Savers and borrowers hoping for improved interest rates will be disappointed by the launch this week of Metro Bank, the self-styled “first new high street bank in over 100 years”.
Metro claims to be starting a “banking revolution”, using what it calls a retail store model to offer “unparalleled service and convenience”. But analysts say its product pricing is mostly uncompetitive.
The new entrant is the first of a number of companies, including Richard Branson’s Virgin, hoping to tap into dissatisfaction with established banks and attract customers away from existing providers.
Metro has opened its first branch in Holborn, central London, and three more branches will be opened in coming weeks in Greater London.
Branches – or what the bank calls its “stores” – are core to the Metro offering. Unusually, they will be open seven days a week, and from 8am to 8pm Monday to Friday. Customers are even invited to bring their dogs and treat them to Metro dog biscuits.
Accounts can only be opened in a branch, although debit and credit cards will be printed and issued “on the spot” rather than being mailed out.
Metro said it is not chasing customers with “best buy” product pricing – and advisers agreed that an instant-access savings rate of 0.5 per cent, and a range of mortgage rates that are about 1 percentage point more expensive than the best in the market, were unlikely to attract many new savers or borrowers.
“Metro Bank could be missing a trick here, as poor interest rates are one of the biggest bugbears consumers have with existing banks,” noted Uswitch.com, the comparison service.
David Hollingworth, of London & Country Mortgages, said: “Borrowers are unlikely to be swayed unless the pricing differential is much closer to others in the market or the bank can differentiate in terms of criteria.”
Metro’s current account – which is a requirement for customers who want its other products – pays no interest on credit balances and has a 15 per cent overdraft rate, with a £15 charge for exceeding an authorised overdraft limit. However, it levies no foreign exchange or other fees on currency withdrawals from overseas cashpoints and, for over-50s, comes with free use of a safe deposit box for one year.
By contrast, bank customers can sign up to current account deals with Santander that pay 5 per cent credit interest for a year plus a £100 bonus, or that offer an interest-free overdraft for the first year.
David Black of Defaqto, the banking analyst, said that Metro’s credit card, with a flat 13 per cent interest rate, and unsecured loans charging 10 per cent to all, could be attractive, particularly to borrowers subject to higher rates because of so-called personal pricing. However, there is no credit card reward scheme or 0 per cent introductory rate offer.
One new feature at Metro is a commission-free coin-counting machine – the “Magic Money Machine” – that allows customers and non-customers to swap sterling coins for bank notes or account deposits. Machines elsewhere can charge up to 10 per cent commission.
Analysts said that with the financial marketplace already offering extensive choice and competition, consumers should see Metro’s launch as a wake-up call to reassess their own accounts and switch to the best deals available.
While Metro is emphasising its – unproven – service offering, First Direct and Smile, the Co-op’s online bank, have the highest customer satisfaction ratings, according to surveys by consumer group Which?. First Direct also combines a reputation for good service with some attractive offset mortgage and savings rates.
Virgin confirmed this week that it will not launch its bank until next spring – and would be offering rates that represented “sustainable long-term value”, rather than best buys.