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?