The Latest Headlines From Across The Banking Sector - September

2020-10-28| Ben Dineen

The Banking Team at PEN has to stay on top of market events to continue delivering a great and relevant service. Here are some of the news headlines that caught our eye in September. 

If you'd like to discuss anything in relation to the below, please do get in touch.

Ongoing turbulence in the savings market

  • Due to its competitive rate over the Covid crisis, NS&I are already near to hitting their funding limit for the year, and as a result have announced significant cuts to savings account rates that will come in at the end of November. This marks the end of a busy few months where they have dominated new business.
  • For a while now, the pricing behaviour of NS&I and the access to cheap loans through the Term Funding Scheme (TFS) has distorted the savings market. Over the coming weeks we expect rates and available products to change with other providers making similar cuts or product withdrawals in order to prevent a surge in customer savings, with Marcus and TSB acting almost immediately.
  • What this might mean for the longer term future is unclear. With the first Term Funding Scheme (TFS) instruments maturing in September, lenders will have to raise deposits to replace this funding source or face greater borrowing costs.
  • There is no sign yet of the TFS continuing, with the Bank of England instead announcing in March of the new Term funding scheme targeting SMEs in an effort to fund Bounce Back Loans (BBLs) and Coronavirus Business Interruption Loans (CBILs). Instead we might see a more competitive lending market and firms diversify their funding channels.

Charging in a challenging market

  • Due to the need to boost profitability in this challenging market, this month both Monzo and Starling announced charges on services that current account holders in the UK have come to expect for free.
  • We believe this is a bold move, effectively taking on the “free banking model” that has been in existence since the year dot. It may well be right and a more equitable model, but consumers have resisted with a passion up to now - we don’t see it changing in the near term.
  • So with current account functionality in the incumbent banks catching up, and speed to open accounts on a par, will we see an exodus of customers from the neo-banks, ditching brand loyalty in search of a free service?
  • Furthermore, another new digital banking app from an established Bank, this time Credit Suisse, will be adding to an already competitive market place by the end of the year.

And in case you missed it…

  • With the revelation of fraudulent activity occurring under the nose of the UK’s biggest bank, it seems there’s still a lot more to do before banks will be squeaky clean. They are finding it difficult to balance business demands at a tricky time such as now with the cost of the pandemic vs investment in increasing AML controls and potential loss in deposits.
  • A new wave of Neo-banks is coming and, having observed those that have come before them, are learning from the previous waves mistakes and focusing on the “financial” aspect of Fintech. While we don’t expect these challengers to take significant market share, they will likely attract a strong following and find their place alongside existing banks.
  • We’ve seen the growth of ESG investing in recent years, now this movement is expanding into Banking. Socially conscious customers of Natwest are now able to track the environmental impact of their spend with Natwest’s CO2 calculator. Green initiatives are gathering momentum in Banking, and we expect to see more like this giving customers visibility of their impact on society.

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