Switching Accounts and Overdraft

samwardill

I want to switch my current account to Norwich & Peterborough from Nationwide. Basically Nationwide made the mistake of sending me an annual summary showing how much I pay in fees for overseas debit card transactions since they started charging for these. This was more than I expected even though I've seriously curtailed these since Nationwide starting charging.

I went through an application process and at the end N&P accepted my application but only offered me a £250 overdraft. I currently have £8000 overdraft across two accounts with Nationwide which I intended to close and consolidate into one N&P account. I don't use my overdraft much but need it to avoid going unauthorised if I have a big transaction. How do banks expect you to switch if they will not carry over an overdraft facility?

CLAPTON

the wonders of the capitalistic competitive system

different companies offer different products and you are free to select those that best suite you.

samwardill

CLAPTON wrote: »

the wonders of the capitalistic competitive system

different companies offer different products and you are free to select those that best suite you.

Economics 101: Perfect competition exists where there is no barrier to switching. If a bank will not match your existing overdraft when you switch then we have a large barrier to switching and thus imperfect competition.

seriousDFW

£8,000 is a huge overdraft, I'm not surprised they won't match this. Each company has its offer. You are drawn to N&P because of the no-fees policy for overseas spending, but the trade off for you is evidently lack of a larger overdraft. You can't have everything.

Have you actually asked them if they will review the overdraft facility they have offered automatically? Mine is also £250 which suits me, so I haven't asked them for more, but they may agree to an increase.

samwardill

seriousDFW wrote: »

£8,000 is a huge overdraft, I'm not surprised they won't match this. Each company has its offer. You are drawn to N&P because of the no-fees policy for overseas spending, but the trade off for you is evidently lack of a larger overdraft. You can't have everything.

Have you actually asked them if they will review the overdraft facility they have offered automatically? Mine is also £250 which suits me, so I haven't asked them for more, but they may agree to an increase.

To be honest I think that £8,000 is more than I need. I would settle for less but not £250. I have asked them if they would offer me more and they said no but they would review after 6 months (with no commitment).

If I thought that it was a trade off between fees and overdraft facility then I could accept it. However I think it is not because it is not apparent that N&P has a low overdraft facility until you apply. Perfect competition also requires perfect visibility of product features.

I also don't think that it is that N&P offer lower overdrafts than Nationwide in return for lower fees. I think it is that they don't know me so they offer me a lower overdrafts initially. That is a barrier to switching and is something a regulator should work to eliminate.

CLAPTON

samwardill wrote: »

Economics 101: Perfect competition exists where there is no barrier to switching. If a bank will not match your existing overdraft when you switch then we have a large barrier to switching and thus imperfect competition.

my comment was about the capitalistic competitive system

no reference to perfect competition for obvious reasons

seriousDFW

samwardill wrote: »

To be honest I think that £8,000 is more than I need. I would settle for less but not £250. I have asked them if they would offer me more and they said no but they would review after 6 months (with no commitment).

If I thought that it was a trade off between fees and overdraft facility then I could accept it. However I think it is not because it is not apparent that N&P has a low overdraft facility until you apply. Perfect competition also requires perfect visibility of product features.

I also don't think that it is that N&P offer lower overdrafts than Nationwide in return for lower fees. I think it is that they don't know me so they offer me a lower overdrafts initially. That is a barrier to switching and is something a regulator should work to eliminate.

Ok maybe, but I would also suggest that it's reasonable that this company doesn't want to expose themselves to such a large amount immediately to a customer they don't really know.

Why don't you think it's a trade off? Maybe they are happy to accept taking less overseas fees because they are less exposed in terms of large overdrafts. I'm not saying that's the case, but I'm saying that different companies will have different products and so you can't complain that they won't match like-for-like.

samwardill

seriousDFW wrote: »

Ok maybe, but I would also suggest that it's reasonable that this company doesn't want to expose themselves to such a large amount immediately to a customer they don't really know.

Why don't you think it's a trade off? Maybe they are happy to accept taking less overseas fees because they are less exposed in terms of large overdrafts. I'm not saying that's the case, but I'm saying that different companies will have different products and so you can't complain that they won't match like-for-like.

I think that it is understandable that a company doesn't want to expose themselves to such a large amount immediately to a customer they don't really know. However I think that this is a barrier to switching and regulators or consumer groups should work with banks to try to eliminate this as a barrier (as they have done very successfully by getting banks to make transfer of direct debits relatively pain free).

To Clapton's point, the capitalistic competitive system may not be perfect competition but, the lack of perfect competition has a negative impact on consumers & it is sometimes appropriate to seek to mitigate this.

Perhaps part of the reason that N&P initially offers low overdrafts to new customers is to mitigate cost of low foreign exchange fees but my gut feeling is that this is not the whole story.

CLAPTON

samwardill wrote: »

To Clapton's point, the capitalistic competitive system may not be perfect competition but, the lack of perfect competition has a negative impact on consumers & it is sometimes appropriate to seek to mitigate this.

I think you misunderstand what perfect competition means. It's simply a first year economists construct to help the understanding the workings of a market.

Perfect competition means no copyright , no patents, no new drugs, no new ideas, no Iphones, no product differentiation etc etc

samwardill

CLAPTON wrote: »

I think you misunderstand what perfect competition means. It's simply a first year economists construct to help the understanding the workings of a market.

Perfect competition means no copyright , no patents, no new drugs, no new ideas, no Iphones, no product differentiation etc etc

I don't think I misunderstand. I think I said that it can sometimes (not always) be appropriate to mitigate the lack of perfect competition.

Copyright / patents etc. all have a cost to consumers (in terms of higher prices) as well as benefits. That is why an iPhone costs so much and Apple makes such huge profits. The reason that consumers don't get access to the excellent Pandora radio station in the UK is because the UK PRS enforces high charges to copyright owners to play tracks on internet radio stations.

Where the lack of a competitive market has no benefit for consumers and only a negative impact then it is appropriate to intervene. That is why we have regulators such as the FSA.

CLAPTON

samwardill wrote: »

I don't think I misunderstand. I think I said that it can sometimes (not always) be appropriate to mitigate the lack of perfect competition.

Copyright / patents etc. all have a cost to consumers (in terms of higher prices) as well as benefits. That is why an iPhone costs so much and Apple makes such huge profits. The reason that consumers don't get access to the excellent Pandora radio station in the UK is because the UK PRS enforces high charges to copyright owners to play tracks on internet radio stations.

Where the lack of a competitive market has no benefit for consumers and only a negative impact then it is appropriate to intervene. That is why we have regulators such as the FSA.

what areas of banking do you think should be subject to 'perfect competition'

e.g which of the following should all banks be forced to provide exactly the same and which should they be allowed to differentiate themselves?

-OD limits
-foreign transaction fee
-banking hours
-number of bank branches
-location of bank branches
-staffing of banks branching
-size of loans
-loan APRs
-colour of debit cards
-staffing of call centres

etc