News Analysis: Will Money solve Egg's problems?

Egg's hybrid account claims to ease financial anxieties. How enticing will it be to consumers, asks Joanna Bowery.

For many people in their 20s and early-30s, getting money out of their current accounts toward the end of the month involves crossed fingers and anxious prayers. Egg has launched an account that could spare them the strife; the only problem is that consumers may not understand exactly what it is offering.

Launched by Prudential in 1998, Egg brought online banking to the fore.

But as rivals followed its lead, cracks appeared. An ill-fated launch in France failed to win over the local market and its reputation was further sullied when Prudential scrapped its sale after it failed to attract the bids required.

With the introduction of Egg Money, the business is full of renewed confidence.

The firm describes it as a 'spend' account. In fact, it is neither a current account nor a credit card, but a hybrid of aspects of the two. Customers can use an Egg Money analyser to work out how much money goes on boring essentials such as bills, and how much is left to spend. Users can then set up a direct debit to transfer each month's leftover, 'spend', cash from their current account to Egg Money.

The service offers 4% annual interest, and account holders earn 1% cashback on items purchased from the account. What's more, account holders wishing to make a purchase but who do not have the ready funds can take advantage of Egg Money's 50 days' interest-free credit offer - though a 6.9% charge kicks in after that point.

The account also benefits from a link-up with MasterCard, providing consumers with the credit-card network's purchase protection.

'It's about spending money. If you strip out the cash you spend on bills and move over what remains, it will help consumers to manage their funds and reward them for doing so,' says an Egg spokeswoman.

But does it work? 'The concept is rather like an offset mortgage, without the mortgage,' says Jason King, creative partner at specialist financial advertising agency Alphabet. 'The problem is that none of its individual elements offer the best deal. You can get 4.75% from an ING savings account, and MBNA perpetually offers six months' interest-free credit.'

Preaching conversion

Describing what Egg Money does takes time, and explaining how a hybrid product can help people budget their discretionary income is a big ask.

Recent research conducted by Egg revealed that UK consumers have been charged an average of four times by banks over the past year for straying beyond their overdraft limit. Egg hopes its new product will appeal to such people, and for this reason, its communications will focus on the service's reward elements and its simplification of consumers' financial outgoings.

'Current accounts do a very good job, but people's money matters are much more complicated now than they were 20 years ago. These accounts do not reflect actual spending,' says the Egg spokeswoman.

The research also showed that people are unlikely to switch current accounts.

As a result, Egg decided that a 'bolt-on' approach was the way forward - in theory, a good idea, but theory does not always translate into practice.

'The idea of enabling people to split spending money from regular monthly outgoings is spot-on,' says Keith Tondeur, national director of money education charity CreditAction. 'However, people who manage their money well won't need it, while those who do it badly will abuse the credit option.'

Alphabet's King believes that Egg Money is an over-designed product, which may hold it back. 'One big drawback is that you have to decide how much you are going to "charge up" to the card each month,' he says. 'Given that its target seems to be the mildly financially disorganised, this will be a challenge.'

Earlier this year, a report by Professor Merlin Stone of Bristol Business School suggested that credit-card providers could not continue to offer interest-free periods, because the growing numbers of people continually switching cards to take advantage of the deals were making them unsustainable.

With this in mind, it will be interesting to see whether Egg's competitors launch similar offerings over the next 12 months, and whether Egg itself can cope more effectively with others following its lead this time.

DATA FILE - CREDIT CARDS Brand Share (%) 1 Barclays (Barclaycard) 14.2 2 Lloyds TSB 10.7 3 Capital One 7.7 4 Halifax 7.7 5 NatWest 7.1 6 HSBC 5.9 7 MBNA 5.9 8 M&S Money (&more) 4.1 9 Tesco Personal Finance 3.6 10 Egg 3.6 11 Royal Bank of Scotland 3.6 12 Alliance & Leicester 3.0 13 American Express 2.4 14 Mint 1.8 15 Bank of Scotland 1.8 16 Abbey 1.8 17 Co-operative Bank 1.8 18 Nationwide 1.8 19 Goldfish 1.8 20 Sainsbury's Bank 1.2 Other 8.9 Source: Mintel Figures are brands' volume shares of credit-card market in year to April 2005