The Royal Bank of Scotland is the first of the UK’s high street banks to try and fill the glaring gap in its personal banking division by offering its customers ‘loans within minutes’ as part of a £1bn overhaul of its retail business.
RBS claims the move is in response to the ‘wake-up call’ the taxpayer backed lender has received from payday lenders, which have proven extremely popular in offering UK consumers a simple, easy and fast source of short-term credit. Although it clearly has a lot of catching up to do, RBS believes it can find a method of making affordable loans available in minutes, rather than days.
Making banking simple, easy and fair
Les Matheson, the newly appointed head of personal and business banking, is determined to make personal banking services more accessible to RBS’ customers. To do this, he has decided to adopt some of the practices currently employed by the UK’s leading payday lenders.
The recent £1bn investment in RBS’ high street division is a step in the right direction for the UK banking sector. However, it still remains to be seen whether banks will be able to compete with the payday lenders on price, given the proposed cost cap which will limit the total cost of interest and fees to 0.8 percent a day.
The new caps, introduced by the Financial Conduct Authority, are currently in the consultation period before they come into force in January 2015.
Hampered by regulation
Currently RBS are fighting against the regulatory tide to make their banking service simpler for its customers. Despite their best efforts there are a number of glaring stumbling blocks ahead.
In 2012, RBS suffered a catastrophic IT failure that left many customers unable to access their accounts. In fact, Matheson openly admits that improving RBS’ range of digital services will not be easy given the bank’s outdated systems, which “don’t talk to each other very easily”. This will represent a significant challenge given just how quickly and effectively payday lenders can make lending decisions.
There is also the challenge of overcoming and reversing the hapless image the banking sector currently has following the much publicised catalogue of scandals and disasters. While the payday lenders receive a hard time in the press, many have a loyal client base who are happy with the service they receive. On the other hand, the banks face an uphill struggle against customer dissatisfaction resulting from PPI mis-selling, the Libor rigging scandal, business loan mis-selling and the catastrophic mismanagement that resulted in the costly taxpayer bailouts in the first place.
Lending to those who need it the most
Speaking of the payday lenders, Matheson said: “When you look at why people use payday lenders – because they are simple, easy and fast – in that sense banks need to do a better job. We should be able to find a way to make loans available as quickly – in minutes, rather than hours or days or weeks.”
However, it seems RBS’ short-term loan products will not be in direct competition with the payday lenders after all. While Matheson hopes to appeal to the payday lenders’ existing customers by delivering convenience and speed, RBS will not offer the small sums of money the majority of people use payday lenders to access.
Currently the average payday loan amount is £260 borrowed over just 30 days. RBS do not plan to go in that direction. Not only will they offer higher loan amounts, they will also retain the strict lending criteria that excludes many of those who currently borrow from payday lenders. Rather than competing with payday lenders, they will offer an alternative source of credit for their existing customer base, whilst those most in need of short-term credit to cover the cost of essentials will continue to use payday lenders.
Do you think there’s a genuine need for the type of short-term credit option RBS will offer? Will this dent the demand for payday loans? We’d love to hear from you on this topic, so please leave your thoughts in the comments section below.
