A while ago, I came across the new digital bank Pepper and excitedly signed up as soon as I could. Since then, I’ve spoken to a lot of friends who, jaded by awful experiences with Israeli banks, have greeted Pepper – when I tell them about it – with deep suspicion and conviction that there must be a catch. I’ve therefore decided to write a review of this new service. I have no connection to Pepper or Bank Leumi other than being a customer of both, and will explain why I care at all at the end.
What is Pepper Bank and what is Pepper Pay
Let’s start with Pepper Pay. Pay is similar to other payment applications, allowing you to pay friends using just their phone number. It’s not a wallet (so you have no balance on it), but rather just an interface for moving money from the payer’s linked bank account or credit card to the payee’s linked bank account. That service is free. You can request payments from people, and set up payment groups, also for free.
Pepper Bank is a bank (despite the extremely confusing messaging of the ad campaign, in which they explicitly claim not to be a bank, while very clearly being a bank). You can open up an account with them: it’s a normal bank account with cheque books; a bank account number that other people can use for transfers; and a linked credit card as with all the other banks. The main difference is that it’s purely digital: there are no branches, so speaking with bank clerks is done through the app. More on all this below.
Why transaction bank accounts shouldn’t cost money in this day and age
In the olden days, like the 1960s or so, banks had to employ lots of goblins to sit and print lines in passbooks. If you wanted to transfer someone money, you had to instruct the bank by sending a message with a raven and an elderly gentleman would descend slowly to the vault with a lantern, take out the money in pennies and put it in a drawstring sack, then put it on a horse and cart under lock and key to send to the other bank, with two guards accompanying it. Paying all these people a shilling a week cost money and so it makes sense that transfers used to cost money.
These days, transferring money means changing a few fields in a database or two (OK, there’s a bit more to it than that to ensure proper bookkeeping, but it’s all electronic). A money transfer is no more complicated, in theory, than liking someone’s post on social media. Other than R&D costs for the digital system, maintenance of the servers is relatively cheap.
On the flip side, the bank gets a lot of use out of your custom. If you’re in positive, they can use the money to underwrite loans to other people, and if you’re in negative, they can charge you interest on your overdraft. They can also charge for other various more irregular activities. That’s why in the UK, where basically none of the banks charge customers to maintain regular current accounts, they still make an average of £139 a year per current account.
Advantages of Pepper Bank
Pepper Bank and their nefarious backers at Bank Leumi realised all this and clocked that if you set up a bank using modern technologies like the ones that have been used for over a decade now for, like, everything else, bank accounts can be really cheap to run, the bank can scale easily to any number of customers, and still make an absolute killing. The following are the advantages of Pepper Bank:
- No charges on all normal transactions (like, using the money you own by means of credit card, bank ATMs, cheques or bank transfers)
- No waiting in hour-long queues at physical banks open ridiculous hours (at Pepper, bankers are available 24/6 and reply pretty quickly)
- An end to the sour-faced obnoxious bank clerks who hate you for bothering them and say everything is impossible
- Fairly intuitive sign-up process which doesn’t require mowing down forests
- 250 shekel bonus for joining
- A 3% savings account (I’m using it, interest is accumulating, it’s not a con)
- A hip user interface with interesting details about your transactions, like where they took place on Google Maps, and occasional clever facts about your aggregated spending (see picture)
- Generally greater transparency as a result of all this, and a positive banking experience
What’s the catch? Why would Leumi create something to compete with themselves?
So far I’m yet to find a catch. There are a couple of disadvantages and criticisms which I’ll come to below, but no diabolical schemes. In my opinion, Leumi has simply been the first among the banks to realise and internalise that change is coming, the government is trying to lower the cost of living and the reckoning for their predatory practices will come eventually, and has preferred to pre-empt that by owning one of the disruptive competitors and managing the shift rather than losing to them.
We are used to drastic market shakeups coming from new companies but there is no reason that, with sufficient foresight, it can’t come from existing players. I suspect Leumi High Command has no love for the sour-faced obnoxious bank clerks who make everyone hate Leumi, or the high rent in Gan Ha’Ir in Tel Aviv, and is itching to make the clerks redundant, close branches where possible and move to a more efficient business model.
Aside: relationship between Pepper Bank and Pepper Pay
Quickly want to clarify this: Pepper Pay works as a standalone app. You can use it for payments and connect it with your other bank accounts and credit cards. Pepper Bank also works standalone, but without Pepper Pay you can’t make bank transfers from it (but can still use it with cheques, credit card and ATMs). Also, if you have an account with both, Pepper Pay automatically links to Pepper Bank rather than whatever other account details you gave it. They have the same credentials to log in. It’s kind of like the relationship between Facebook and Messenger.
You said there were disadvantages
Here are the current issues I’ve noticed:
- A lot of services are still missing: the banking service at Pepper is still basic and skeletal. It was the right decision to incrementally add feature by feature, rather than waiting years until launching, but it means that you can’t yet use Pepper as your sole bank. Examples: international bank transfers, bank guarantees, foreign currency deposits, joint accounts.
- Fees are still unnecessarily high on some activities. For instance, I would love to see 0% fee on use of credit card for payments abroad, since we all know that it doesn’t actually cost the bank any more money because payments are processed through the internet, which is flat globally.
- Service is only in Hebrew. I actually see this as an advantage, because it means I’ll get to learn new words, but others will I’m sure be outraged at the gall and the parochialism of providing a service to a country in the language of that country, with no version yet released in Esperanto.
- A number of American nationals have reported that they are not being allowed to sign up to Pepper Bank due to FATCA and tax laws. Not sure if this is still the case.
- People have recently been reporting long delays between initial sign-up and getting the video chat with the representative, which is required for the account to be approved. Poor work by Pepper in scaling their service for the demand that should have been expected after a huge marketing campaign.
- Clunkiness of having two apps: I get that they want to provide a payment service for people who for whatever reason don’t want a Pepper Bank account, but it’s annoying to have to use two separate apps for one banking experience.
- UI is not perfect: though good, compare it with Monzo in the UK, where it’s all beautiful and simple and uses native UI for everything. There’s also a bothersome delay in loading each screen.
Security and safety of money
This is the other thing that everyone is asking. In terms of information security, the security of the application and systems was designed by Bank Leumi’s own security team, so it should theoretically be no less secure to use than Bank Leumi’s digital services. Regarding safety of the cash – Pepper, as mentioned, is basically a puppet of Bank Leumi; they are operating under the same banking licence (and so have the same bank number, 10, operating as branch 601), and so it should all be fairly safe. Note though: their systems are almost all separate from Bank Leumi’s, it was all re-architected from scratch, the whole point being to use modern technology rather than old mainframes. So the accounts are separate, which is noticeable when conducting transfers between Leumi and Pepper – they don’t go through immediately like intra-Leumi transfers.
OK but why do you even care
I am a big believer in consumer pressure and voting with your feet to achieve better service. There are few rewards for loyalty in the banking world (and most other sectors) and so you stand to gain far more by switching than bitching. With fully mobile consumers who value pleasant customer service and low fees, banks will be forced to provide a good service – as long as it can still be profitable – or collapse. This was the logic behind the reform allowing easy switching between cellular network operators.
I’ve seen a few Facebook comments following the logic: Israeli banks are evil → Pepper actually seems quite nice → Pepper can’t be a legit bank and it must all be a scam. Anyone who thinks this is being a very silly billy and is constituting a huge part of the problem by not being open-minded enough to switch to the new competitor. Maybe in the future Pepper will raise fees or do some other evil act at the behest of their villainous overlords (I doubt it, because they don’t need to, and would lose a lot of goodwill by doing so, but obviously it’s possible) but for now it seems chill and in summary I can’t really see any reason not to get it.