Did Tandem just destroy Chip’s business model?

Keezing

Many people avoided Chip. Their financials were said to be in bad shape and they were clearly motivated to attract funds with market leading rates. This appears to have been a successful strategy as it was recently reported that they have returned to profitability.

And then Tandem shake things up with a huge rate increase - taking the market leader position with their 5% rate.

What are Chip going to do? It’s possible that beating Tandem’s rate will take them out of profitability, yet if they don’t they face the real possibility of losing a huge chunk of their deposits - rate chasers are rarely loyal.

I wonder how risky this situation could be for Chip?

And what about Tandem? One advantage they have is that not all of their customers will have applied the bonus. Most will, but it does mean that the total return to customers is not exactly 5% - somewhere slightly below. But for Chip to retain their deposits they’ll need to beat 5%.

Personally I think this was a very strategic move by Tandem - with a specific competitor in mind.

eskbanker

That seems a very narrow interpretation of a set of rate increases across the market following last week's MPC meeting?

Keezing

eskbanker said:

That seems a very narrow interpretation of a set of rate increases across the market following last week's MPC meeting?

It’s different. When the BOE rate was 5% the market leading rates were around 4.5%.

We now have a 5.25% base rate and a 5% savings rate. The profit margin is around 50% smaller.

eskbanker

Keezing said:

eskbanker said:

That seems a very narrow interpretation of a set of rate increases across the market following last week's MPC meeting?

It’s different. When the BOE rate was 5% the market leading rates were around 4.5%.

We now have a 5.25% base rate and a 5% savings rate. The profit margin is around 50% smaller.

But the point is that most providers will increase their rates in response to base rate rises and, although Tandem is, at the time of posting, at the top of the pile, they're not significantly out of step with the market, and even if they were, it's not necessarily indicative of any desire to wipe out a specific competitor!

masonic

If, as seems to be the case, money in a Chip savings account is just sitting at the BoE earning base rate, then Chip didn't have a chance of leading as the base rate approached a high and levelled off or even started to fall back. Historically the best easy access savings accounts have paid at or above base rate because financial institutions lent out money at above base rate. Chip cannot do that profitably under its current model. It could still come out and better Tandem's rate, but would need to do so as a loss leader. That wouldn't be sustainable over the long term.

Zaul22

No, they simply priced in the next base rate increase early. When it goes up to 5.5% they will probably just stay at 5. Also they must know about peoples various concerns around the security and general technical issues with their app and needed a good rate to attract people despite those concerns. I think you are right that Chip are their most direct competition as the only other banks with transfers as fast are Atom, Zopa and Investec, which have bad rates but Tandem are actually successful with their other products where as Chip started their IA account as a side hustle for their failing investment platform. 
At his point I wish both Tandem and Chip would work on fixing all the technical issues with their apps before chasing the highest rates. 

Keezing

eskbanker said:

Keezing said:

eskbanker said:

That seems a very narrow interpretation of a set of rate increases across the market following last week's MPC meeting?

It’s different. When the BOE rate was 5% the market leading rates were around 4.5%.

We now have a 5.25% base rate and a 5% savings rate. The profit margin is around 50% smaller.

But the point is that most providers will increase their rates in response to base rate rises and, although Tandem is, at the time of posting, at the top of the pile, they're not significantly out of step with the market, and even if they were, it's not necessarily indicative of any desire to wipe out a specific competitor!

Yes of course. Well intentionally or not, they may have put Chip in a precarious position. I’m interested to see how Chip respond (if they do).

Rollinghome

The people, or rather MSE people, who use them seem to think they've changed, and I suppose they're the ones who matter.

Chip gave the impression of being determined to always pay the top EA rate, but their rate is now trailing behind that offered by some major building societies. That seems to have persuaded large numbers of the probably very atypical, savers on this board to move away.

Will Chip suddenly burst through the window like superman with a super rate to win back the customers they've lost? Or maybe they're changing their business model and happy for them to leave.

Should be interesting, as will seeing how Al Rayan, still at 4.00% I think, will play the game.

PixelPound

Keezing said:

eskbanker said:

That seems a very narrow interpretation of a set of rate increases across the market following last week's MPC meeting?

It’s different. When the BOE rate was 5% the market leading rates were around 4.5%.

We now have a 5.25% base rate and a 5% savings rate. The profit margin is around 50% smaller.

Hmm, not really. When BoE went to 5% quite a few of the market leaders went to 4.5%. We only have Tandem going to 5%, there have been others going to 4.8%, so maybe pushing the 25bp to a 30bp rise.

You forget that Tandem was at 4.36% whilst others moved up. So they didn't raise, had extra profit and have now done one that probably won't move after the next rate rise. It's a big enough rise to pull those who might not chase the 0.1% and probably gambling that after the next rise when competitors might go above 5% that people stay if Tandem's rate is within 0.1% of the top.

boingy

I think it may be a bit premature to be writing off Chip but I'd love to be a fly on the wall of all of these companies when the "next rise" discussions are happening. I don't believe Tandem can make much money at that rate.

I'm still fully loaded in Chip but I'll review it some time next week if they haven't moved.

Lumiona

I've had a Tandem account since they had a decent cashback credit card in 2019. Once they closed it down in Jan 20, I've not used them since. However, this rate has encouraged me to switch my savings from Chip. Shame as I really liked Chip, super simple. Also, I haven't quite forgiven Tandem for trying to charge for a current account back in 2020.