Reality 2: The end of free banking
While most customers remain wedded to the perceived benefits of the UK’s free banking model (exemplified by free-if-in-credit current accounts and no annual fee credit cards), the lack of transparency and complexity it has created in the way customers actually pay for banking has undermined trust in the industry. This is highlighted more broadly by the fact that over the past 20 years, British banks have paid out around £15bn in compensation to their own customers and complaints to the financial ombudsman have risen from 30,000 a decade ago to 200,000 in 2010.
Moving to a paid-for banking model, where consumers pay more directly and transparently for the services they actually consume would provide clear benefits to both customers and banks. However, customer attachment to free banking has made banks naturally fearful of the consequences of being the first to break ranks. We believe a turning point is approaching in which the combined effects of a changing competitive landscape, pressure on profitability and measures recently announced by the Independent Commission on Banking (ICB), will come together to provide a telling catalyst to finally change the market. Banks and credit card issuers need to plan now for the coming ‘fee for all’.
