Is Metro Bank the future of high street banking?
When Metro Bank opened its flagship branch in Holborn in central London at the end of July, it became the first new bank to open on the UK high street in more than 100 years.
The PR wheels were oiled to perfection, with a mini Dixieland band and pastries and fruit handed out to passersby.
This sums up what Metro Bank's co-founders Vernon Hill and Anthony Thomson (who is also chairman) want the new bank to be: both fun and convenient. There will be customer toilets in every branch and dog biscuits on hand in case customers drop by with their pets.
The bank's biggest USP, however, is the fact it will open seven days a week from 8am to 8pm – although critics question how necessary it is for a branch to be open seven days a week in non-residential Holborn.
Metro Bank also plans to open three more branches this year in Earls Court (3 September), Fulham Broadway and Borehamwood in Hertfordshire, and more are due over the next two years – but again all within the M25.
However, this still means the bank is limited geographically which will prevent it from having the revolutionary impact it would like, said Andy Deeks, managing consultant of financial services consultancy Navigant Consulting.
"The main banks won't be overly worried: Metro Bank is only going to be in the M25 area and it offers a relatively limited online service."
For example, the website lists the savings and accounts on offer, but for more detailed information on rates you have to click on a PDF or phone the branch.
Deeks thinks that Tesco and Virgin – two brands rumoured to be planning to launch into the banking sector – will pose much more of a threat to existing banking competitors as they don't have to start from scratch as Metro Bank has.
Virgin Money has recently acquired Somerset–based building society Church House Trust. It is also believed to have made an (unsuccessful) bid for hundreds of RBS branches. But when asked about its plans to launch a high street branch, spokesperson Grant Bather simply said: "We remain committed to our organic growth plans."
So while Tesco and Virgin have the potential to make a big impact on the industry, what effect will Metro Bank have? In a moneywise.co.uk poll, 19% of readers said they wouldn't switch to the new bank, while a further 43% would wait and see how it fares first.
The reputational damage traditional banks have suffered has caused customers to be far more cautious, and although Metro Bank is fully FSA-backed and a member of the Financial Services Compensation Scheme, it will take time for it to establish itself and build up trust.
What's on offer?
But what about its products and offerings? Metro's instant access savings account pays a paltry 0.5% EAR, compared with 2.6% from current market leader West Bromwich Building Society, while its Young Saver account pays 1% against 6% from Halifax.
All credit card customers will pay a flat rate of 13%, which may be a good rate but looks less impressive alongside credit cards with 0% introductory periods.
"The fact that customers can have their credit card printed in-store adds to Metro Bank's overall convenience, but the lack of introductory offers means you can find better deals with the traditional banks," said Dilshad Issa, personal finance expert at uSwitch.com.
However, while the bank's opening has met with some questions over its long-term ability to grow and compete with the high street banks, Lloyds Banking Group's actions – handing out free shopping totes and balloons outside its Cheltenham & Gloucester branch, just opposite Metro Bank's opening celebrations – suggest banks are at least a little afraid of the new bank.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.