Bank of England executive director for banking
supervision Andrew Bailey attracted the attention of the consumer
press with his argument that the “myth” of free banking enjoyed by
customers when not overdrawn made it hard to link costs to products
and services received.
The outgoing head of retail banking at
Royal Bank of Scotland, Brian Hartzer, lost little time in echoing
Bailey’s argument.
Go deeper with GlobalData
UK current account customers will not warm to
Hartzer’s sentiment or its likely implications but the High
Street banks will welcome the momentum towards the end of free
checking if-in-credit.
It is a trend already being endured by
customers in Ireland. If the banking crisis was bad in the UK, it
was far worse across the Irish Sea.
Following a sector wide crisis in 2008 – the
cost to the Irish taxpayer so far is about €70bn, give or take –
six Irish owned banks have become two so called ‘pillar banks’.
The big two (pillar) banks left standing –
Bank of Ireland and Allied Irish Banks – are now ramping up fees
for everyday banking for a sizeable proportion of the country.
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By GlobalDataBank of Ireland kicked things off by raising
fees affecting almost one-half of its 1m customers in March. AIB
has come out in sympathy and followed suit with the end of
universal free checking from 28 May. Only Royal Bank of
Scotland-owned Irish subsidiary, Ulster Bank, now offers universal
free current accounts. It does not however rule out following Bank
of Ireland and AIB.
Ulster Bank spokesperson Debbie McCaughey told
RBI:
“I can confirm that Ulster Bank does not
charge a monthly fee on standard current accounts. As with all our
products and services, we keep our current account offering under
continual review.”
There is now the irony of the UK government
bailed-out RBS Irish subsidiary standing to win over account
switchers from the two Irish government-backed lenders, Bank of
Ireland and AIB. There is one further irony. Bank of Ireland has
not (at least not yet) ended universal free if in credit current
accounts for its customers based in Northern Ireland.
In fairness to Bank of Ireland, a lot of its
customers can get around the monthly current account charges. If,
for example, they deposit at least €3,000 into their current
account and make nine debit payments from that account using the
telephone or online banking over a three month charging period,
they will avoid charges.
Students and customers aged over 60 are also
exempt. In addition, customers who maintain a permanent credit
balance of at least €3,000 (a relatively small percentage of
clients) qualify for free banking. Customers not qualifying for
free banking will pay €0.28 per transaction or a flat fee of €11.40
per quarter for up to 90 transactions with excess transactions
charged at €0.28 each.
As for AIB, its spokesperson Helen Leonard
told RBI that the fees change “is driven by the need to
enhance cost recovery across all AIB businesses, including the
provision of money transmission services, the cost of which is
significant.”
From 28 May AIB introduced current
account fees for customers who do not maintain a minimum daily
credit balance of €2,500 for the full fee quarter.
That will take in 60% of its current account
customer base. The 40% of exempt customers will, in the main, be
the other exempt customer categories: students, recent graduates
and clients aged over 60. The 60% of AIB customers affected will be
charged €0.20 per debit card transaction while writing a cheque or
withdrawing cash at an AIB branch will cost €0.30 per
transaction.
In a statement, Bernard Byrne, director of
personal and business banking at AIB, said:
“Free banking offerings across the industry
have changed significantly in recent times. While this was a
difficult decision to make, nonetheless it is a necessary one if we
are to continue to create the conditions in which we can become a
strong and viable entity again.”
The fees bombshell for Irish bank customers
follows an incessant stream of bad news in the local banking
sector. Around 6,000 banking staff in Ireland have left the
industry in the past three years. Thousands more are set to follow
with AIB looking to shed another 2,500 jobs; Bank of Ireland will
let up to another 1,000 staff go under a voluntary redundancy
scheme agreed with trades union The Irish Bank Officials
Association.
Ulster Bank is also bloodletting and will lay
off 950 staff in the short to medium term.UK High Street lenders
will be watching intently to see if Bank of Ireland and AIB can
make the current account fees stick.
With such limited competition on the Irish
Main Street, there is every chance that Irish customers –or at
least those who do not switch to Ulster Bank – will just grin and
bear it.
In the UK, there are already 10m chargeable
current accounts, with customers paying an average of £185 in fees
per year.
That is already worth big bucks to UK banks:
about £1.8bn in fees last year across the sector.
But such accounts are termed packaged accounts
(or added value accounts, as banks prefer to call them) and
typically offer a bundled range of incentives such as mobile phone
insurance and car insurance, other preferential financial services
including overdraft, personal loan or mortgage, as well as
non-financial products and services.
There were approximately 54m active current
accounts in the UK in 2011 and packaged current accounts made up
about 17% of the UK retail banking market.
The number of charged for current accounts on
offer in the UK (69) has more than doubled from the 33 on the
market just five years ago and since late 2009 has exceed the
number of free in-credit current accounts on the market.
Thus far, no UK bank has gone for broke and
made the decision to start charging for all current accounts for
fear of losing market share.
With such influential proponents towards such
a move as Andrew Bailey and a bank sector enthusiastic about
finding new ways to charge for services currently not charged for –
that day may not be far off.
