Capital Markets Corporate

August 3, 2018

Our Weekly Newsletter


Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

The United “Gap-dom” of regional wealth
A recent survey has shown that the gap between rich and poor areas is wider in Britain than in any other EU country. Strong growth in London contrasts with the sluggishness of the rest of the nation. In effect, this means that the capital has become another country on its own, with stronger jobs links to the rest of the world than it has to the rest of the UK. (From The Guardian, 29 July 2018)

Are challenger banks challenging enough?
When fintech start-ups such as Monzo, Revolut and Starling launched, they were set to make a dent to incumbents’ market share — at least in what mobile banking solutions are concerned. But a recent study of all UK mobile banking activity found that traditional high-street banks are still dominating the landscape – with six providers hogging more than 90% of all banking bandwidth — while the top fintech players control just 0.5%. (From FT Alphaville, 25 July 2018 

Living on the edge of solvency
Britain is in the red. A new analysis from the national statistics body has shown that UK households spend on average £900 more than they bring home every month. Coupled with recent figures from the Bank of England, which show the amount of outstanding household borrowing has reached a record £213.2bn, economists have warned that this is unsustainable at a time when interest rates are on the rise. (From The Times, 31 July 2018)

 Fintech is the word on investors’ lips
UK fintech has seen a record amount of investment poured into it in the first half of 2018, attracting over £12bn, according to KPMG. Much of it was due to a single transaction, when US payment processing giant Vantiv purchased UK peer WorldPay for £9.8bn. Despite concerns over Brexit, four of Europe’s top 10 deals took place in the UK. (From Citywire Wealth Manager, 31 July 2018)

 “Alexa, take over the asset management industry”
Amazon’s unerring march towards total market domination has taken over the clothing, computing, electronics, entertainment, literature, food and even pharmaceutical marketplaces. Is there a chance it will turn its unblinking eye on the wealth management industry next? Analysts think it would be well placed to do so. Amazon could soon offer its customers a super-powered robo-adviser with access to cheap funds. (From CNN, 25 July 2018)

Could mandated savings rates be the key to a less indebted UK?
The base rate was hiked this week and inevitably, while all borrowing costs rise in the immediate aftermath, there is a chance that savings rates could be left lingering at current levels.

To put the significance of this week’s rate rise into context, it’s worth noting that for nine years people have enjoyed cheap monthly mortgage bills, while many savers have either made no gains in real terms or have even lost money, as inflation has outstripped most rates on offer. The average interest rate on an easy access savings account at one of the ‘big five’ banks is 0.23%, while inflation is currently ten times higher (2.4%) as measured by the CPI.

In light of this, there have been calls for a mandated basic savings rate to be implemented in order to encourage people to save. However, there is no silver bullet to resolve the problem of a low rate savings environment. Experts have argued that the proposals will only help savers make pennies, not pounds.

Moreover, there is the argument that savers themselves haven’t helped in this situation. There is no bonusfor loyalty in the banking sector and yet, for years, customers have been loyal to a fault. Coupled with the fact that most savers aren’t even making the most of what their incumbent bank has to offer, then a mandated rate would not help many get meaningful returns from their nest eggs.

And yet, there could be an upside to a mandated savings rate if challengers and specialist banks are able to compete with high street banks on a level pegging. They might then find the flexibility to be able to capitalise on loyalty with improved extras, services and rewards.

Of course, the wider problem is that many people don’t have enough savings to earn any interest to begin with. Recent data suggests recently shown that British adults are spending more and more money that they don’t have – or borrowing simply to make ends meet on a monthly basis. What’s more, many people have also said that if an unforeseen emergency were to occur, then they would not have the funds to cover it.

Thus, there might be better ways to solve the savings crisis than adopting a mandated minimum rate. Fintech firms are creating novel solutions, with a glut of smart apps that do everything from rounding up your morning coffee, to micro-stock investing, to telling you how much you can afford to save.  By focusing on ‘nudge theory’ and making tiny incremental improvements to people’s finances, fintech could provide an opportunity to entice disillusioned customers with more exciting savings prospects.

A mandating savings rate alone is unlikely to save the UK from spiralling indebtedness, nor will it make a big difference to the interest Britons earn on savings. Instead, it’ll take innovation, communication and some fresh thinking – especially in a pressured economic climate – to help people save and not spend.

Creds Button