Challenger banks

Residents from some mainland European countries could benefit from running their domestic finances via an overseas challenger bank, it has emerged.


An alternative route to managing finances, using newer banks, could help them to avoid charges for simple transactions such as using an ATM or a debit card.


At present only a few challenger banks offer services to countries such as Italy and Spain, where domestic banks charge for most services. Revolut is one of them, operating under a UK banking licence and charging only for the card to be shipped oversees.


N26, a German-based bank, also offers its services in both Italy and Spain, while millennial favourite Monzo is reputedly planning to target Southern Europe.  There are some local challengers too, including Hype in Italy, but the overseas challengers have more history behind them.


“Whilst it may seem counterintuitive for residents of European countries to shun their home banks, other options can be cheaper as well as offering modern banking features,” says Jade Edwards, Head of Banking for Consumer Intelligence. “It’s something domestic banks should be aware of, particularly when it comes to the possibility of losing their younger customers.”


Consumer Intelligence research into the banking experience of customers in Spain and Italy revealed that over half of Spain’s bank customers have an annual or monthly fee for banking, while in Italy the percentage being charged annually or monthly is even higher, at 67 per cent. Half of Italian bank customers and 43 per cent of Spanish ones have other transaction costs from their banks, with 17 per cent of Spanish customers charged for ATM withdrawals and 10 per cent of Italian ones.


10 per cent of Italian customers said they were also charged for domestic bank transfers as well as international, while international transfers cost a minimum of €30 per transfer for in Spain and between €15 and €30 in Italy.


“Our survey found that many customers did not believe that banks were transparent about the costs charged, with over half of Spanish customers and exactly half of Italian customers saying this."


How customers might benefit

Customers from Italy and Spain who chose to use a Revolut account would benefit from free card spending and £200 (€228) of ATM withdrawals a month. There is also no annual charge for using Revolut, and no charge for adding money.


N26 has a basic account with no monthly fee and charges no fees for basic banking transactions or credit card payments in foreign currencies. In the Eurozone (except Austria and Italy, where withdrawals are unlimited) ATM withdrawals are limited to five per month for primary account holders.

This means that Italian and Spanish customers could save a considerable amount.


For example, an Italian customer is likely to be charged between €0.8 and €2 euros per debit card transaction, as well as €10 or more for a debit card. They may also be charged over €20 a year for a bank account.


Using an overseas challenger bank such as N26 could therefore save heavy debit card users over €100 a year before international spending is taken into account, which is also likely to be far cheaper with a challenger bank.


In Spain, basic bank accounts cost €3 euro a month, and although rates vary, you may also pay to use ATMs. An account with more functionality would be even more expensive.


In both Italy and Spain, customers would also save on international transfers, where challenger banks have far lower fees as well as typically offering better rates. Revolut, for example, allows free transfers within a set limit, and then offers 0.5 per cent rates on transfers above that limit. The process of making transfers is also likely to be easier with challenger banks with overseas bases, which are more accustomed to international transfers.


“We know that customers are slow to change their banks, but the value difference between traditional Southern European banks and their challenger counterparts is stark,” Jade Edwards says.


If Monzo chooses to launch in Southern Europe too, traditional banking dominance - among the younger generation at least - could be at an end, particularly in fragmented markets in Southern Europe.

She added that the current issue with coronavirus, which has been particularly devastating in Italy and Spain, makes the challenger banks even more attractive.


“In Italy, in particular, cash is king because spending on debit cards is expensive. As contactless payments become viewed as the hygienic norm, those companies that can provide a cheap or free card payment experience will be particularly sought after.”


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