better rates, it is no wonder therefore that challenger banks have opted to attack this space in order to compete with the huge customer base of big banks.

Challengers rely on new technology to cut costs, swerving clunky legacy systems and the cost and uncertainty of integration. The nimble and agile nature of the streamlined organisations as well as the technology’s ability to adapt allow them to respond quickly and positively to new regulation.

Many of the challengers boast easy setup current accounts, with Monzo touting all you need to set up is the app, a selfie, an ID and the card is sent in the post. Metro Bank, mixing the digital and the physical, print the new card in store while the customer waits.

“Our model at Metro Bank is around creating FANS of our customers, through offering them exceptional customer service and convenience," says a representative at Metro Bank.

"That means we invest in areas that will surprise and delight our customers and make their lives easier, whether that’s printing a new or replacement card in store then and there, opening an account in a matter of minutes without an appointment, or offering fee free transaction in Europe to make their holiday is convenient as possible. This is simply about how we approach creating FANS of our customers – both new and existing.”

But converting and retaining new customers does not come cheaply.

“It costs Monzo money every time you withdraw cash abroad, so we introduced some limits after a vote by our customers,” reads a Monzo blog post.

“Withdraw up to £200 every 30 days for free. If you've used your free allowance, there's a 3% charge on withdrawals after that.

“We only aim to cover our costs, and don't make a profit from these charges.”

 

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