/ 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

With regards to people who face ridiculous bureaucracy problems and extortionate charge when sending money overseas, why not try a transfer specialist, such as Currencies Direct? (Google the name and their web site appears top of the list.) Their spokesperson is sometimes seen on BBC TV when there is a currency issue to be discussed. They claim to be cheaper than the banks, and they do seem to take care of their customers. For example, instead of putting people to a lot of trouble over identity checks, they do so by electronic means which are transparent to their customers. (Electronic ID for UK residents only).

Judith says:
8 November 2014

Thank you to John de Rivaz for your suggestion. The student loan company I send drafts to do not have the facility to receive electronic transfers. They require me to send a cheque or a draft.

Presumably there is a sound reason why you can’t send the payments via a currency company to the student’s account and the student pay the university by local cheque?

Judith says:
9 November 2014

I am the student. I live in England. The loan company is in the US. I think we are getting away from the problems with the banks and focussing on my resourcefulness.

David Phillips says:
8 November 2014

Personally I have not been affected by banking problems to date but am aware that I could become a victim of banking inefficiency in the future

Roland says:
9 November 2014

Which? tells us “Currently the four biggest banks, HSBC, Barclays, Lloyds and RBS, control over three quarters of the current account market.” So why not promote how customers can bank with someone else? Be honest, there is precious little difference between the big four, so why bother to change? We need real alternatives.

Before RBS became infamous for it’s creative accounting and it’s bullying tacticts, I had the misfortune to bank with them. I was in steady employment and had an overdraft of £2000.00. As happens in life, I effectively lost the job and instead did agency work. When I was just about to get on my feet again and had reached the amount of £1,500.00 on the overdraft they withdrew the overdraft altogether and turned hostile in any of my dealings with them, slapping on an absurd APR of 22%. Chaos ensued and I was very afraid. I had been labouring under the illusion that I was ok because I was not over the overdraft limit. I was a struggling single parent and had already lost a son in a road accident. I can’t even remember if they knew this but feel sure it wouldn’t have made any difference anyway. They were heartless. Now I do know it is a business and not a charity but their ruthlessness took some beating. I pursued them for PPI years after I changed banks and derived some satisfaction in getting something back. It was good to see them exposed for what they were too when the big financial crunch came. My finances are in good shape today, thanks to 12 step Debtors anonymous support groups but never will I trust any bank again. Lesson learned.

Tony says:
9 November 2014

Most companies make money by providing a service to their customers. Banks exist purely to make money, they do not care about providing a service to their customers. The ordinary bank staff try but the the cvorrupt managers at the top make that impossible. The top bankers should have gone to jail for the corruption and chaos they have caused in the last 20 years, instead they are rewarded with honours and knighthoods. the fines are meaningless to them

Ian Hodkinson says:
9 November 2014

My complaint is that, in the case of short-term savings deals, at the end of the term the bank re-instates a minimal rate of interest rather than moving the money to a deal with a decent rate of interest. Instead, the customer must contact the bank, which they use as an opportunity to try to sell you something. Selling products seems to be the staffs’ main task nowadays.

Frank Etchells says:
9 November 2014

My son has had difficulties with understanding ‘numbers’ since his time at school and this was explained at Lloyds Bank when he went (with me accompanying him) for his very first account ‘review’ about 12 years ago. Seems the Bank failed to note this fact in his account details.

About 8+ years ago he took out a loan at 7.5% and made the repayments. He also got a credit card. He had other account reviews which were to try to SELL him other Bank SERVICES. Unfortunately about 6 years ago he started to overspend on a credit card and made the minimum payments and getting overdrawn on his account. He was “invited” for an account review and the advisor (!?) advised him to take out a new loan (at a rate of 16.6%) to clear the balance of the first loan, clear his credit card and also his overdraft. He had NO understanding on the larger % repayment or the possible financial effect it could have on his money. Unfortunately things got to the stage were he again became overdrawn and had credit card repayment troubles.

When I was eventually made aware of this I accompanied him to another account review with a different advisor and made a complaint. She advised she would had suggested he transferred his CC debt to a 0% card and then concentrated on reducing his overdraft rather than the advice he had been SOLD… or really lead in to taking. The Bank accepted NO responsibility for giving bad advice and denied knowing of his difficulties

I helped him to go to the Financial Ombudsman service which failed him as they did not look at or take on board the human element of some one with learning difficulties on financial matters. He now has absolutely no fail or trust in any banking company and only has a bank account out of necessity. He worries constantly about being ‘ripped off’ by the banks should he get in to difficulties.

Geoffrey Bass says:
9 November 2014

What on earth is this “Cash Interest” charged when we buy overseas Euros/ We don;t mind the 3% charge, but we now find our credit card is being cahrged both “cash ineterest” and “interest” on the unpaid balance, even though we pay off the credit card balance by direct debit routinely every month. ?

The investigation at the best will only result in some cosmetic changes which will leave the banks and financial companies ripping off the customers as usual.

The investigation at the best will only result in some minor cosmetic changes which will leave the banks and financial companies ripping off the customers as usual.

J C G Hooper says:
10 November 2014

What happened to me is, I think, an example of the banks’ attitudes to their customers.

In March 2008, my then-partner and I requested a mortgage for £25,000 from Lloyds Bank. During negotations, the mortgage adviser told us that if we increased the mortgage to £50,000, repayments would be easier.

My partner undertook to make all the repayments, and to repay £25,000 immediately. Shortly after this, my world fell apart, my partner was revealed as a charlatan and a con artist.

The case came to trial at a Crown Court in January 2011. A member of LloydsTSB appeared as a witness, and testified that the original mortgage application form had been fraudulently completed, with false income details; he also testified that references given had not been followed up.

Notwithstanding, LloydsTSB applied a charge of £50,000 to my house, which was discharged when I sold the property in March 2011.

I am aware that as the property was in joint ownership when the mortgage was agreed, I had to sign the form. The circumstances meant that I was under considerable stress and uncertainty about how things were proceeding; nevertheless, I signed the form. I’ve never denied this and I understand the legal implications. At the time I didn’t feel I had any choice.

I have since sent the matter to the Financial Ombudsman, who turned that appeal, and a further appeal, down. The huge amount of money I have lost is in addition to other debts I was left with, which I, a pensioner, am doing my best to repay.

I still do not fully understand how LloydsTSB could admit that they did not follow up references, and grant a mortgage on the basis of a fraudulent application, and still, in what seems to me a draconian manner, insist on applying the charge on the property. The mortgage adviser at LloydsTSB admitted to the police that we had originally requested less than £50,000, as did the LloydsTSB representative to the court.

This may be a lesson to others. Financial institutions will take their pound of flesh with absolutely no compassion or apparent awareness of the effect of the situation on their customers.

Robert Barr says:
10 November 2014

I have another aspect of bank services which I want to introduce into this debate. It concerns bank accounts which are held by charities and private clubs or associations. They receive little or no interest on these accounts which must This must give the banks access to enormous sums of cash without the need to give a decent interest rates. Is it not time the banks were coerced into treating these many customers in a fair manner. So while this conversation is about small businesses, what about charities etc.

Robert, this is not a generalisation. Our club keeps money in a building society that pays interest. Treasurers need to look at the options.

Malcolm – Can you suggest anything better than the CAF bank, which pays about 1% on a one year deposit? Like Robert, my understanding was that charities are not as well served as individuals.

wavechange, our club uses a building society. Not sure of the rate but it exceeds 1%.

I have not got anywhere with this, Malcolm, though I have found companies offering businesses 1.5% or more. I think I will just ask our treasurer if there are any better options than CAF.

Neil Kenyon says:
10 November 2014

Charities, if donations are given by Gift Aid, get a 20% increase, via the government, from day one!

Neil – I believe charities can boost their income by 25% (a few years ago it was 28%) on eligible donations. There is also the Gift Aid Small Donation scheme that allows a claim on up to £5000 donations, so that could produce an additional £1250 per annum.

Neil Kenyon says:
10 November 2014

“per annum” – I think not! A one off increase in the donation total.

From the Gift Aid Small Donations scheme information on the HMRC website:
“How much you can claim
Most charities or CASCs can claim top-up payments on up to £5,000 of small cash donations they receive in a tax year, resulting in a top-up payment of up to £1,250.” There are conditions that must be fulfilled, of course.

Neil Kenyon says:
10 November 2014

I’ve just twigged where you are coming from…..every year a charity receives £5000 in charitable donation, via Gift Aid, they can claim an extra £1,250.

It’s all in the wording! I read your original post on the subject to read a single donation of £5000 would receive an annual £1,250.

Apologies.

One of the conditions of the Gift Aid Small Donations scheme is that the maximum amount of any individual donation is £20. Larger donations must be covered by a Gift Aid declaration form.

Brian says:
10 November 2014

Banks have completely lost the plot! They need to be reminded of their basic way of life – People need a safe place to put their money and historically the bank is the place for that – In turn you accept that the bank will use your money to finance projects and make loans to others – for that they charge interest (the banks profit) – part of that interest is then passed back to the depositor as a reward for lending it to the bank in the first place. No longer do they do that! Many accounts receive no interest and those that do have restrictive conditions and the interest is not proportional to the bank’s profit gains. To-day Banks charge you to have an account with them and there is absolutely no justification for that especially if the account stays in credit. Added to that they make it difficult to get all your funds out at one time or transfer it to another location. Not acceptable when to-day electronic transfer is fast. and available. They should return to the basics and forget the gimmicks ( free travel insurance – get you home if car brakes down etc.) which are only of value to a very few people.

Neil Kenyon says:
10 November 2014

Totally agree with most of what you say, but, when it comes to money transfer, remember that government legislation on Money Laundering comes into effect.

Brian, not so – there are banks and building societies that pay interest, that give you a choice of accounts that include travel insurance and breakdown cover (can be very good value for those who need them), that don’t charge for current accounts. Security can be the aim when transfers are limited on line, but there are ways of obtaining large sums easily when you need them. So just go to a bank that offers what you need and avoid those that don’t suit you. They are not all the same!

I am a loan officer with a credit union, when checking affordability of members I look at their bank statements. I am shocked at some of the high bank charges on people who are mainly on low incomes and benefits, yet when I have pointed this out, some appear too frightened of saying anything through fear of losing their accounts or just feel it is their fault. I understand that a recent court case has put clients back in the driving seat to complain and potentially claim back some of these unfair charges. But who is representing these clients, who is independently checking these charges on behalf of the customers. Why are the banks so greedy that they continue to offer products that are not fair for those who can least afford to pay.

Basically the banks do not see much future in having such customers so they try to price them out. The problem is that there are few alternative providers of income-receiving and payment-making services and those organisations that do operate simple or basic accounts, sometimes with a passbook, do not have convenient branches.

NO BANK SHOULD PAY ANY INVESTING ACCOUNT LESS THAN THE CURRENT BANK RATE!
STOP RIPPING PENSIONERS OFF WITH THEIR WORTHLESS BANK BOOKS AND MOST OF THE POPULATION……sorry about the caps just really fecks me off that these bandits are allowed to even trade. The Gov. should demand they pay the min. bank rate as a min. not the diddly squat
they pay mainly old book holders….I think they see it as a fun sport s******g them for every penny.
And we bailed this lot of spivs out and paying off their rubbish yet we are paying for their huge mistakes and greed………..I hope when they pass over to the other side their reckoning will be
harsh indeed

The bank rate is always going to be higher than the borrowing rate [paid to customers who leave money in their accounts] and lower than the lending rate [charged to customers who require loans, mortgages or overdrafts]. Banks shovel money around and they live on what sticks to the shovel. As has been pointed out many times in this Conversation, nobody has to use a high street bank; there are alternative providers of savings and investment products that will offer superior returns. Customer inertia is the root cause of the problem.

I have had a Nationwide current account, and other accounts, for at least 25 years and never had a single problem so why can’t the big banks get it right?

I dislike intensely the way loyalty of customers is ignored by banks and associated institutions. My grouse with them is the way that they offer new prospective customers incentives such as higher interest rates on current accounts and savings accounts and special offers which no one else gets a chance in which to partake. All this comes at a cost (nothing is for free) for the loyal customers who have stood by them for many years through good times and bad. When the banks come back to those loyal customers cap in hand for whatever reason they should think about showing some gratitude and humility for their long term custom.

The problem is if there is discrimination in favour of something, it is automatically discrimination against something else in the same set. Giving new customers an incentive automatically discriminates against existing customers.

There is no way round it that I can see except to ban new customer incentives, which I would recommend.

Loyalty has been mentioned a few times in this and other Conversations. Companies are there to make money for their shareholders, so they seek new customers with generous interest rates to start with and rely on the fact that many will not move when better rates are available elsewhere. Even building societies do this. They may not have shareholders but they will have some generously paid senior staff.

John, “they offer new prospective customers incentives such as higher interest rates on …..savings accounts”
Not true as a generalisation. Nationwide offers longer standing customers a higher interest rate than newer, or new, ones.

As a mutual building society current account customer I am pleased it offers [limited] incentives in order to attract new customers – in general this increases turnover without increasing fixed costs and leads to an improved operating margin; being a mutual organisation this will ultimately improve the quality of service members receive, whether that is a slightly higher savings rate, slightly easier mortgage terms, loyalty accounts for longstanding members, or other benefits. The tricky bit is getting the balance right between growing the business through targetted incentives without impacting on existing members such that there is a nett loss of customers. From my experience I think Nationwide get it right and I am sure other mutual societies do as well.

Neil Kenyon says:
11 November 2014

Good post!

Neil Kenyon says:
11 November 2014

Rewarding customer loyalty went out with the Ark. Service organisations today, banks, utility companies, insurance companies et al, rely on ,(bank on?), customer indifference. If the customer is not savvy enough to look for a better deal that’s the customer’s fault. The “deals” are widely publicised.

We have to accept that loyalty does not count with most organisations – they decide what is in their best commercial interests and work accordingly. So don’t give your loyalty – pick the best deals for yourself. No good banging your head against a brick wall.

What is needed is some system whereby customer loyalty is rewarded with more income for the company. At the moment it isn’t.

Switching is competition gone mad – it isn’t genuine competition designed to increase excellence. If a manufacturer produces a better product, then he makes more money because people want them.

The only way service providers seem to make more money is by getting customers to change all the time, which doesn’t make life easier. As far as solicitors are concerned, their rules of conduct positively discourage loyalty. Even established clients have to go through honesty checks for every new job they give their solicitors.

What these people don’t seem to realise is that every time one of them gains a customer or client, another loses him or her. As has often been pointed out on this list, it is those customers who can’t be bothered with all this inconvenient and pointless bureaucracy who are losing money.

What the government departments who make these rules don’t seem to realise that (with regards to identity papers personally presented) they are adding to the congestion, energy wastage and inefficiency that other government departments are working hard to reduce.

Neil and Malcolm – What I would like to know is whether you condone the current situation or feel that we should be pushing for companies to reward loyalty.

wavechange, it is not a question of condoning anything, it is just facing up to what I believe is reality. Instead of wasting time on moaning about something that is unlikely to be changed – I do not believe legislation has any part to play – get on and find more positive ways of dealing with it.

In the case of banking, move to a bank that offers a better deal. I think I am with one – it happens to reward longer-standing savers with higher interest rates than newer savers. Some might see that as discrimination – I just accept it.as a benefit. If you feel strongly enough then vote with your feet. Why should you have to? Because it is your interests and, if enough do it, everyone elses.

Neil Kenyon says:
11 November 2014

With respect to “loyalty” I think the current situation is fair. As in all things caveat emptor.
What I would like to see, is that existing customers should be offered the opportunity to take up/switch accounts to, “introductory offers/bonuses”. Note the word “like”.

I think that in accepting a situation on the one hand whereby banks cannot be allowed to go under, we are on the other hand constraining their opportunities to compete, and a reward for loyalty is but one of the victims of this process. On balance I believe this is preferable and in society’s interests overall. I also believe that the banks have seen little return on any attempts at rewarding loyalty; they find inertia a more lucrative focus for their efforts.

At one time I saved with a building society that advertised that it had a record of maintaining good rates for investors rather than enticing them with good rates and then dropping the interest rate. Having moved money between savings accounts so many times, I cannot be sure of which building society this was, but it did let me down. A few points to ponder:

1. What proportion of the population has money in zombie accounts earning little or no interest? I don’t have a figure to hand, but it is substantial.

2. What about these who are not very good with money? Look at the number of people who are in debt much of the time despite the fact that they would have more money to spend if they were more careful with their money for long enough to clear their debts.

3. What about those who are mentally incapable of swapping their money around to achieve decent interest rates? That will include many elderly people, even though some manage to keep on top of financial matters until the day they die.

4. Why are we having this Conversation if everything is hunky-dory?

I presume that John is right in saying that there has been little return for rewarding loyalty, but I would be interested in any company that promised to continue to offer a reasonable return on investments even if their current rate might not top the tables. I am sure that I am not alone.

Neil Kenyon says:
11 November 2014

“2. What about these who are not very good with money? Look at the number of people who are in debt much of the time despite the fact that they would have more money to spend if they were more careful with their money for long enough to clear their debts.”

And when those people default and the bank has to write off the debt who pays? You’ve guessed it – we all do!

Perhaps going overdrawn should not be allowed…………You pay your money in, the bank follows your instructions on payments and withdrawals, then when the money runs out you’re on your own. (Might make people a bit more responsible for their own affairs. What was the quote: Income £1 expenditure 99p,(converted to decimal), happiness. Income £1, expenditure £1.01, misery)

I agree that it might be useful to do away with overdrafts, though I’m not sure if that would be practical. Debit cards make more sense than credit cards, or would do if interest was paid on credit balances. But even if we do that and do our best to educate people not to live in debt, I expect that many of them will not be switching accounts to keep up with the game that the banks etc are playing.

What about my point 3? Should we just look after ourselves and let the banks etc exploit the more vulnerable members of society? 🙁

Neil Kenyon says:
11 November 2014

I am old enough to remember when there was no such thing as HP or credit, (or Debit), cards. If you wanted something you saved up and bought it. If you could not save enough, you did without or went to a Pawn Broker, (a “secured” loan.). Current Accounts did not pay interest, (the lack of interest covered the bank’s costs in administering your account). If you wanted interest you opened a Savings Account.

“What about my point 3? Should we just look after ourselves and let the banks etc exploit the more vulnerable members of society? ”
In what way is a bank “exploiting” vulnerable people? Should they be telling them of better deals elsewhere?

Neil Kenyon says:
11 November 2014

Here’s another point to ponder:- Back “in the good old days” people were paid via a pay packet at the end of the week/month. They knew that that was all they had to survive on until the next pay packet and budgeted accordingly.
EMPLOYERS realised the cost of paying people this way and literally forced employees to open bank accounts so that that they, the employers, could reduce their costs. (Did they, the employers, pass any of this cost saving to the employees? I think not)

In earlier times – as far as I can remember – we did not have the equivalent of zombie savings accounts, where the interest rate fell overnight and a new account with a decent rate of interest was offered. I don’t remember having to switch until Abbey National dropped its interest rate and I only found out about this when I had my passbook updated.

I think I will leave it there, Neil. Clearly the answer is for everyone to look after themselves – even if they are not able to. 🙁

Barry says:
11 November 2014

Whilst on holiday abroad we attempted to draw cash from a Santander ATM, but subsequently cancelled the request. The machine did not issue any cash or slip as was expected and we walked away. When we got home and checked our statement £203.70 had been debited from our N&P Building Society, mony which we did receive. Following many letters to our Building Society and an appeal to the Financial Ombudsman Service which was rejected on the balance of probability. We lost that cash through no fault of our own. Beware when using ATMs.

Updating my earlier rough count with another rough count – Nationwide seem to get 33 positive mentions as against 8 not-so-positive. Perhaps there is a message here? If you are bothered enough with your current provider’s performance then vote with your feet. But perhaps they are not so bad – we can all moan occasionally about any organisation.