Tuesday, 13 September 2011

The end of Free Banking in the UK - pre 2019?

One overlooked point from yesterday's Banking reform is that the funding requirements are changing for the UK banks. They have long pretended that the Universal Banking approach is what has allowed them to offer free Banking to UK customers.

Of course, the truth is somewhat opaque, but it is likely that the retail banks, which are in themselves profitable are able to make enough money from charges and the sales of ancillary products such as credit cards, insurance and mortgages to cover the costs of offering free current account banking.

However, the new regulations will indeed increase their cost of capital and so require profits to be found elsewhere - thus the sights are going to be firmly set on cutting free banking.

Sadly, this will be unpopular amongst customers - indeed this is the sole reason we still have this product in the UK. Now though the Banks are going to be able to blame the Government and new regulations, so it won't be their fault at all.

Therefore the end is in sight for free UK Banking on current accounts? But the new regulations won't be fully implemented until 2019 - so how long before the moves towards ending free banking start. I will be surprised if it still exists in 2015.

9 comments:

Richard Elliot said...

Free accounts are coming back in Australia. The small banks are offering them for competitive advantage and (some) of the big four are following suit.

They might disappear and then come back again?

Budgie said...

Overlooking the taxpayer subsidy to Lloyds, RBS etc (actually I don't), unless you are in credit your banking is not free now. And even if you are in credit as a small business it is not free (new starts excepted in some cases). And unless you with the Halifax fiver a month, and keep a restricted amount in your account, you'll lose out with inflation as the bank uses your money.

Just think: if Gordoom hadn't expanded the money supply which was then soaked up by the property market causing house price inflation, we wouldn't be in so much trouble.

Sean said...

I problem Mr Market should be able to solve if given the chance.

Cash is a very expensive thing to handle and move around, the banks will not wish to drive the punters away from the cashless money model they have been investing millions in, unless of course they are still as dumb as they were in the last decade?

Bill Quango MP said...

I've said it a hundred billion times.
Free up the market with a government bank. Use the PO network and possibly the pay station network, but certainly Norther Rock, and you've got more bank branches than all the existing banks combined.

That way free banking remains. A business account { a basic deposit account, that is all most of them are, that doesn't charge unbelievable prices for such an easy service}
becomes available and children's savings accounts reappear,currently almost non existent as they really are unprofitable.

Blue Eyes said...

Given that at least one bank currently has negative pricing on its current account, I would say the market is competitive enough for this to become a reality.

Having said that, if banks do introduce current account pricing, surely customers will immediately become more demanding. Who is going to say to themselves "Bank X is shit but I'll carry on paying the tenner a month"?

Blue Eyes said...

Whoops, missed a "not".

Timbo614 said...

@BQ

Post offices + NR - Seconded!

I had said this many times - too damn obvious for governments of course!

Antony said...

@Bill

Thirded.

If that option had been taken with Northern Wreck I think alot of pain could of been avoided.

rwendland said...

@BQ & Timbo

> Post offices + NR ... too damn obvious for governments of course!

Sounds exactly like Tony Benn's National Girobank of the 70's (now in Santander, via privatisation thru Alliance & Leicester during Maggie's years).

National Girobank was a jolly good bank, giving monthly statements with no charges when the big 4 waited till you filled a page before posting one. Convenience helped by living a few doors from a Post Office of course.