As we reach a comfortable midpoint in the first 'season' of Tech Tales, it feels like a good time to step away from the banks, the products and the services and talk to somebody a little more bipartisan in the finance space. Meet Edmund Greaves, Moneywise's Deputy Editor.
Amongst other things (making music videos in Argentina, writing about EU politics in Brussels, and being a keen street photographer), Ed's been a financial writer for over ten years and is in the rather enviable position of being central to it all – watching new trends emerge, following the rise and rise of the digital banks, whilst also being a thoroughly engaged user of these services, whether it's daily banking, stocks, or pensions. Moneywise too have a rich history – founded in 1990, they've educated millions of people about how to make the most of their hard earned money.
I chatted to Ed at the shiny new Moneywise offices in Devonshire Square, London. Before we sat down, he gave me a quick tour of the communal area – a lively space of Habitat-esque furniture, neon lights and wall hangings that looked expensive. There was also free beer on tap. This is why I can never work in London.
Hi Ed. The big banks don’t seem to be trying particularly hard to compete with the likes of Monzo, Revolut and Starling. At least not yet. Why do you think they’re dragging their feet improving their digital products?
To a big extent it’s legacy issues. A lot of the big banks exist on very old systems. Last year’s TSB meltdown was related to legacy issues. It was a situation where TSB’s banking infrastructure was all on the same kind of systems as Lloyd’s. TSB decided to migrate off those systems after they parted with Lloyds, and as soon as they tried to do that, everything collapsed in on itself.
Part of the issue for bigger banks is that there’s already a worry about putting things on new systems, and they’ve now got the example of TSB, which showed the kind of chaos that it can cause.
But it’s interesting because there are hints that bigger banks are starting to develop their own apps and products from scratch. Like Natwest and RBS’s business bank, ‘Mettle’, that they’re busy developing. They’ve also got a personal current account app, called ‘Bo’ which is meant to be pretty snazzy.
The challenger banks are doing some good things with marketplaces (bringing different companies in to sell products on their platforms), and whilst that’s interesting, they aren’t necessarily doing something the big banks don’t already do in their basic model, i.e. lending to customers to make money and encouraging savings deposits to fund it. Challenger banks are just outsourcing the job. People like Starling are doing some interesting business projects, for instance they’re providing the government with payment systems. That’s good because they’re exploring different ways of actually making money.
But on the face of it, these new players’ challenge is to be more than just an attractive app to show you how much money you’re spending. They need to take that next step and start challenging the business model of the large banks. Otherwise the big banks will just continue. They are the ones that have the big deposits to lend with. Size does matter with banking.
You’ve put a couple of blogs and stories together highlighting particular pension benefits that people may be missing out on because of the process being confusing or unclear. Do you think providers (and the government) are doing enough to make us aware exactly how pensions work and just how important they are?
I think one of the biggest problems with pensions is the misunderstanding of what a pension is. You ask Google “What is a pension?” and it will tell you something along the lines of “a pension is a fixed income that you receive in retirement” or something to that effect. To an extent, that used to be true of defined benefit (DB) pensions back in the day; where you paid in x amount over the course of your career and you got a fixed income for the rest of your life when you retired.
Now it’s changing. DB pension schemes are unaffordable, they’re closing down, and everybody from the auto-enrolment generation of the last 10 years or so has been on defined contribution (DC) pensions, where you get out what you put in. The schemes are managed by companies, but unless an individual is looking inside at what’s going on in that pension, they could easily be stuck in investments that aren’t appropriate.
A 20-23 year old will be invested in what’s called the ‘default fund’, with the pension commonly mixed between 60% equities and 40% bonds. That’s the kind of allocation somebody closer to retirement should really have. Someone in their twenties really ought to be 100% equities, because that’s where you’re going to get the stronger growth of your money over the long term. It will feel the impact more from market fluctuations, but drops tend to be short and sharp. When you look at a thirty year graph of the way markets go, that’s how you build a lifetime of savings.
I’ve talked to people like NEST (who look after the lion’s share of auto-enrolled pension pots) about this. The reason that they don’t go for these very aggressive funds for people who are just getting started is they’re worried that people will see a market fall and just get out of the pension because they’re spooked by it.
You have what’s called a ‘glide path.’ This is when you’re in your last years of work and heading towards retirement, and you slowly de-risk your portfolio. I think perhaps they should look at the start of your career and the start of your pot and from there ramp up that risk over time, as people get more comfortable with the contributions and the growth of the pot. Call it a ‘lift off’ perhaps?
I looked at my pension pot, which is fairly small, because I’ve worked in a few different jobs, and I noticed that when markets were going up it was great. The problem is now, some of the better performing funds aren’t doing so well. But the more you contribute the more that smooths it out through compounding.
A handful of us at Kyan have just switched to PensionBee and a few were worrying about a fairly visible slump over the last few months. I said “don’t even worry about it” – these aren’t short term saving by any means. There will be dips.
It’s so difficult to decide whose responsibility it is, because it’s the government's responsibility to make sure everybody understands that they need a pension. Auto-enrolment has been a huge success in that way because people generally aren’t opting out. But there’s also other factors involved. Things like understanding the fees involved with certain funds, the fees you incur for moving your pot and all that kind of stuff. There’s a lot of complexity to it, and the difficulty is that people switch off. And that’s one of the biggest battles. At Moneywise we talk about pensions a lot and one of the biggest issues, and the issue I see with all my friends, is that people just switch off. Pensions... *click*.
Once people understand it’s an investment vehicle and see that it’s the difference between having a comfortable retirement and living on the bread line, people understand.
You can see the benefit over short periods of time. It is fun. But you can’t obsess over it. You need to decide your ambition for it and stick with that plan.
I read that you invested in Monzo (me too), but advised others to proceed with caution. It’s incredibly easy to tap a button or sign up to a service and suddenly you’re an ‘investor’ or a ‘trader’. Is this dangerous? Is it a good way to learn about investment?
I think with regards to the Monzo thing… they are a really interesting company. There are a lot of benefits to it but I also see the risks with it. Monzo being the risk. It’s the same as putting £100 in anything. One of my favourite past times is a virtual investment portfolio on my phone, and I ask my investment writer friend for tips, as he spends most of the time watching everything happen. My portfolio hasn’t done very well since I started. Investing directly in companies is hard.
The problem with the Monzo thing, like you say, is that it’s easy. They did their due diligence with the questionnaire beforehand and that’s totally fair. But the thing is, while it was happening, I was typing Monzo into Twitter and people were all asking “What is this Monzo thing? Should I get involved!?” You get this snowball mentality where people just start jumping into it for no good reason, other than because your mates are doing it.
My friends were asking me if they should get involved and my thoughts were “If you’ve never invested in anything in your life, no.” You need to start from the beginning. Think about what your goals are and what you want to achieve.
Part of the problem with people investing in specific companies, or even crypto is that people don’t treat the investment like something that takes 30 years. It’s there to make sure that when you’re old, you can live a comfortable life. Instead, people think “Ooh that’s a good idea, I wonder if it can make me rich.” When you have that mentality you might as well play the lottery or gamble. It’s not the right mindset, and the right mindset is important. Be ambitious but behave with caution. Investing is the right thing to do, but you have to do it sensibly and think carefully about your goals and what you want to achieve.
The grand opening ceremony at TNW Amsterdam last year ran with the slogan “We are at an inflection point”. Years from now, will we look back at Open Banking, challenger banks, fintech startups and see this as a pivotal point in the banking industry? Or do you think the best is yet to come?
The thing you have to imagine—and this is something I’d love to get historical about, because I did a degree in history—is that ‘currency’ is the first thing you have to remove from the concept of money. Money in its base concept is a mutual trust between two parties, a share of debt and confidence. Confidence that somebody has something of value that they’re going to give to you, and you have the worth to ‘pay’ for it. My favourite example is the island of Yap in the Pacific, where the people use these enormous stone rings as ‘currency.’ The rings never move but who is paying what and why entitles people to ‘ownership’ of the ring. They even found one of the rings at the bottom of the sea, and the locals were fully aware, and it was in ‘circulation!’
The concept of money is as old as civilisation. In that respect, fintech is not going to change the world. Money is money and it functions on borrowing, spending, lending and saving. And those are indestructible base concepts. But I think the way that you give people access to financial products and services, and the ease, reliability and safety of those services, is where things are really, really key.
For instance, letting somebody who is on a low income have access to a line of credit that isn’t high cost credit that will do more damage to them in the long run. It’s these ideas about “How do we actually make finance for everyone?” There are lots of people out there who are disenfranchised with it because they don’t have good enough credit score, or they don’t earn enough.
You see it with the housing crisis where people can’t get on the property ladder. There are a lot of issues behind that, but one of the most basic things is that people can’t get a mortgage because the lending criteria are too strict. During the crisis we had a situation where the lending was out of control, but there’s a still huge amount of people out there who just want to own their own homes, and could probably afford it. But they are disenfranchised from the system, and the more you do that to people, the worse they feel. The demand exists but its stymied by over-regulation and prevarication from the lenders.
The challenge that fintech has now is to take that next step. They’ve built their cool infrastructure, they’ve built the cool apps, and they’ve got the ideas for reaching people. The next step is getting people access to the real valuable services that they need.
Opening it up for everyone — not just people who can afford an iPhone, people who can already afford a house.
You look at places like India where a lot of people don’t have smartphones. They’ve opened the mobile network to enable payments through ‘dumb’ phones and they can be used at market stalls. You text a number and you pay for your goods via your bank. Using just text messaging! That’s a very basic concept, but it’s about coming up with those ideas.
Just look at Santander recently announcing that they are closing down a load of branches. Their explanation is that many people are moving to digital banking, and I’m sure that’s true, but there’s still a lot of people who aren’t banking digitally, and suddenly they don’t have access to services because their bank has closed. Now they are disenfranchised. Some people still want to go and talk to the teller and see their bank manager. It’s basic stuff.
There are companies doing good things though, and not always the ones you’d expect. Natwest and RBS have roaming banker vans that drive from town to town. You can make appointments and bankers will go into people’s houses to provide services. That’s really cool and it’s not high tech. It’s just customer service. It’s just providing a service in a different way. They can’t afford to run the branches, but they can afford to have a roaming banker.
Like you, I am 100% Apple Pay, no landline, online everything. I’ve never been more engaged with my finances because it’s never been so easy. On the flip side, when it goes wrong it can be a little scary, as we've just seen from your February column. Do you feel this whole digital approach is the right way? Is it secure? What could the industry do better?
My whole financial life just unravelled in front of me in the space of an hour. Like you say, and like you, I moved all of my finances onto my mobile phone. It’s too easy, all you need is a fingerprint. And then my phone broke, and it was just an absolute disaster. I didn’t remember how to access any of my cards and accounts using my computer. I contacted all my different providers, had to change passwords, it was terrible.
That reminded me just how fragile it is and how careful you have to be. It really drove the point home; I’m a financial journalist and I spend all my time looking at this stuff but it can happen to me just as easily.
Like you said, I was also recently a victim of card cloning. Someone tried to buy a £600 magnum of Dom Perignon with my Monzo debit card. Thankfully Monzo blocked the payment. And I’m lucky in that I have savings so if I had lost money I could turn to that. And Monzo did say that they would have paid me the money that I’d lost too. But there are people out there who don’t have savings or necessarily that kind of protection and they’re the ones who would be in dire straights if that happened to them. That’s when people start to turn to terrible things like payday loans, and it just snowballs. This is why you can’t blame people for getting into these positions, because as soon as one thing goes wrong it can knock everything out of place. It’s so hard. It’s tough to know what to do about that. Does the government insure people against this kind of thing? No. Do the banks? Kind of, but it depends on the circumstances.
We’ve seen significant change in investment (the deluge of trading apps), mortgages (PensionBee, Wealthsimple, auto-enrollment) and banking (Monzo, Starling, many many aggregation apps). What area of personal finance would you change next?
That’s a tough question.
I’m very keen to see the pension dashboard that everyone has been talking about for so long now roll out. It’s a huge step. Pensions is the thing in finance that I like writing about the most. I think the dashboard will have such big implications for people being able to see everything in one place and being able to understand their pension. But the big caveat with it is that it’s only going to work if people can see their state pension earning alongside it. People will be able to look on one page and say “Okay I don’t have enough money” or “Good, I’m on track” and that’s huge and that really needs to happen fast. Moneywise’s core aim is helping people’s long-term finances get on track for a happy retirement, but at the moment it’s like they have unfinished jigsaw pieces and no idea what the completed puzzle is supposed to look like. How are you supposed to solve it?
For fintech, I don’t know. It’s tough. I think the stuff that some of the providers are doing with marketplaces are really cool and interesting. Creating a space where you give people access to lots of different options is really powerful. Access and opportunities to be a part of the mainstream financial world, without getting ripped off.
Keep an eye open for Tech Tales №5. We'll be chatting to the Head of Ops at a company who plug their very own chatbot and clever AI into your bank account to help you save money.
Looking for a previous Tech Tales?
Tech Tales №1: Megan Caywood, Chief Platform Officer, Starling Bank
Tech Tales №2: Jonathan Lister Parsons, CTO, PensionBee
Tech Tales №3: Josh Hart, CTO, yulife