Opinion Digital Banking Savings And Investment

Cash savings: A fintech David and Goliath tale for 2023

Neobanks are going head to head with their big bank rivals (and each other) in the savings market as interest rates hit their highest levels since 2008.

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Pexels/Maitree Rimthong

Cash is king in the world of fintech startups. 

While this normally refers to the importance of not running out of the old stuff, it is also true as a customer acquisition strategy.

Neobanks, and their Big Bank rivals, are increasingly targeting customers' cash deposits with market-leading rates on cash in a battle of ever-increasing intensity.

At a time when banks are finally starting to be scrutinised for not passing on the increased rates they impose on borrowers to the ones they pay savers, this could mean a hugely shifting landscape for neobanks' rates of growth.

This week the CEOs of four of the largest UK banks - Lloyds' Charlie Nunn, NatWest's Dame Alison Rose, Barclay's Matt Hammerstein and HSBC's Ian Stuart - faced a grilling from MPs over the issue.

At the end of 2022, I covered what was amounting to a ‘fintech savings arms race’, but things are building up even faster in the first six weeks of the year. 

In January, Zopa revealed its FTS savings account attracted £1 bn in 30 months while its Smart Saver account attracted £2bn in less than 11 months. 

It took just 6 months to hit the £1bn mark, and just over 4 months to double that again to £2bn, demonstrating an accelerating trend. Zopa customers have now opened 150,000 savings accounts in total.

In January UK digital bank Kroo became the only UK current account to offer more than 3 per cent AER interest on balances up to £85k. 

With a rate at 3.03 per cent, Kroo has been inundated with new business, helping it break ground against the likes of Monzo and Starling who now have a number of years' advantage in tempting customers away from the high street banks.

Tandem too has upped its savings rate with customers “invited” to add a top-up to 2.75 per cent.  

Not to be outdone, JP Morgan’s digital bank Chase also increased its own savings account rate to 3 per cent, a touch below the fiercest fintech competition but nonetheless very competitive given it allows up to a staggering £500k of savings at the new rate, five times more than Kroo.

"We want to help savers make their money work harder while providing a simple and straightforward way to save. By increasing the rate on our linked saver account, customers can manage and access their savings in a way that suits and supports them in reaching their savings goals,” Shaun Port, Managing Director for Everyday Banking at Chase.

JP Morgan’s challenge makes it one of the highest-yielding savings accounts available in the market, from a non-startup bank but what is driving the overall trend? 

Of course, with the Bank of England’s recent rate hike to 4 per cent banks can afford to be competitive. But not all seem keen to be so. Is there more to it?

Susannah Streeter, head of money and markets at Hargreaves Lansdown says despite the cost of living crisis, plenty of retail investors' cash is still searching for a return.

“We’re still sitting on lockdown savings. Although rising prices have damaged our financial resilience, the HL Savings & Resilience Barometer shows that on average we’re still better off than before the pandemic hit,” she said. 

“Unfortunately, lumpy distribution of both savings and higher costs mean those on above-average earnings will be better off, and those earning less than average will be worse off,’’ she added.

The trend of fintechs and neobanks using cash savings accounts to grow is not only beneficial for consumers, but it is also pushing traditional banks to innovate and remain competitive. 

This is a positive development as it leads to better services and better rates for consumers. With the growth of fintechs and neobanks, consumers no longer have to settle for low-interest savings accounts and can now take advantage of high-yielding alternatives

The trend of fintechs and neobanks using cash savings accounts to grow is a sign of much-needed competition finally coming through. 

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Shaun Port

Chief Investment Officer


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