/ Money

Will a banking investigation prove crunch time for the banks?

The Competition and Markets Authority (CMA) is launching an investigation into the competitiveness of the personal current accounts market. So what’s the shake up about?

We’ve strongly supported the need for a full investigation into personal current accounts and have provided the CMA with evidence to show how retail banking is not working in the best interests of consumers leading to a lack of trust in the industry.

One of the strong indicators of poor competition is the historically low level of current account switching. The CMA used our customer satisfaction survey results to show that the banks which exhibit the highest levels of satisfaction ‘do not appear to be gaining significant market share – and, conversely, that those with relatively low levels of customer satisfaction have not significantly lost market share as a result.’ This is despite the introduction of the faster switching through the Current Account Switching Service more than 12 months ago.

We think that this is because people find it incredibly difficult to properly compare current accounts. The cost of each account very much depends on how you use it. And we know from our research that due to the confusing nature of overdraft pricing, people are unable to easily and accurately compare the costs based on their own personal use and may not be selecting the best account for their needs.

18-month banking investigation

The CMA will shortly appoint a group of independent members who will have 18 months to complete the investigation. During this time, we’ll be working to ensure that the CMA exposes the cost to consumers of a lack of competition in the market, and pave the way for reform.

To improve competition, we want the CMA to work with the other banking regulators (including the Financial Conduct Authority, and the new Payment Systems Regulator) to find ways to ensure banks improve customer service, and provide you with better quality products.

This includes making sure that new providers are able to drive innovation and competitive pressure. We also want current account comparison to be easier and clearer so better switching decisions can be made, as well as ways to help people control their overdraft usage. The CMA should also look at how ‘real consumers’ behave to understand what needs to be changed to make sure banking better serves its customers.

The end of ‘free’ banking

Lastly, some argue this investigation could result in the end of ‘free’ banking in the UK. We strongly disagree. Banking is not free for overdraft users and those with positive balances who potentially forgo interest that could have been earned in a savings account. The CMA’s analysis showed that banks earn £8.1 bn per year, or about £125 per personal current account. We believe that the introduction of an upfront fee would not necessarily result in greater transparency in charging, and might actually make it more difficult to compare accounts.

In the meantime, we’re also calling on banks to act now and seize the opportunity to put their customers’ interests at the heart of their business, whatever the outcome of this inquiry. They should aspire to meet consumer needs now and in future, innovate and improve service that exceeds expectations, and truly deliver a market that works for consumers. This will be crucial for trust to be rebuilt in banking.

Comments

What happened to the bankers who tried to manipulate the global interest rate, and the bankers who went back to America to continue without any penalty.
One left the UK with 125 million!

Beware to the working man like myself: You could go to jail for minute amounts!

ANDREW WALLACE says:
6 November 2014

Had to leave RBS SINCE THEY CLOSED THE BRANCH in Crieff and offered punitive interest on my 50year old current account.
Went to TSB and now earn 5% INTEREST. Their service is vg and they have a branch locally.

John Cartledge says:
6 November 2014

I do not use any of the “big four” banks, and cannot comment on their practices. But one obvious manifestation of the lack of competition in the private banking sector is the fact that none of the banks or building societies offers savings rates that provide a real terms (post-tax) return on cash invested, and National Savings has followed suit. There is no incentive to save if the longer money is deposited, the less its purchasing power becomes. This is close to legitimised theft, and I am astonished that it appears to give rise to so little public outcry.

As the banks and building societies currently appear not to need ordinary savers’ money at the interest rate you would wish for – because they get sufficient funds competitively from elsewhere – then you will need to put some effort into getting your money to work for you in other ways. A stocks and shares ISA, for example, should bring in 3.5% tax free. But you have some risk on your capital – positive as well as negative. No commercial institiution is obliged to pay you more than it needs to. Expecting a particular return for doing nothing other than keeping your money in the bank is a bit unrealistic, and certainly not theft!

I could not aggree more they do not seem to care about small people. Like us

Richard Dargan says:
6 November 2014

Banks say they have to pay inflated pay to their senior staff because they argue these staff will be off elsewhere if they don’t, so they find their high pay rates by not paying savers a decent rate of interest. Not sure if there’s been any real evidence of any kind of ‘banker flight’ from countries where their pay has gone down.

Debbie Short says:
6 November 2014

I have been caring for an elderly lady – 102 years old. In January 2014 I asked Lloyds Bank to call to see her at home to discuss her accounts. I was told not possible! We went in to the bank: We had made an appointment, the clerk was late – our impression was that she did not want to be there! We had to ask about options and which was the best way to treat this elderly lady’s accounts. This lady still had full mental capacity, but asked that I spoke to the clerk as she found it difficult to “keep up” with the discussion! Her accounts were sorted as we thought best. Seven months later, the lady became quite week and was not able to sign her name properly and was not able to physically travel to the bank, I asked again for someone in authority to come out to see her with reference to this – Guess what! NO! they said, “We do not do visits under any circumstances” – I went to the largest branch in the County Town, asked the same questions of a Manager, and still no help was given. What on earth is one meant to do now? I asked, how does this lady pay her bills???? There was no comment!!!!!!!

Kelvin says:
6 November 2014

I had a very similar problem with an elderly Auntie, however we dealt with Barclays and although still having to go into the branch to sort things out, they were really good, and most helpful. I could not fault them.

Its going to take time and too much time has already passed. Some of the problem derives from government interference or failure to be involved: Lloyds acquisition of TSB to which the government had a duty to know the EU would reject; TSB’s own stupidities in common money-grubbing rather than rendering service; Santander’s acquisition of two damned good building societies (with both of whom I had accounts) allowing Santander to over-eagerly demonstrate their complete failure to understand the rendering of service; insufficient liability charged to those responsible for the crash, through what can only be described as the damned fool stupidity of the under-qualified.

We bank with Lloyds and hold several accounts with them. One in particular, their Classic Vantage current account has a very low interest return. Through a friend we discovered that a similar account, Club Lloyds, was a much more attractive investment in every way. We have now converted to this but feel aggrieved that, had the bank been monitoring our accounts, they should have informed us of the advantages of transferring accounts. However they failed to do so, doubtless to their advantage.

william henderson says:
6 November 2014

closed an ISA held with Scottish widows; i was getting 0.65% interest, they charged 2.9% service.
i am now closing another held with them and buying gold bullion.
i am taking all but the essential out of the state licensed fraud/banking/rip off system.

Neil Kenyon says:
6 November 2014

I’m sorry, but anyone who can read English, and actually reads T&C’s can have no dispute. Everything is written down in black and white. If they, the consumer, cannot be bothered to read the T&C’s then caveat emptor.

I switched current a joint current account, painlessly I may add, recently, and am now enjoying £45 extra in interest per month.

Current legislation is fine. What are you seeking – Nationalised banking?

I think it is very useful to raise interest (unintentional pun) in banking issues so that we know what to look out for.

If you are happy with the banking industry you might be in a minority.

Keith says:
6 November 2014

Yes.

greeny says:
6 November 2014

Nationalised banking is a great idea Neil !!!! and I’m sure the lady in the comment above who is aged 102 understood every word in the T&C’s ! At least Nationalised banking would be accountable to the people.. The older people of this country fought and lived through the war, which in effect allowed the existing banking system and its rules the exist to its present format. To me the banks have abused that freedom.

Hugh Thomas says:
7 November 2014

Oh dear, how self satisfied is that comment. Many people do not have the time to read through reams of T&C’s. I believe that a number of Which’s financial experts found them opaque and misleading. The banking system in this country, especially the Big Four, are corrupt, put profit above their customers well being and are not fit for purpose. I should know, I have tried them all!

I agree Hugh. Terms & conditions should be more concise, and in the event of doubt the customer rather than the company should benefit. When my bank introduced online banking the terms & conditions were far too technical for the average person to understand. I took them to colleagues working in computer science, who confirmed my view. Eventually the bank produced simpler and much more comprehensible terms and conditions and I signed up for online banking.

Banks and building societies seem to have caught up with technology, but on many occasions I have been asked to upgrade my browser to a version that was older than the one I was using. 🙁

Ive been with RBS since 1978 when they were Williams and Glyn’s bank in England. Largely happy with them until now. I have a modest agreed overdraft facility with them, which in 1978 was considered very large but now is modest. They now are going to charge me £6.00 a month on an account type whose conditions we agreed long ago, should I use that same facility. I add that I still have to pay all the normal interest etc. that accrues with using the facility. This is a step too far, and when I need to use the facility again, the account will go, terminating a mutually beneficial long term relationship. I also had to have a MasterCard as condition of this account, paying £25 a year for the provision of this account, so I am paying twice.

Why is it that when wants to transfer, effectively from one account at a Bank to another (i.e.: from a Current Account to a Credit Card account belonging to the same person); it takes three working days when the Bank can, as quick as a flash, take money from your Account. Why do they inflict a very heavy charge on some accounts when the are effectively gaining interest from the monies in that account – Would it not be fairer to make a charge proportional to the amount of interest they are getting from that account. There is a facility to photocopy and submit a cheque for presentation – why have the Banks not invstigated that aspect. How, in the name of Haydees, can the Banks award a salary cheque and other benefits well in excess of the value to the Bank of that Executive – do they forget that it is the Customer who pays. Why are Banks selling Insurance? Outside those related to mortgages. Why are those interest charges so high – I can not see any justification in those charges – they are OTT. The Banks offer a very poor but expensive service!

May I suggest that you withdraw cash from Account A and immediately deposit it into Account B.
I am fascinated when I see the Counter staff perform both actions. Count the money out and then count it again. A complete waste of time.

Allen Bartram says:
6 November 2014

I banked with Midland Bank and subsequently H.S.B.C. for countless years. I had no complaints generally about the handling of my accounts and the Internet Banking Service was good. However I had a Savings Account of a substantial sum for which I was being paid about 12p a month interest. At no point did H.S.B.C. suggest that I moved the money to a different account. I decided to transfer my savings to two TSB Current Accounts and for the same amount of money deposited I now receive about £14 a month in interest. H.S.B.C. have become thoroughly complacent and appear to take little interest in the accounts of long standing customers. I told H.S.B.C. of my reasons for switching my accounts but absolutely no response. It is my belief that the “Big Four” have no interest in everyday customers. I would recommend ditching the “Big Four” and move to one of the localised Banks. TSB have contacted several times since I switched accounts.

Neil Kenyon says:
6 November 2014

Adding to my previous posting, can I just add that Barclays and Santander both have a brilliant electronic Bank transfer system – instant!

My partner has tried to transfer money to Germany with Barclays.

Twice they have lost the money, each time offering her to find it, for a fee of £60!

Yes, you did read that right. *They* lost *her* money then want more money from *her* to fix *their* mistake.

Astonishing.

Paulmixsee says:
6 November 2014

Oh really? Nothing is perfect! I have had numerous issues with Santander in the last few weeks. Their takeover of Alliance and Leicester has left them with legacy issues that are still not resolved and their security procedures are rather agricultural. This is an “international” bank but in terms of customer service they are distinctly third world.

Neil: that instant transfer is now mandatory for all big banks on personal accounts and took 10 years and a huge push by Which? and others to force through against bank opposition. Previously, banks held back funds that were to be transferred (telling the customer that they were ‘in transit’) for as long as a cheque was supposed to take to clear. The reason? Cashiers explained to me that it was so that people paying by cheque rather than electronic transfer weren’t ‘disadvantaged’ by having to wait; or that people making an electronic transfer were given a few days to make sure that the money was in their account, just as people paying by cheque often do. Both of these mutually incompatible reasons were offered to me by tellers. The truth? The money was instantly put into a huge account where Forex traders could attempt to make money by gambling with it – then instantly transferred to the receiving bank at the end of the four day delay.

The dishonest part here, and typical for banks’ spokespeople, was that the real use of the 4-day delay wasn’t disclosed. And those ‘traders’? They are among thise highly-paid bank employees earning huge salaries for successfully gambling with the bank’s floating funds, huge bonuses for doing it well (and sometimes despite losing) and vast golden handshakes when they agree to leave when caught with the till in their pockets.

Many of them are also the ones who watched the US ‘Sub-Prime’ mortgage scams unfolding over 25 years and did nothing about it apart from crying crocodile tears when it all imploded. The rest of us paid (and are still paying) to regain the banks’ lost assets while they remain cushioned from the consequences by outrageously generous contract terms. Meanwhile, ordinary bank employees up to branch manager level, on ordinary commercial salaries, suffer like the rest of us.

How true davidinnotts. Ordinary branch staff and primarily the manager are squeezed between a rock and a hard place with constant pressure to placate customers on the one hand and pressure from banking hierarchy to perform on the other.

The banking industry is now in the manna & honey era once more, reaping rich ‘rewards’ for there extremely hard efforts to get the UK economy back on track. It is a pity that they do not realise that they are only getting rich again from the pockets of the mostly magnificent working man (taxpayer), who by a strange coincidence just happens to be the person that ‘bailed’ them out of the debacle they got themselves and most of the rest of UK workers into! Had I have been able to, when Northern Rock foundered, I would have let it go down, and made sure that ALL account holders received the full amounts in their accounts. Now they have found another sneaky way to plunder our accounts.
BANKS JUST CANNOT BE TRUSTED WITH YOUR MONEY, multi-millionaires and billionaires excepted of course!!!

My bank pays out my direct debits, accepts monthly income, allows me to write cheques and use attached debit and credit cards, sends me a monthly statement and gives me ATM access for cash. In short, like many millions of others, it manages my money for me. In return, it takes the interest on the credit balance of the account. This seems to be a fair bargain. Not many of us would be happy to keep the cash under the mattress and go round paying bills on time. Not many employers would wish to pay their employees cash in hand. The obvious point is that banks provide an essential service and while mine is efficient and accurate why should I want to change? It pays a stupid interest rate on savings, so I don’t use it to save. This seems to me to be the reason that there is inertia in the system. Newer interest bearing accounts often have conditions attached (charges, minimum in each month, set up direct debits etc). Perhaps if I was starting from scratch I might consider one of these, but it’s not enough to make me change now. This isn’t a comment on the way banks behave or the amount of trust I have in them (pretty low) it’s just a pragmatic acceptance of what they do for me day to day.

I have been banking with Lloyds since soon after moving to Bracknell in 1971. I can remember no issues at all and have always had a good relationship with the staff in the local branch. I have had, for more years than I remember, a Gold Account with them, which was free when I first started with it but now incurs a £12.95 per month fee for someone starting now. But since I have had the account for so many years, I don’t pay unless I let the balance drop below £2,000.00 for even one night.

I am very happy with Lloyds bank.

I think we should have an investigation into why the Bank of England is not increasing the base rate – despite our economic growth. All savers are losing money as our interest rates have not kept up with inflation. I expect the rates will increase after the general election. So much for an independent Governor.

I hope the CMA investigation does not bugger up my relationship with my bank, First Direct. I have a current account with them plus a Regular Saver account, paying 6%. I use both internet and telephone banking and am 100% satisfied with their customer service.

Natwest were terrible.

0.01% interest on my current account.

Lost money.

My switch card stopped working and they told me there was nothing wrong with it but to try it again the next day. Same the next day, I called and they said it should be fine nothing on my account. THe third time they said well, you could try our fraud department. I called them and they said “there had been a “stop” on you account for days now. Has no one told you?”. Incompetence!

I was then told they’d sort it out, and I wouldn’t be given any charges for going overdrawn due to the fraudulent transactions.

Of course a month later I got an overdraft charge. They apologised, refunded me, and told me it was a mistake and it wouldn’t happen again.

Guess what happened the next month? More charges. More apologies. More commitments that it wouldn’t happen again.

Guess what happened for a third month on the trot?

Grossly incompetent, they rip off customers with charges they promise they wont, they can’t communicate between departments, and don’t have the courtesy to tell customers when they withdraw services…

And then they have terrible interest rates.

I’ve switched to Santander, and made loads of money on their cashback deals and higher interest rates.

So far so good.

It’s not the banks that need reforming, but the banking system.
See positivemoney.org for how 😉

Pete Wilkins says:
6 November 2014

When are the banks going to pay back all the money they owe us and the economy lost in the recent mortgage scandal / crash?..

Raising interest rates will increase inflation. I cannot understand why economists regard inflation as a good thing – to me it just creates a spiral of cost increase and subsequent wage increase for the same product and the same effort, and we gradually lose sense of values (I remember fish and chips costing1s.3d – about 6 1/2 pence today – you’re now lucky to get them down here for less than a fiver).

So I’m happy to see interest rates kept low while they stimulate the economy and, hopefully, keep inflation low. Unfortunately if the USA raises rates we will no doubt have to follow suit – and off we go again.

Barry Hughes says:
6 November 2014

Economists regard inflation as good because it reduces debt and, as we know, the modern world runs on debt.

They’re terrified of deflation because they think people will delay spending because they know that next time they go to the shops their bill will be smaller. So people think twice every time they are looking to buy big items, like cars or houses – they only buy essentials and the modern world grinds to a standstill.