For anyone under 50 today in the UK, ‘free’ current accounts have been the norm.
The then Midland Bank (now HSBC) removed fees for cheques, standing orders, ATM use and cheques way back in 1984.
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Within a year, Midland had signed up almost half a million new customers and its rivals followed suit.
Today, almost 80% of UK current account customers hold ‘free in credit’ current accounts.
A glance at a random page from, say the money pages of The Daily Mail, would lead you to believe that the UK punter is poorly-served by greedy UK banks and that we all pay more than we should for our everyday banking.
It’s pure bunkum but no matter.
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By GlobalDataJust ask customers in Ireland if they have approved of the move away from free current accounts in the past couple of years.
It is no secret that a number of the new bank brands – Tesco Bank, Virgin Money and TSB among others – have been lobbying for an end to general free current accounts.
Tesco has mumped and moaned to the competition watchdog the CMA that free current accounts ‘create a barrier that is very difficult for new entrants not to conform to in order to compete’.
Virgin for its part says free checking ‘makes it difficult for new entrants to compete on price or through more innovative products.’
Well, tough. It is not as if there is no money to be made from current accounts.
With around 65m current accounts in the UK and combined revenue of £8.1bn per year, each current account customer is worth an average of almost £125 per customer.
Now the consultants are wading into the debate: witness a report today from PwC entitled There’s no such thing as a free lunch: Why fees are the future for current accounts
According to PwC: ‘the banking model is unsustainable and may increase the likelihood of mis-selling in the future."
Report author, Steve Davies, retail banking leader at PwC, said: "Compared to other countries, the UK is an anomaly with the "free banking" model it has adopted for personal current accounts. In other countries, customers expect to pay directly for current accounts in some way, such as ATM charges and monthly fees.
"As many of us know, UK current accounts are not free at all and are paid for through overdraft charges, penalty fees and uncompetitive or zero rates of interest.
The irony is that most customers understand the unspoken bargain operating here and prefer it to paying an upfront fee."
Well, exactly.
The majority of customers in the UK do prefer the current model. That fact is borne out by PwC’s research.
The report states that nearly two thirds (62%) of customers say they are not prepared to pay anything upfront for their current accounts.
Is the CMA so brave as to seek to engineer a change in the current model?
And it will be an even braver bank that seeks to make the Midland change in reverse-talk about first mover disadvantage.
It also begs the question: what is more important – the banking needs of and the charges incurred by the majority of UK customers or a desire to give a leg up to new banking start-ups?
Price regulation is a dangerous path to go down; if the regulators, politicians and banks have any sense, they will leave well alone.
If Tesco and Virgin cannot see a way of making a reasonable profit from current accounts, perhaps they should focus on other financial services products.
Introducing a fee for all checking customers- paying for something we have taken for granted for two generations – really will be a pyrrhic victory for the consumer, all in the name of allegedly increasing choice.
