The new bank set to be launched in the UK by JP Morgan Chase over the next few months could upend Britain’s current account market but is unlikely to be a saviour for savers, experts have suggested.
The world’s seventh-largest bank has hired 400 people and is preparing to launch an ‘innovative’ app-based bank in a bid to emulate the success of British challenger banks like Monzo and Starling.
But while details about the bank’s offer have remained largely under wraps, its plan to launch a current account first is a blow to savers hoping it would have the same impact on stagnant savings rates as fellow American import Marcus.
JP Morgan is launching a UK bank under the name of Chase later this year
The Goldman Sachs-backed bank launched in September 2018 with an easy-access account paying 1.5 per cent, which ‘added 0.1 percentage points to the best buy rates at launch’, according to James Blower, founder of The Savings Guru and an adviser to savings banks.
‘The JP Morgan news clearly shows the initial plan is to enter the current account market and not savings first’, he said.
He expected any savings accounts to be launched later this year which, he said, ‘isn’t great news for savers hoping for a similar boost from Chase as they got from Marcus.’
One savings boss at a challenger savings bank echoed this. ‘I don’t think this will be Marcus version 2’, he said.
The 1.5 per cent offering was so successful it saw Marcus snap up more than half a million customers who have together poured in £21billion, a sum which has forced it to close its doors to newcomers at the risk of breaching British banking rules, which would require it to ring-fence its UK deposits.
It has been slow to add to that proposition, with only a one-year fixed-rate bond paying just 0.4 per cent currently launched since and no sign of any tax-free Isas yet, despite it hiring for an Isa manager last year.
It does plan to launch an investment platform in the UK in the second half of 2021.
However, even if the latest American entrant to Britain’s banking market launched a current account first, there could be ‘competitive’ savings deals to come in the future as it looks to fund lending, even if they might not necessarily be the best offers around.
Goldman Sachs’ Marcus Bank has taken in £21bn in deposits since it launched in September 2018. The launch boosted slumping savings rates at the time
The unnamed banker said: ‘I suspect they may initially launch with some competitive savings deals to gain a foothold, raise awareness and drive positive brand association pending the launch of their current account.
‘They will learn the lessons from the Marcus launch and will probably have a range of fixed-rate bonds, easy-access accounts and Isas, although they’ll be unlikely to launch all of them immediately.
Can Monzo and Starling beat the big names?
Although they still have a fraction of the customers of Britain’s biggest banks, digital upstarts Monzo and Starling have outpaced them in the switching stakes.
Through nine months of 2020, according to the latest figures, Monzo gained a net 39,599 customers and Starling 39,803.
Together, they have gained almost 194,000 since they launched their current accounts, while they have around 5m customers in total.
However this hasn’t necessarily translated into profits. Starling turned an £800,000 profit for the first time last October while Monzo has been consistently loss-making, even going so far as to issue a profit warning last August.
‘Competition is good for the market, but despite the advances of fintech and neo banks in recent years the big banks still have a stranglehold on the current account market’, Andrew Hagger, of Moneycomms, said.
‘I think they’ll be competitive but not to the degree we saw with Marcus.’
In the US, Chase, which counts nearly half of American households as customers, pays savers just 0.01 per cent on deposits.
By contrast Marcus, which remains a relatively new entrant into the everyday banking world, pays 0.5 per cent, a fraction below the best available rate of 0.55 per cent.
The bank’s current account offering also continues to be shrouded in mystery beyond the fact it is set to be app-based.
Although Chase lacks any kind of brand recognition in the UK, it would be the largest external entrant to Britain’s current account banking landscape since Spain’s Santander launched its 123 current account in 2012.
‘It will be interesting to see if there are any introductory offers or preferential rates at launch in an effort to get customers to switch in decent numbers from the high street banks’, Andrew Hagger, the founder of personal finance site Moneycomms, said.
However, ultra-low interest rates and squeezed margins mean a rate-led offering like Santander’s, which saw 3 per cent interest on up to £20,000 and cashback on bills, would be next to impossible to replicate at the moment if Chase wished to be profitable at the same time.
Instead, it is likelier to attempt to emulate the success of digital challenger banks like Monzo and Starling, which have gained millions of customers between them and overtook more established names in the current account switching stakes last year.
Spanish bank Santander signed up the likes of Jessica Ennis-Hill when it launched an assault on the UK current account market
‘I expect to see something similar to the slick online-only offerings from Starling and Monzo’, Andrew adds. Indeed, JP Morgan Chase has reportedly considered buying Starling in the recent past.
But it also remains to be seen how successful such a strategy will prove to be from a major established name planning to launch with 400 staff and banking on its ability to keep costs down to turn a profit.
‘Big banks don’t have good form in the UK for launching challenger banks’, James added, giving First Direct as the last good example, which was launched by then Midland Bank in 1989, before both were swallowed up by HSBC a few years later.
Experts said the bank would attempt to emulate the likes of Monzo and Starling which have signed up millions of customers with slick apps
‘What will be fascinating to see is if Chase are going to target those customers still entrenched with the big high street banks, or if they’re going to take on the new fintech banks.
‘It’s impossible to judge until we know more about what it’s proposing, but Chase have deep pockets and will have learned from their US experience.
‘If they have recruited well, and given the team the right environment and freedom, then they can make a real impact. If not, it could be an expensive mistake, as we saw with NatWest’s failed challenger bank Bo.’
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