As our research throws yet more light on the real cost of banking, and the CMA calls for an inquiry into competition in banking, the first reaction has been to call for an end of free banking. But is that really the answer?
Britain’s retail banking sector has taken a couple of knocks in the last week. Firstly the Competition and Markets Authority (CMA) produced its report on the current account market, which suggested levels of switching were ‘not what would normally be expected in well-functioning, competitive markets’.
Meanwhile, we’ve just published research into the real cost of banking which shows that there are vast differences in the amount of overdraft fees attached to current accounts.
Differences in overdraft charges
Our research, based on real life examples, found that a regular authorised overdraft user’s charges could range from 6p to £60 over a three month period, depending on who they banked with. Meanwhile, a regular user of unauthorised overdrafts could be subject to fees ranging anywhere from 25p to £150.
In short, it’s almost impossible for even the most savvy customer to work out if they’re on the best current account. Current account switching – despite being reformed last year by the Current Account Switch Service – has a lot further to go.
This is shown in an earlier survey, where half of consumers who haven’t switched banks told us they’d be more likely to do so if it was easier to compare accounts, yet only a quarter agree that this is easy to do at the moment.
Banking at a price
Some banks have responded by calling for the introduction of current account fees. According to its supporters, a single account fee would aid transparency and facilitate switching as the cost of the account would be clear to customers.
However, as our research shows, free banking is a myth. If upfront current account fees were introduced, would overdraft charges really disappear? Would they become simpler to understand? And why should those who never use their overdraft – or don’t have one – pay for those who do?
Plus, an upfront charge puts a barrier in the way of the vulnerable and often elderly customers who may find it difficult to take part in mainstream financial activity.
Data is the key
It’s in this context that the Government’s midata scheme could come into its own. From April 2015, current account customers will be able to download data on their last 12 month’s transactions. They will then be able to feed this into a comparison site to check how much their account is costing them and whether another would suit them better.
While six of the biggest high street banking groups have signed up to midata so far, the whole banking industry needs to take part to ensure competition in banking. It’s this subtler, empowering, approach – rather than the blunt instrument of a blanket upfront fee – which holds the key to a more competitive current account market.
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