FCA tells banks to improve access to basic accounts

Nine of the biggest UK banks and building societies are legally mandated to offer basic bank accounts. They exist to serve people who may not otherwise be able to access standard current accounts – providing access to essential services with no fees and no overdraft. 

A mystery shopping exercise by the FCA found a third of experiences with basic bank accounts rated as poor or very poor.  

The mystery shop revealed that the bank account providers were not consistently offering these accounts to customers who could benefit from them. This included people facing financial hardship or without standard identification, and especially those with no fixed address. The firms often failed to mention basic bank accounts at all and pushed customers in vulnerable circumstances towards online applications unsuitable for their needs.  

Banks to implement individual improvement plans

To address this, the banks and building societies have agreed to individual improvement plans. The FCA says it has worked with UK Finance to secure a collective commitment for the firms to:  

• Provide the right account for customers, first time, with clear communication and minimal friction
• Make it straightforward for customers without standard ID or a fixed address to open an account. 
• Spot vulnerability early and offer accessible alternatives to online-only journeys. 
  

Emad Aladhal, director of retail banking at the FCA, said: “Progress has been made with over 97% of UK adults having a current account, but our latest work shows that all too often banking firms’ engagement with customers still needs improvement. Bank accounts are important for financial inclusion, and this is about making sure the very people who could benefit from basic bank accounts are not missing out. 

“That’s why the biggest banks have now committed to improving how they are offered – and we’ll be holding them to account to make sure change happens.”

Important first step towards financial independence

Peter Tyler, director of personal banking at UK Finance, added: “A basic bank account can be an important first step towards financial independence, and while most customers who hold one have positive experiences, we recognise that more can be done to ensure consistently good outcomes for everyone. That is why UK Finance and our members are committed to raising industry standards and expanding access.”

Michael Shand, Managing Principal at Capco, said: “Access to payment accounts is critical for consumers, yet the retail banking industry has long been impacted by barriers to the financial system that have created real harms and inequalities, impacting everything from the ability to access government funds to simply making and receiving everyday transactions.

“Today’s announcement from the FCA signals a clear change and has the potential to make a genuine difference. The commitment from the biggest banks to improve poor practice is essential given the history and variety in customers’ experience. Alongside the regulator’s continued focus on Access To Cash, this is a welcome and important move from the industry.

Costly to provide, little scope to boost revenue

“Although Basic Bank Accounts are costly for banks to provide, with limited balances offering little opportunity for net interest margin and almost no fee income, the biggest institutions already have the systems, infrastructure and operational capabilities needed to support them at scale. The challenge is therefore less about technology or investment, and more about policy and commercial priorities. There are already examples of banks successfully supporting customers with no fixed address, no credit history or non-standard forms of identification, demonstrating that these barriers can be overcome.

“Banks now have an opportunity to improve how they identify and support customers throughout the account-opening journey. Rather than simply declining applications, firms should do more to signpost customers towards appropriate alternatives with clearer guidance for those researching their options. There are lots of opportunities for the bigger banks to leverage channels beyond digital: particularly those with branches and contact centres have the opportunity to support vulnerable customers in a variety of ways.

Lifetime customer value

“For many customers, a Basic Bank Account is the first step towards financial stability, financial education and long-term financial inclusion. If banks take today’s warning from the FCA seriously and adopt a ‘lifetime customer value’ view then there could be some heartening stories of customers with non standard needs becoming mainstream customers over time, supported on their path towards financial stability and self-sufficiency.”