Internet DNA Podcast

Neo banks, digital banks, online only banks you name it, they are probably called  it. Why haven't we swapped? Is it really loyalty or love of our bank or we are just too lazy to change? We dissect online banking, open banking and did you know that you are only limited to buying 4 gold coins, and the UK government can just take it off you if they get in a sticky situation, like now! ... read on.

ps. sorry for the slight muffle it is only at the beginning. 

Transcription

(this transcription is written by robots… so don’t be surprised!)

 Hello, welcome to this week's episode of internet DNA. This week, we are discussing the new type of banking  or FinTech. So they have all sorts of names. They call it internet banking, online banking, digital banking, and Neo banks. It basically means it's a bank that doesn't have a physical branch.

Do you want to explain a bit more than about them?

 Neo banks, online banking that's been going on for years and in a way, what we call internet banking? When we talk about people like first direct. They've also been going around for years, but they are effectively traditional banks offering services online, Neo banking.

So very different. So Neo banks are not traditional banks at all. They don't have all of that infrastructure and they don't have all of that cost. And so they are market disruptors. Whereas First Direct was online banking, for HSBC. It's not, if you're talking about things like Starling Bank or you're talking about Monzo, they are a very different type of bank.

Really. They generally only do current accounts. They may start to do loans, but they don't do a lot of the traditional mortgages. They don't do that kind of banking. That's not what they're about at this stage anyway,

 but what meant that suddenly, you know, for how ever many centuries we've had banks and they are an institution.

What meant that suddenly all these new banks could pop up?

 The main thing. Was open banking, which basically says you can't hold people inside your banking thing. If other people want to use other apps to interact with your banking, that's totally fine. And so what that allowed you to do is come effectively an open bank with enough capital.

And so you've got all the same access of current accounts without actually having to be.

 I don't understand. Surely you are a bank, even if you're a Monza, you're still,

 you're not a bank that's offering things like mortgages, loans, all of that. You are literally only offering a single part of that service, which is current accounts.

 A lot of these new online ones are posting great loans. In fact, there's one that you're using.

 Oh, yes now, but when they first started Starling Bank was literally a current account. Monzo was a current account. That's all they offered. They didn't offer you anything else at all.

 Starling was started by someone I think from Barclays, who decided that she could do the banking better and went off to start.

So that was one of the very first

 because they don't live anywhere you don't pay. So originally the reason why people, everybody got a Starling account and everybody got a Monzo account is because when you spend abroad. You don't pay transaction fees. You're not doing a transaction from the UK to Spain.

They all the internet, they are wherever you are.

 You say that you don't do transactions fees. And this is my worry about moving to these online banks. If you look at what they're really saying, they're saying you can get money out. The cash point abroad free up to 200 pounds a month. Now we all know when we go on holiday, we needed 200 pounds a day.

If you've got a family. And so. They're meant to be cheaper, less fees and things, but they give you no interest. Right. So just because they don't hold so much money, that they are able to invest and do that. And there are hidden fees. I have to be quite careful on some of them.

They all have USP. Don't they say, well, it's slightly different, but they say that you can open it up in nine minutes. If you try and open up a bank account with one of the traditional banks, even if you do it online, it takes weeks. They're all really into the fact that they can send you notifications when you spend, which I find.

Atrocious. Cause I don't want to know. They have really good ways of helping you save. So they're very appy and they are an app. You have to have a smart phone every time you spend something, they'll round it up to the nearest pound and put that money in a special savings account to help you save one of them.

I think Plum actually helps you invest in stocks and shares, but again, because they're small. Their fees have to be higher because they don't have the volume of the larger banks. So perhaps it is changing a bit because when I just checked today, they didn't really seem to have many fees. And that was good, Starling is voted the number one bank in the UK,

 they're not paying for bank branches. They've got much lower costs than for example, a Barclay's bank where you have to go in and see people and they have to manage and they have, you know, they don't have those types of services. So. They are much lower cost also. No, one's earning interest really at the moment. I mean, you might think you're earning interest, but it's lower than the rate of inflation.

So you're not earning interest. You're losing money with anything that you save at the moment. Anyway. Yes. They say, Oh, you know, it's a zero interest. And generally you do pay like either a yearly or monthly account fee. Let's say five pounds for an account. And that's to pay for all the bits and pieces that put it together, but, or I've got a Starling card.

If I spend that money, 200 pounds in Spain. I don't pay then a bank transaction charge of when you get home and you realize that there's all these £3.50 £4.50 bank charges that gone through your account.

 The cash point Starling is the one that you can take as many cash withdrawals as well when you're abroad. So that's good. Cause the other ones do charge.

 Stalling is very niche into that holiday money.

 Yeah, but most of them say we wont charge you for 200 pounds a month,

 but really they're much cheaper banking overall. That's true for banking. That's how they work.

 Yeah. They do little things. Like it's really easy to share bills.

It's really easy to borrow a little bit of money. It's really easy to become more aware of your spending habits. That's what they're about. They're trying to help you understand how you spend and therefore how you save from that side of things. They're really good, but are they safe? That's the thing you need to look out for.

If you are deciding to go to an online, only bank and are you in a good internet area because it is purely online. Some of them now you can pay in cash. I think Monzo and Starling, you can pay in cheques and cash is great, but you need to check that they are FSCS regulated. The financial services compensation scheme.

Some of them are. So your 85,000 pounds is safe. But some of them follow the financial conduct authority, which means that they put your money into an account in a bricks and mortar bank, which sounds quite weird so that if they go bust your money, is there in the bricks and water account. But if the bricks and mortar account went bust.

You would lose that money. So I would not go anywhere near these online banks, unless they are the proper FSCS that you get your £85,000 covered.

 I mean, I wouldn't be going for Johnny's new time bank, but players are fairly safe. Starling is fairly say Monzo is fairly safe. You look at the uptake. Young people love these banks.

 Yeah, I hate having to go to a branch.

 Well, I was trying to think, when was the last time I went to a branch? I think the last time I went to a branch, just cause I had to open up an account for one of my children.

 That's an interesting thing. Actually, the online banks for children. So Go Henry is a great online bank for children and you can start them younger than you can traditional bank, but it has quite a hefty fee on that. And so, because they don't have the clout in some areas, they are charging

 It's five pounds a month. You can have as many too. Now, if you've only got one child, yes, it's probably quite expensive, but I use Go Henry, all my three children.

That's how they get their pocket money. They've got their cards. At least they can go to town and buy stuff. I don't have to keep shelling out cash to them, to pay for their phones that can all be done online. So in many ways, it's much easier than me going to Lloyd's and try and open up a young person's account, which is going back and forth and signing bits of paper and sitting in a room for a meeting for 30 minutes. I haven't got time for that nonsense.

 And there, I think it's the difference. Isn't it? Between these online banks and the old traditional ones. Time, wasn't such a problem or issue then. Whereas now time is everything and the fact in three clicks with your thumb, you can get something done. That's what people want.

And that's why they're being taken out so well. But I was laughing. You said, you know, you've got to go for the slightly more established ones and the ones that you don't want to test it, all the ones with really random names like bunk and pokit. And Anna and Anna's. All right,

 well, Natwest bank tried one called Bo.

So just, why are you calling it? It just sounds so silly and obviously it's gone bust.

 Yeah. And all the snazzy names, don't fill you with confidence. When it's a bank, you want someone to be slightly more serious than that. And we hear a lot about Bitcoins. Is Bitcoins, anything to do with these online banks?

 It can be some of them, some of them allow you to do Bitcoin trading each bank, as you said, it's quite specialized in what it does. So in the two main players. Monzo and Starling definitely safe, but you may have some specific requirement that you need, like you trade in or have a large Bitcoin wallet that you want in a safer place.

Right. Because that largely non jurisdictional. So they don't live anywhere. They can do things like run Bitcoins in some of them.

 What should, you know, if you're trying to set, are these banks here to stay? Will the bricks and mortar ones disappear?

 I think if you look at it, it's a very generational thing.

Do you look at the take up of these? The very young, we're not saying a very young, like 18 to 25. They're almost entirely use these things the much higher, like over 50%. You use these types of banks you get into the over fifties, hardly anybody uses them, except for very specific things like I do with Starling.

I just use it all the holiday money. So I don't use it as my main bank account, but that's because I'm just used to, you know, I'm too lazy, to be honest, I think they will become more prevalent. I think that. You will get less and less traditional banks. Not that there'll be less banks, but there'll be less branches.

 Yeah. Because people just don't go and they're expensive to run.

 And I think a lot of the traditional banks will go to a much more internet model on with Lloyds and I've been to a branch once in the last five years. I mean, I can do everything already on my app and I can do saves the change if I want to put the, round it up and make the change, go into my savings account.

That's already available in the app. So a lot of what I do is already done, what will become interesting is how much of a problem will not having an actual branch be, you know, just like retailers go well for Amazon, they don't have to pay rates or tax in their case. It's all right. For online retailers because they don't paying to have staff sitting there. Waiting for customers to come in and therefore they are by their very nature cheaper. It will be interesting to see if that happens with banks, that we lose banks off the high street,

 because these are all online and tech, digital industry can be quite volatile. Is there going to be another bursting bubble? And these things will just sort of fall away with everyone's money, digital money, just disappearing. Isn't that a real possibility?

 Probably go to one of the big five high street banks. When you bank, you didn't go to Johnny's one time bank to put your money in it. The same with digital banks. Yeah. Maybe. unless you're interested in it. Maybe don't be. Going for the untested, unknown startup banks,

 they give you a really nice customized bank card.

 Yeah. And they give you 150 quid free. You know,

 they're all quite niche in what they do. There's one called Tandem. That's purely about people that are going abroad a lot and therefore not having to have the transactional fee issue, but also there's a lot of online business banks, more so than personal ones.

Which looked quite interesting because you talked about open banking, which I wants to come back to open banking means that anybody with your permission, the bank has to allow them to have access as to your account. If I say to Monzo, you're allowed to go and look at my Lloyd's bank, then it has to let them, they didn't have to let them before

So they then have to let that algorithm then to go in and be able to asses bank transactions. So this is how you're saying that these banks have been able to pull the wool away, understand what it is they're doing and how they can better serve customers.

 Previously, banks would just go, Oh no, you can't connect to our systems.

And that sort of protected the traditional banks because only they could do certain things, but now they can't have that monopoly. They can't have that protection. So now loads of people are coming and going actually. You don't need to be a bank to do all of this stuff. You facilitate money moving around.

 Well surely PayPal was the first one that did that.

 PayPal is interesting in that way. Yes, because it's really, it's a payment gateway. It's a payment processor. So basically what happens is you make a transaction, it sits in your balance, but traditionally you weren't able to do much with it other than pay by PayPal again, or put it into your bank account.

 So it's like Stripe as well. It's just a transaction, right?

 Payment gateway. It's a little bit bigger than that because it's eBay so every so often it pays out into your bank account, whatever your standing balance is, you know, it might be weekly or daily, depending on your volumes.

There's PayPal. It's slightly different because you can hold a balance in PayPal. That you can then spend again. So it's more of a payment processor. Plus when you get to PayPal, well, that's developed originally. It was just a payment processor.

 It meant you could pay abroad. What I find interesting about the business online banks on Neo banks is they are integrating with your accounting software as well.

So at the moment my accounting software has access to my bank. It knows everything that goes in and out, and it can conciliation for you and all of that. And what these business banks are doing is they're being the bank and the accounting software. So they're bringing it all in together, which I think is quite interesting and very helpful.

And I might look at that. I think I'm going to get an online bank. I think I will keep one of my main banks, but as you say, there's no interest coming from anyone. And I like that. These guys, these online banks. They're purely thinking of online. So they're probably thinking of the user experience of making your life easier and better through this mobile technical hookup that we all live.

And they're not set in their ways and they're trying to push barriers. Whereas the old banks, they've got a lot of other things to think about. They've also got huge financial sides, huge investment side. They've got to think about their branches and their people. So they're not able to be as agile and changing.

So I think getting into one of these. Is quite interesting and useful what you've just posted that to me as well as I spend a lot of money transactions abroad just for what I buy for work. And I'm always paying interest fees on all these transactions. But what you're saying is from the UK, if I buy something that happens to be from the States, even if it's a service or a piece of digital software. So you don't pay the pound to dollar transaction. You're paying for it directly in dollars. It doesn't matter what currency it is. You just pay as if you're in that country,

 As if all your money was that money,

 And that is saving me good money. It's worth looking at and you can set that up quite quickly

 and you were like, Oh, they tell you, you know what you're spending on. You'd be surprised what you find out you're spending money on that you didn't really think about. Well, I must've canceled a number of subscriptions, so I hadn't even realized I still had,

 that's a really good point.

We've talked about subscription services and people just holding onto them because they forgot or they can't be bothered to cancel it. And the monthly  outgoings are huge.

 When you get a thing you've spent $42 with future mags and you're like what?

 So that is really kind. And they probably helped you stop it because a lot of these online mates I notice are using algorithms to start to tell you, right, you're spending this amount of money on food, this amount of money on entertainment.

This amount of money on work and that helps you go, Oh, okay. I could improve here. It is clever. It does help you streamline. It helps you manage your money. That we've always just had to take the time to do ourselves. Whereas this helps you get into a better mindset. It's a bit like meditation or mind, body feel good for your bank account.

 And also the second side of this is that it will make traditional banks. Have to provide better services,

 but what happens when you lose your phone or

 you still got a card too, so you can still buy another phone log in as you did before,

 just checking. So what about security? Surely, if someone steals your phone, they're going to be able to hack into your bank account.

 Well, it depends on how you secure your phone. It depends how you secure your bank accounts, but the way it works is that you have a number of safeguards on it. For instance, it's fingerprint. So you have to do your fingerprint. Then you have to put your pass code in, or you use some sort of authenticator.

 Now, usually that's on your phone. So it's not brilliant but because these online banks that it's their second nature. I mean, getting in back doors and things is not possible. But let me tell you something. I sand papered away my fingerprints. So I couldn't get into my phone or my bank, which is incredibly annoying.

I didn't know that you could sandpaper away your identity. That's an interesting, why would you do that? I don't know, but I did

 outside their testing regime. What happens if someone sand papers their fingerprints? Well, they have to wait until they come back. And

 they all started to come back. I'm still just be able to access my phone a little bit now, but the banking app that was quite annoying because I know it's not, you no definitely not you

 You chose to verify by your fingerprint. Yeah, but I haven't bought a fingerprint right now. Well,

 but I think I'm going to set up an online bank account quickly actually back the loan account that you talked about the other day

 Zopa that is people can invest. So you can say, I would like to invest 50,000 pounds. Lending money to people, which is what banks do.

And let's be honest. And they also write, well, how risky do you want it to be? Do you want to lend it to people that are definitely going to pay it back? Or would you like more interest, a higher rate of interest, but then higher risk that these people, you know, they're more dangerous to lend to. Which is exactly what banks do, the better, your credit rating, the lower you pay your interest.

This is exactly how it works, but this is instead of a bank doing it. This is individuals saying, Oh, I'm going to invest 4,000 pounds into Zopa. I'm gonna, Oh, I want a 5% return. That means it's fairly safe. And there might be other people that go right. I'm going to put a thousand pounds in a fairly safe, a thousand pounds in that medium risk. And I'm going to put a thousand pounds in at high risk and see how it works out for me.

 So this is stocks and shares?

 It's just lending money. It's literally lending money, instead of saying, right, I'm going to stick 5,000 pounds in my bank account, earning no interest. What I'm actually going to do is I'm going to lend it to other people in order to earn interest, which is what a bank does.

Theoretically. I mean, banks just magic money, but. You know, we all imagine what they do is lend money that they already have, which is not what they do, but that's how we imagine it works. And this is how it should work. Right.

 Is it just loaning and borrowing or do you have your current accounts and things?

 I don't know them from that side. I only know them from the lending and borrowing. It's just an interesting way of saying, well, rather than a bank, lending it to you and basically keeping all the money themselves. We've got people, we've got money, that's sitting in their bank account. That's not making them anything.

And we've got people who want to borrow money are quite happy to pay. A little bit of interest,

 leads me on to apps and business models like Klarna that let you buy things and then pay it back over some months, a year, whatever you want. So again, you have an app, you buy something, you pay nothing and you go, I'll pay. X amount for 14 months. So it's basically a credit system.

 Don't pay interest, but I'm undecided, whether it's good or bad, it's helping you afford things that you can't afford, but you don't pay interest on it.

Obviously you get a bit stuffed. If you can't pay it back, I don't know what happens, but you don't pay interest.

Now their business model is the companies that use them that can offer the client a service to make people buy more, pay Klarna. To be able to use the service and then lend the money and you pay it back the right amount, without interest over a certain months time,

 Better than people, being charged interest to borrow things.

Isn't it a lot of the reason why people can't afford the things that they buy is because of the interest on it. You think you can afford it, but then it ramps up ramps up and you've got this horrible final payment that you realize you can't actually afford a Range Rover.

 That's much more expensive than the car itself, again, just like these banks are disrupting the traditional banks. This is disrupting the traditional loan and credit market in a good way, but like gambling, like anything else it's not good when people just over borrow and become mentally ill from it. I guess that's a chirpy note to end on.

 Yes.

Don't get into debt. Whatever you do. Do you know what I also found out this week though, while doing some research on this. That you're only allowed to own four gold coins. Okay. Because one of the things I was looking at is like, why don't people just buy gold or silver and use that it's value is fairly stable.

It turns out you can't, you're not allowed to have a lot of gold

 who says?

 The UK government

 So in another country, I could have more.

 Yes. And also in this country, if the government gets itself into trouble, it's allowed to claim your gold and silver. Jewelry doesn't count some reason. I didn't know why that was, but actual, just like gold bricks or gold coins or gold, tiny little pieces, but really you need to keep it in somewhere like Switzerland, where they don't have a law that says you're allowed to just take gold.

So we better be a bit careful that all this spending that Rishi Sunak has been doing at the end of the year, he's going to say, well, you know that spending now hands over all your necklaces and bracelets and earrings

freaked me out because normally you'd think. This would be a good time to buy gold. When you don't know what's about to happen to the pound, any currency. Cause we're just going to have to print a shit load of it, to pay for all of this COVID mitigation. So you think, Oh, I know I'll buy gold. It's fairly stable. No, no, you don't. First of all, youare not allowed to buy that much, right. And B they can just take it off you.

Anyway. It just surprised me. It was an utterly surprising thing.

 You being able to get your hands on something good in the money market and making you only be able to get your hands on the money that is made from it, from the bank of England is quite authoritarian

 it's to do with having a fit currency.

Otherwise. What would happen when people get worried is everyone will fly to gold. Your currency would collapse. So in order to stop that, if everyone flies to gold, you guys go, thank you very much. That's very nice.

 I think I'm going to introduce that in monopoly. Next time. I might just have that

 I'm the bank. Thank you very much. I'll just have all your money.

 Yeah.

 Anyway, what we're going to talk about next week.

 We'll think about it and we'll keep you in suspense. So listen in, it might be exciting.

 It's been great to talk about Neo banking with you

 and speak next week. Next week.

 Bye.

—

Dan & Abi work, talk & dream in tech. If you would like to discuss any speaking opportunity contact us.