Broken banking: Should we pay for bank accounts?


#1

I’ve mentioned a few times in other threads that the culture of ‘free’ banking in the UK is actually a bad thing.

In the thread about cash payments, I said:

This is all a symptom of a broken banking system. Banking is not free in the UK. We think it is because people pay outrageous fees and charges. Which are mostly regressive with the poorest subsiding the richest. There’s a bigger issue at play here.

I thought it might be worthwhile trying to unpick this a little and open up it up to discussion.

In the UK, personal banking is typically free. I have multiple bank accounts and I tend to use each bank according to its merits: for example, Starling for overseas use, Natwest for their branches, Monzo as my main bank (for budgeting, ease of use, customer service) and so forth. I’m a fairly savvy customer, so rarely go overdrawn or incur a charge - so these banks are providing me a service and not getting any (significant) profit in return.

This means that people who are in debt (particularly those that spend their life in overdrafts) end up subsidising people like me. That’s not particularly fair. But at the same time, there’s nothing I can directly do about it - indeed, the system incentivises me to behave like this. I’ll even keep opening and moving accounts for introductory bonuses (which in my case will almost certainly be loss leaders as I’ll almost certainly never make the bank more money than they give me to join).

It seems to me the best and fairest way would be to regulate fees (overdrafts etc) to ensure they are minimal and transparent, but allow banks to compete on (for example) a monthly servicing fee. That way customers would be able to make a true comparison across different providers and make better informed decisions about which bank (or banks) to stay with. (I also suspect that the Starlings and Monzos of this world would go straight to the top of the comparison tables, but that’s a happy side effect!) With fees capped, banks would have to compete on service and on price, rather than on the current cross-subsidy model.

I suspect this would never actually happen because the emotional reaction of something that was free now costing money, but I was curious about what people think.

Are my assumptions accurate? What have I missed? What unexpected side effects might there be? Is this a good idea?

Discuss! :smiley:


Cash Deposits
Cash Deposits
(Ben) #2

I think the concept of paying a fair use fee for the services I use would be something I could in theory get behind.

Although it could turn into similar style of micro-purchase scenarios where every action comes with a cost.

I think my worry would be how do you balance it out so it is genuinely fair and transparent and not an additional profit driver.


#3

The thing is you are paying for it by way of having money in your bank with them and the money they make from loaning out your cash. That’s why they are able to run free current accounts and services. If you are paying for your bank account then that’s the cherry on the icing on the top.


#4

That’s the classic banking model. I think what I’m saying is that doesn’t work any more - at least not with the current way that banking works.

We’ve seen that overdrafts alone aren’t enough (at the moment) to make Monzo profitable. Would they be sufficient for HSBC UK, say, to break even and make a reasonable profit? I suspect not - the system has evolved to require the revenue from these additional fees and charges.


#5

Monzo is different though and doesn’t yet offer the same as HSBC in lending or services or customers. HSBC make billions in lending and far far outweighs the costs of running the accounts. I wouldn’t feel sorry for (legacy) banks.


(William Brown) #6

In Ireland many banks charge for everything I have an aib account they charge on everything and there’s government stamp duty on cheques and card use but depends on the bank to how much you pay or gain so I wonder why we argue for free here when other countries say it’s a cost you pay but depends on who you go with you could pay a lot or gain a lot Stark reality the financial crisis has changed society and most countries have pay as you go banking or monthly or quarterly charge banking


(William Brown) #7

I’m happy to pay a small fee per month or quarter and get certain services included like cash deposits and atm withdrawals at no extra cost but if you opt for zero fee expect to pay more that’s how other providers work who charge take monese they charge more for people who don’t want monthly fee and more restrictions so you see it’s makes sense to pay a reasonable fee to get services as standard. When I was with Santander I paid £10 for no fees if payments weren’t paid but I was never bouncing payments so they profited from me £10 a month every month


(Andre Borie) #8

In France banks do charge for accounts & cards (the “best” cards being more expensive, where as the basic cards are local-only like Maestro), but this doesn’t stop them from also being nasty and still charging bullshit fees for pretty much everything.

I’m all on for paid bank accounts, but there needs to be strong regulation against nonsense charges everywhere, otherwise the banks will just attempt to double-dip their customers by charging them for accounts and also charging the usual fees on top.


(Ben) #9

That’s the part that stumbles me.

In theory I’m not against paying for certain services. With Monzo part of that is offset by the lack of interest I receive.

And I guess my issue would then be being used as a profit driver directly (rather than through a policy of fairness), rather than using my money for investing, lending, etc.

So I guess for me what it would need is a particular type of bank, perhaps one with a different business set up/structure such that the primary aim isn’t profit for shareholders.

I could get behind a bank that did this in a way that…

  • Set out its intention for profit / revenue and how they would plan to achieve it.

  • a breakdown of how their user charges would be made / determined, with more transparency about the costs of those things - annual reports about costs and profitability and how the calculate them

  • No fees being levied for negative interactions beyond the cost determined to administer it (ie late fees). - although this brings a point about how overdrafts would work - maybe they wouldn’t in this structure.

  • ethical approach to investing too.

  • other benefits for me in terms of more preferable interest - would expect that if my usage would cost me more than a normal
    Bank then I get more interest and benefits than a normal bank. (Comes back to the point about specific revenue / profit goals - and the difference being shared back to the users).

Although I imagine all this would create problems in that I’d also expect a bank to be investing in improving efficiency (to keep user charges in check), and how do they carry out capex projects or new features.

So I don’t know. There’s certainly a gap between current banks and premium accounts and better benefits, vs better modern banks - not entirely sure how this would work then.

But yeah it’s an interesting proposition.


#10

Monzo have been quite transparent in the fact it used to cost them £30 per account, they then got that down 0 and it’s now on the way up, I think they mentioned it’s £5-10 a month they now make per account. That’s pretty good but imagine when that gets to making £30 per account, and then you have a couple million accounts and then more. That’s without charging. As it grows they could do the things the legacy banks can do like offering £xxx switch incentives and services like the cash deposits for free, paying interest etc

So if you then started paying £x a month for an account you’re just adding extra profits, they aren’t need that to survive.


#11

Maybe we should all pay 1% of our banking throughput. That way the rich pay most


(Liam) #12

If you want the rich to pay more then you want a fee that increases progressively. A flat rate would hurt the poor more than the wealthy.


#13

How about we stop caring about how ethical banks are and realise the main idea of a business is to make money, and in capitalism there is only green.

The bank should invest in whatever they think will make them the most, and they should charge whatever they want for their services. The beauty of CASS is if we don’t like what a bank offers or does, we can move somewhere else. Choices are great


#14

Well you can definitely be ethical and still make a profit. I like that my money isnt funding weapons etc

I do think we should stop caring how we earn businesses more money and defending them. That’s for them to decide.


(Ben) #15

Hmm, or maybe businesses can still make money while still leaving things better than they found them?

I think as consumers it’s important to care about what ethics a business has, and how they do things.

You say if you don’t like what a bank offers you can switch - that sounds exactly like caring about how ethical banks are.


#16

What do you mean they can make money while still making sure things are left better than when they found them? They can make money without taking it from my pocket too. You should be a bank first, ethics committee later.

I mean, as a consumer of the banking services I personally disagree. If a bank isn’t producing nuclear weapons who am I to say of what they do with the money they are storing for me, I entrust them to hold the money and I understand they have the right to invest it in whatever they see fit.

Yeah, you’re right, if you don’t like it swap. But do ethics and charging people for basic banking services go together? You either cut one or the other, I would prefer they cut having a superiority complex and just invest as they would normally, without being held hostage by a community.


#17

It’s so weird how the poorest pay for everyone’s banking in the UK. But it’s so ingrained that it will be very difficult to change.

Imagine if food was free for everyone - except the homeless who have to pay £10 for a loaf of bread? That’s basically what the overdraft situation is in the UK right now, with the biggest bank charging over 50% APR to people hard up enough (or financially illiterate enough) to borrow that off them, while they offer zero interest cards and £200 bribes to the people who already have money.

It’s a really rotten culture but who is gonna change it? The way Monzo is going with overdrafts and other lending products, they’ll be joining the club rather than changing the system.


#18

Imagine if the rich guy had money you could invest into businesses that will eventually pay you back with extra, thus growing your business. Or imagine you buy shares of businesses to later sell using the rich guys money, because you’re a bank and that’s how you work.

Now imagine you give the poor guy money with a risk that he’s never going to be able to give it back, so you have a large interest rate to try get your money back quicker. If you don’t, you send the bailiffs around because that’s money you can’t invest.

Zero interest cards are just to encourage those with money to stay with them.