The Smartphone Banks are Coming
Independent online comparison service moneyland.ch compared the fees, currency exchange rates and services of app-based banking service providers against those of conventional banks. The result: Most app-based service providers have notably better currency exchange rates and lower fees and put conventional banking models under pressure.
The classic banking business is being challenged by a steady stream of new fintech startups. These include so-called neobanks which offer their services entirely over smartphone apps. But are these app-based pseudo-banks really better than conventional banks? To find out, independent online comparison service moneyland.ch compared app-based banking services available to Swiss consumers with conventional Swiss banks.
The comparison accounts for UK financial services providers Revolut and TransferWise, the Swiss app-based Zak and Neon bank accounts and major Swiss banks UBS, Credit Suisse, Raiffeisen, PostFinance and Zürcher Kantonalbank. Additionally, no-annual-fee credit cards Migros Cumulus Mastercard (Cembra Money Bank), Cashback (Swisscard) and Coop Supercard (TopCard) are accounted for in the card comparison. Comparison criteria include services, functionality, fees, currency exchange rates and total costs for different user profiles.
Verdict: Foreign neobanks Revolut and TransferWise deliver the most favorable currency exchange rates and user-friendly interfaces. However, neither of these provides a stand-alone alternative to a Swiss bank account. Because users of these services do not obtain individual Swiss bank accounts, receiving incoming transfers (from Swiss employers, for example) is not practical. These services deliver exceptional value as cheap alternatives to Swiss credit cards for making purchases and withdrawing money outside of Switzerland. Disadvantages include no coverage by the Swiss depositor protection scheme and, in the case of Revolut, lack of transparency.
The Swiss app-based Neon service is significantly more affordable than conventional Swiss banks in the private account and banking bundle comparisons, but its currency exchange rates are average. Bank Cler’s app-based account Zak has somewhat higher fees than Neon and its currency exchange spreads are above average. Conventional banks still provide the most favorable solution for young people and students.
A general trend revealed by the comparison: Foreign companies like Revolut and Transferwise are the innovators, while Swiss startups like Neon are riding the bandwagon. “Over the short term, app-based banking services do not pose a threat to conventional banks. But over the mid-term, Swiss banks have to take care not to miss the proverbial boat,” states moneyland.ch CEO Benjamin Manz. “The lucrative currency exchange spreads charged by conventional banks are the most likely come under pressure in the face of affordable competitors.”
Neobank payment cards vs. conventional credit cards
moneyland.ch compared the costs and conditions of credit cards from conventional banks and issuers with those of the cards offered by app-based financial services providers. Criteria used for the comparison include annual fees, foreign transactions fees, currency exchange spreads (Swiss francs to euros) and rewards based on 5000 francs of purchases in Switzerland and 1000 francs of purchases abroad for one year.
The result: UK service provider Transferwise has the lowest total costs, at 3.95 francs. It is followed by Revolut, at 7 francs (weekday transactions) or 12.60 francs (weekend transactions).
These are followed by these no-annual-fee Swiss credit cards: Coop Supercard Visa/Mastercard, at 15.75 francs of total costs; Migros Cumulus Mastercard, at 18.15 francs of total costs; Cashback credit card from Swisscard (Visa/Mastercard), at 34.55 francs. Note: The American Express version of the Cashback credit card from Swisscard delivers 1% cash back and is the most favorable card for this user profile, with total costs of -14.60 Swiss francs. However, American Express is not as widely accepted.
These are followed by: the Neon card, at 37.50 francs; the Zak credit card from Bank Cler, at 47.55 francs; the standard PostFinance credit card, at 64.20 francs; the standard Viseca credit card (used by the Zürcher Kantonalbank and Raiffeisen, among others), at 125.65 francs; the standard UBS credit card, at 126.60 francs; the standard Credit Suisse credit card, at 146.80 francs. It is important to note that these costs are based on the above-stated user profile. Costs can vary depending on use cases – you can perform a custom credit card comparison on moneyland.ch.
Private account and debit card comparison
International app-based financial services are not currently a viable alternative to Swiss bank accounts. Neither Revolut nor TransferWise are covered by Swiss depositor protection. In the event of one of these foreign financial service providers going bankrupt, the money lost to account balances from the failed company would be very difficult to reclaim.
For this reason, moneyland.ch only include Swiss app-based and conventional banks in its private account and debit card comparison.
The results show that the app-based account from Neon is the most affordable solution for adults, with total annual costs of 30 francs for the profile used (occasional user: financial transactions, purchases and cash withdrawals in Switzerland and abroad). Bank Cler’s Zak app has total costs of 90 francs per year for the same user profile.
Conventional banks are notably more expensive. Total costs for the same user profile are 160 francs at PostFinance, 172 francs at Zürcher Kantonalbank, 177.50 francs at Raiffeisen, 201.25 francs at Credit Suisse, and 211.90 francs at UBS. However, there are also conventional banks which are much more affordable for the profile used. These include the Banque Cantonale de Fribourg (Salary Account: 69 francs) and the Appenzeller Kantonalbank (76 francs). Total costs vary broadly depending on user profiles, so performing a custom comparison of private accounts and debit cards is recommended.
Interesting fact: Conventional banks typically provide the most favorable banking solutions for young people and students. Even many large banks offer better conditions for young people and students than the app-based Neon and Zak accounts.
Banking bundle comparison
Depending on the use case, using a bundled banking package can work out cheaper than using a combination of individual services like private accounts, credit cards and debit cards from the same bank. For this reason, moneyland.ch also compared banking packages. The comparison is based on an occasional user profile and accounts for credit card transactions both in Switzerland and abroad, cash withdrawals using a debit card, transfers and interest on a 30,000-franc savings account balance.
The result: Here too, Neon is the most affordable option for the profile used, with total annual costs of 49.50 francs. It is followed by: the Private Account Plus from PostFinance, at 106.30 francs; the app-based Zak account from Bank Cler, at 122.50 francs; The Silver bundle from Zürcher Kantonalbank, at 164.80 francs; the Individual bundle from UBS, at 178.25 francs; the Bonviva Silver bundle from Credit Suisse, at 200.35 francs; the Private Account Plus from Raiffeisen, at 224.80 francs.
Currency exchange rate comparison
For the comparison, moneyland.ch used currency exchange rates sampled on 4 non-consecutive days to determine average exchange rates for Swiss francs (CHF) to euros (EUR), U.S. dollars (USD), British pounds (GBP), Swedish kronor (SEK) and Thai baht (THB).
Transferwise uses interbank exchange rates with no markup, but charges a currency exchange fee. Revolut uses interbank rates for all of the currencies compared except for the Thai baht, for which it adds a markup of around 1%. Revolut adds markups for currency exchanges on weekends: 0.5% markup on Friday’s interbank exchange rates for major currencies, 2% markup for other currencies (like the Thai baht).
As per exchange rate samplings, Swiss app-based accounts do not have particularly favorable currency exchange rates for card-based transactions. Neon’s rates are similar to those of the conventional Swiss banks included in the comparison. Zak from Bank Cler has exceptionally unfavorable exchange rates.
Average markups on interchange rates for Swiss francs to euros at conventional Swiss banks are as follows: PostFinance, 1.18%; Raiffeisen, 1.49%; UBS (debit cards), 1.67%. Revolut and Transferwise do not add markups (0%). Neon has an average markup of 1.69% and Zak has a 2% average markup. Viseca adds an average currency exchange markup of 1.69% to interbank rates and Swisscard has an average markup of 1.63%. Depending on the bank or card issuer and transaction type, foreign transaction fees may be charged on top of the currency exchange markup.
Markups on U.S. dollar and pound sterling rates are similar to those added to euro exchange rates. Markups on Thai baht rates are significantly higher. Markups on Swiss franc to Thai baht exchanges without accounting for possible foreign transactions fees are: Transferwise, 0%; Revolut, 1.18%; PostFinance, 1.50% to 1.73% (depending on transaction type); Neon, 1.66%; UBS debit cards, 1.80%; UBS credit cards, 2.29%; Viseca credit cards, 2.35%; Swisscard credit cards, 2.50%; Raiffeisen, 2.54%; Zak, 5.00%.
Single-card strategy from app-based services
Conventional Swiss banks offer both credit cards and debit cards. Credit cards are more affordable for certain kinds of transactions, while debit cards are more affordable for others. As a general rule, credit cards should not be used to make cash withdrawals because card issuers charge high cash advance fees. App-based service providers Revolut, Transferwise and Neon offer a single debit card which can also be used to make purchases from merchants which accept credit cards (for online purchases, for example).
The two foreign app-based services TransferWise and Revolut offer a number of functions which currently are not typically offered by Swiss service providers. These include: real-time notifications when card-based transactions are made; numerous customizable configurations for linked cards (activation and deactivation of the magnetic stripe and contactless functions, for example); multiple currency accounts. “TransferWise and Revolut are now a genuine alternative to Swiss payment cards for purchases from online stores, shops or restaurants,” states moneyland.ch expert Ralf Beyeler.
Perhaps surprisingly, app-based banking services are not big on mobile wallet payments. Transferwise and Neon are not currently compatible with any major mobile wallet. Zak aims to support popular mobile wallets from July 2019. Swiss banks primarily back the Swiss Twint mobile wallet.