High street banks don’t work hard enough to compete for customers, says the report published this morning by the competition and markets authority.
This will not come as a surprise to anyone who has ever had cause to contact their bank. They don’t work very hard to keep their customers, never mind to recruit new ones.
Why should they? We are all such passive consumers. We are quite ready to believe two conflicting things at once: a) that there is such a thing as free banking for personal current account holders; while b) the banks make £16bn pounds a year out of their personal current account holders. How do they do that?
The answer is that they relentlessly flog us all sorts of other stuff like, er, payment protection insurance whether or not we need it or indeed are eligible to claim it if we do need it. This summer the bill for compensation reached £27bn, which is a monstrous amount until you recall how big the sector is and how much money they have made out of us down the years. They do that by flogging us mortgages and credit cards and all sorts of other financial products, from which of course they make loads of money. And they also impose stonking great charges if you borrow money from them, particularly when you don’t ask first.
A few years back the old Office of Fair Trading, predecessor of the Competition and Markets Authority (CMA), tried to argue that the banks were being unfair and should pay back at least the most extreme overdraft charges, but in the end the courts ruled against the consumer and in favour of the banks. What did we, the consumer, do? To say that most of us turned over and went back to sleep probably overstates our reaction.
The CMA, not unreasonably, clearly thinks it’s fundamentally the consumer’s fault for being too idle to change. But the CMA’s job isn’t to be horrid to us, so it suggests the banks should be clearer about their costs, to make comparisons easier. It even recommends a price comparison website just for banks. Don’t want to sound too cynical, but aren’t these usually funded by the industry, for the industry?
I think the official nervousness about money laundering, which often seems to verge on the paranoid (a bank whose card I have had for more than a decade is after me to prove my identity “for their records”), makes opening a new bank account exhausting even to think about.
It is not only the hassle of working out which bank offers a better deal, but to then also convince it that you are who you say you are, and find the requisite proofs of identity and, probably, a document that you do not recall ever seeing like, say, your parents’ marriage certificate.
There’s then the business of actually getting the new bank account to work like the old one: transferring all the direct debits and standing orders, waiting for new bank cards, setting up online banking all over again. No wonder more than a third of people with bank accounts have been with the same bank for more than 20 years and more than half have been with their bank for a decade or more. And no wonder people opening a bank account for their small business decide to stick with their own bank rather than go through the fight to open up a new one.
Some of these problems are the unavoidable consequences of sophisticated crime. But couldn’t there be a simple, if partial solution: why not bring back bank charges?
Only older readers will remember that once upon a time it was standard to pay a fixed fee for having a bank account, and around the world most banks still charge. But once the old Midland Bank launched a customer drive by abolishing them (something its then chief, Hervé de Camoy, now thinks was a terrible mistake) and recruited nearly half a million new customers in a matter of months in 1984, all the rest piled in. That launched the great search for alternative ways of skinning the cat. The rest is history, reputationally expensive for the banks and just expensive for the rest of us, the customers.
But a bank charge would at least make an upfront comparison simpler. It would remind us that actually banks are not some convenient virtual piggy bank, but businesses that exist to make money by providing services for which they charge and from which we can expect something more than convenient cash machines in return. A signal, yes, but a signal that there is no such thing as free banking.
