Ikano Bank is the UK's newest bank. But what does it plan to do differently?
We all now have a little more choice when it comes to banking in the UK thanks to the launch of Ikano Bank UK, the UK branch of the Swedish Ikano Bank.
Previously known as Ikano Financial Services, the business already has around seven million existing customers. These are largely in the store and loyalty cards sector. Ikano will continue offering these services, alongside new personal loans.
New banking licence
The loans are set to be launched in 2014, but no details are yet available on what we can expect them to look like. Dan Joy, UK country manager for Ikano Bank UK, said: “Our new loan products are under development and will reflect our promise of ‘On Fair Terms’ and our values around simplicity.”
This promise is vaguely described as being fair in dealings with customers, retail partners, suppliers, employees and the community. It also highlights the fact the bank aims to offer “simple internal processes”, which it says makes it easier to deal with and keeps costs low.
As it has been granted a banking licence, it could prove to be a badly-needed competitor to the high street banks. There is also the potential that other products could be launched in the future, such as a credit card or savings account, although Ikano itself has said nothing about such product areas.
The bank is an EEA-authorised firm in the UK, which means it is on the Financial Conduct Authority (FCA) register, yet authorised in Sweden by Finansinspektionen - the Swedish banking regulator.
[SPOTLIGHT]It’s not yet covered by the Financial Services Compensation Scheme (FSCS). But as it’s only issuing loans, there is no risk to yourr money as it’s not actually being stored anywhere, as with a savings account.
Retail customers
Ikano, which was originally part of Ikea, has existed since 1994 in Nottingham as a retail finance company. Its partners include brands such as DFS, Harveys, Bensons, New Look, and Vision Express and it offers both store and loyalty cards.
A major part of the business is retail loans which shoppers can take out if they don’t want to pay for something up front. These include interest-free, interest-bearing and buy-now-pay-later loans which are available through a range of retailers.
These loans are often criticised for luring in desperate customers who can’t actually afford the products they’re buying. However, while this is a big part of the business, it’s completely separate to the new banking arm.
Personal loan competition
In the past six months there has been a severe pricing war in the personal loan market and the introduction of a new lender will add an interesting element to the mix.
Derbyshire Building Society shares the top spot with peer-to-peer lender Zopa, both charging 4.9% on loans of between £7,500 and £15,000. M&S Bank and Clydesdale Bank are next with 5% loans followed by one from Sainsbury’s at 5.1%.
New entrants
There are relatively few new entrants to compare the new bank with. Metro Bank, which opened in 2010, was the last new company to get a banking licence and it offers mortgages, savings products, credit cards, current accounts and loans. But it’s still relatively small; it aims to have 40 branches by next year, and 200 by 2020.
When it comes to loans, to become a real alternative Ikano Bank UK is going to have to either offer something matching, or close to, the top rates. It could also go for larger loans, or target borrowers who don’t have a particularly great credit score but the rate will need to be attractive if it’s going to be successful.
As it already has a strong history of retail loans, a partnership between one of its existing brands, such as Jaegar or Ikea might also work.
A loan bought through Ikano Bank UK which offered some kind of loyalty scheme would set the product aside from those already on offer. This would create a different type of personal loan and may be popular with people who already use these shops.
What do you think? what do you want to see from Ikano?