11 September 2015
TSB’s struggle to shake up the banking sector
TSB has slowly been creating its own distinct identity over the past year. After its initial split from Lloyds two years ago, it was little more than a carbon copy of the big bank that it had been spawned from – just a different logo over the front door.
But bit by bit chief executive Paul Pester and his team have been cleaning up the business – and there are some tangible differences. Quite apart from its philosophy on executive pay – which I’ve championed here before - its website is much clearer than many of its competitors, and its scores across our tables are on the rise.
The innovation gap
Where TSB appears to be struggling is in the difficult area of creating a distinctive bank account – one that’s good enough to persuade people to go through the hassle of switching their account.
Its latest attempt is a build on its initial 5% interest current account. Now, on top of the 5% credit interest, customers are also offered 5% cashback on the first £100 of contactless spending on their debit card each month, and 5% interest if they contribute to a Regular Savings Account.
But these are all gimmicks taken from the other banks’ playbooks. If you look at what they mean to the customer in pounds and pence, they’re not quite as exciting as they first look.
The 5% interest on the money in your account is only on balances up to £2,000. If you keep a minimum of £2,000 in your current account at all times, that amounts to £100 a year, which is fine, but not earth shattering.
Most people of course don’t keep £2,000 a year in their account at all times. Instead, their salary comes in, and then trickles out as their bills are taken from their account. So unless they’re strategic about the timing of their bill payments, they’re unlikely to make much more than £10 or £20 a year in interest.
As for the 5% cashback on the first £100 of contactless spending – well you don’t have to be very good at maths to work out that amounts to a maximum of £5 a month. Again, not a great deal.
Smoke and mirrors
The regular saver is another smoke and mirrors trick that banks have been using for years as well. A 5% savings account sounds great value. But you can only save between £25 and £250 a month – and the 5% only applies for 12 months, starting with a balance of zero.
So in month one, you pay in your first £250 – and your 5% interest amounts to about £1. Next month your balance is £251 plus £250, which adds up to £501 – which will earn you about £2 of interest. Suffice it to say that by the end of the year, you will have not made a great deal (about £80) even if you’ve used the maximum allowance – which most people won’t have done.
Don’t get me wrong – all of these little perks are nice to have. Better to have 5% in a regular saver than 1% in a normal savings account. But it’s the fact that the advertising alludes to something much greater which does TSB a disservice.
It’s not easy to differentiate yourself in the current account market. The only game changer in the last decade has been Santander’s 123 account – which TSB has borrowed some ideas from, but without providing the value that the Santander account does.
I still believe the area that is ripe for innovation is paid-for current accounts. As soon as banks can demonstrate real value for money for their customers – perhaps by brokering them a good deal across multiple product lines - then I think customers may sit up and listen. But most people are not willing to move their current account even if you’re offering them £150 in cold hard cash. So the challengers need much bigger ideas if they are to gain real traction against the big four.