Negative interest rates: Is UK finance in trouble?
Although the BoE stated in its ‘’ that interest rates will be maintained at 0.1%, economists are for negative rates to strike the UK. This mirrors a similar request from the BoE itself, but with the qualification that it does not imply such a scenario will come to pass.
Acting as a form of ‘anti-interest’, negative rates would see banks charged to keep their money within the central institution as opposed to receiving interest. This would have a direct effect on consumers in :
- Mortgages: Fixed-rate mortgages will be unaffected while variable mortgages may drop. Also, new mortgages may become cheaper.
- Savings: The COVID-19 pandemic has already done much to water down rates of interest on savings accounts. Some experts predict interest rates of 0% or slightly above, with ultra-rich clients potentially facing fees to hold their cash.
- Loans and credit cards: Are likely to be unaffected in either case.
Could digital banks survive negative interest rates?
Speculation as to how negative interest rates would affect digital-only banks run from monthly maintenance fees to a percentage charged on every deposit and withdrawal. Such restrictions could make neobanks less attractive to customers who view them as being better and cheaper tech-based alternatives to incumbents.
The limited amount of lending currently offered by neobanks also exacerbates the problem. , for instance, has been criticised for not developing its loan and wealth management capabilities to boost revenue. For a company already losing approximately £100m per year, a blow to its value proposition of affordability and convenience could be disastrous.
Furthermore, Nigel Green, CEO of deVere Group, questions whether the BoE triggering negative interest rates to ‘support the economy’ would actually achieve such a purpose:
“This is because the move could be viewed by consumers and investors that the economy is in a perilous position and, as a result, trigger a serious drop in consumer and investor demand.”
“While the debate on whether negative interest rates help the ‘real economy’ or not will continue, there is no doubt that they would help boost financial asset prices.”
Barclays boss says UK finance should refocus competition
Meanwhile, Barclays CEO Jes Staley has stated that UK finance’s post-Brexit agenda should move past the EU and focus on the US and Asian markets.
"I think what London needs to be focused on is not Frankfurt or Paris, [it] needs to be focused on New York and Singapore."
Although he recognised that some jobs had been moved to the continent as a direct result of Brexit, Staley contended that the positives would soon outweigh the negatives: the UK can now carve out its own path, although he wouldn’t condone an upheaval of existing regulations to achieve it.
, the UK was found to be second only to the US in terms of fintech capital funding last year, totalling US$4.1bn. Although it still has a long way to go catch up with the US’ figures ($22bn) and the scale of investment seen in the Asian market, the UK’s current position above the rest of the EU could lend credence to Staley’s comments.
CMA warns UK and Irish banks over bank transaction histories
Specifically, the CMA named prominent challenger bank Monzo, the Bank of Ireland, NatWest Group, and Virgin Money as not providing customers with records of their bank transactions within the maximum outlined timescale (40 days after closing the account).
Such information is crucial not only for ensuring a smooth transition from one bank to another, but also to provide a foundation for credit applications in the future.
According to the Retail Banking Market Investigation Order 2017, 95% of bank and building society customers should receive their bank transaction histories in at least 10 days.
Reputation: A bank’s greatest asset?
Of the 150,000 customers affected, Monzo was by far the main contributor - 143,000 (95.3%) - with the other three dividing the remaining 7,000.
The extent to which the magnitude of its mistake is attributable to being a digital-only bank is not clear, although it may give some customers pause for thought. With a superior customer experience being among the bank’s greatest assets, continued reputational damage is something that it cannot afford to sustain.
Although the CMA’s action in this instance has been to issue each bank a warning and order the immediate dispatch of all outstanding information, it has warned that future breaches will carry heavier consequences. Measures could include legally enforceable compliance audits on a yearly basis.
Helping customers get a better deal
Condemning the banks for negligence that could negatively impact customers’ desires to take out loans or mortgages, Adam Land, CMA Senior Director of Remedies Business and Financial Analysis, promised that his organisation would remain vigilant to similar behaviour moving forward.
“Banks must comply with all the rules – that includes providing a full transaction history promptly.
“We will be watching closely to make sure these leading names stick to their word and don’t let their customers down again. The Bank of Ireland, Monzo, Natwest Group, and Virgin Money should be in no doubt that the CMA stands ready to take further action if these failures are repeated.
Image source: gov.uk