Virtual End of Free Banking

Monday 09 March 2009

Banks' incomes are falling slowly but steadily as interest rates are tumbling and mortgage lending confidence is declining. Some experts believe that the reduced income of banks might force them look for other sources of revenues, such as charging fees for banking services. The Which? Journal says that the idea of charging for banking services is not new. Office Fair Trading report in 2007 revealed that banks earned about £152 per one account annually. Phil Jones from Which? Journal says that banks make money in a number of ways, which include cross-selling of financial products and expensive packaged accounts as well as extremely high overdraft interest rates. He also mentions that banks make almost 81% of their revenues by putting hidden charges on consumers and by taking advantage of low interest rates on saving accounts (£2.6 billion and £4.1 billion respectively). It is very likely that the financial crisis will influence these sources of income in a negative manner. However, major banks deny the possibility of introducing charged services. The British Bankers' Association and HSBC claim that free banking will stay there as long as possible. They say that there are services which are fee-paying, but those are extras, such as travel insurance or duplicate statements. The basic current and saving accounts will remain free of charge and this will not change, says James Thorpe of HSBC. Nevertheless, Defaqto, the financial research company claims that if the financial situation continues to worsen, banks will become more reliant on transaction charges and lending margins. David Black of Defaqto even says that there were cases when banks' cashiers were advised to put existing customers to paying premier accounts. Unfortunately, very few customers truly understand how the bank's pricing model works. Luckily, such changes are not supposed to take place any time soon because margins on mortgage interest rates are still robust and credit card interest rates are still very high. Yet, it is anticipated that non-core services, such as international money transfer, insurance and foreign currency exchange might become fee-paying. If this does occur, Which? demands that all changes in charges are made transparent.