Nationwide BS, how about 40% EAR/APR Overdraft Charges?

antrobus

[Deleted User] wrote:

Yes they do! But its funny you should mention this. I was looking to see what gross margins banks use with not much success when I came across Professor Aswath Damodaran who teaches corporate finance at NYU. He collects global data and publishes it online as Margins by Sector (US).

What stood out was banking gross margins operate at 100% with net margins at about the average. Gross margin is the profit in a product whilst net margin is the profit across the business with all the overheads taken into account

If the banks are operating with a 100% gross margin there is a lot of overhead to be accounted for in order to arrive at the net margin. This suggests banks are either very greedy, very inefficient or both.

It seems to me that they are in need of a Money Saving Expert.

The 'Pre-tax Unadjusted Operating Margin' for both Bank (Money Center) and Banks (Regional) is 0.00%.

I'm not convinced you actually understand the data presented,

JuicyJesus

I can all but guarantee that the standard everyday person's current account runs at a loss for the bank. It starts off at net loss as soon as an account is opened and, unless you're either a heavy user of additional services and/or overdrafts, you have a balance of several thousand pounds in a current account paying you zero interest or you are a packaged account customer, the costs will never be made back. That's before we even get into the substantial costs involved running branches, posting out statements, manning call centres, etc.

If you don't borrow any money and/or have any additional products with your bank then you're likely costing them money. Unarranged overdraft fees at least kept it so that most people didn't pay for their banking however that's now cut off as a revenue stream, and people actively now resent the idea of paying any money at all for banking. The incentive payments given by some (which are themselves dwindling) are typically just a means of getting a customer in front of you who can potentially have more profitable products sold to them, and are arguably a result of a lack of meaningful price competition between banks.

It always amuses me when people moan to banks about taking their business elsewhere for some reason or other, when statistically the bank would quite likely be better off if they did.

SnowTiger

[Deleted User] wrote:

How thoughtful of you, I will be sure to do this when I meet her in the next life.

Your dead mother struggles to pay her energy bill?

pacontracting

The problem now comes in two parts:


1/ Can you afford to pay back your overdraft before 11th November.


Most people use an arranged overdraft as a means of taking care of those additional bills etc, and bob between being in credit and going overdrawn. Can these people afford to pay back the overdraft in time, before the punitive 40% APR rate on arranged overdrafts kicks in.


2/ Do you move banks


Other banks have to follow suit but haven't published their 'overdraft' rate yet. You know the high street banks are not going to be lower and some of the startup banks may not be able to afford to provide an overdraft facility now.


Has the nature of the overdraft been changed overnight. Have the FCA essentially killed off the overdraft?

ndf9876

pacontracting wrote: »

The problem now comes in two parts:


1/ Can you afford to pay back your overdraft before 11th November.


Most people use an arranged overdraft as a means of taking care of those additional bills etc, and bob between being in credit and going overdrawn. Can these people afford to pay back the overdraft in time, before the punitive 40% APR rate on arranged overdrafts kicks in.

I am certainly no expert, but I would bet a round of drinks on seeing a lot of hardship \ FOS complaints when this really starts to bite; in 5 years' time I'm sure there will be a well trodden path to "reclaim unfair overdraft charges".

My perception - and I could well be wrong - is that a lot of folk who use larger overdrafts think nothing of "living" in them, for whatever reason. Imagine having a £2000 overdraft and being sat close to that for the majority of the month - you'll struggle to get out of that one.

I can't see this change in overdraft fees ending well.

Yorkshire_Pud

A couple of banks I have current accounts with have recently informed me they are reducing my arranged overdraft amount. One was HSBC. This would increase my chances of going into un arranged overdraft and incurring the higher charges. Unless they usually will stop the transaction(s) that would lead to this happening as seems the new condition with Nationwide.

eskbanker

pacontracting wrote: »

Other banks have to follow suit but haven't published their 'overdraft' rate yet. You know the high street banks are not going to be lower

How do you claim to know this?

pacontracting wrote: »

some of the startup banks may not be able to afford to provide an overdraft facility now.

Why would they not be able to afford this?

pacontracting wrote: »

Has the nature of the overdraft been changed overnight.

I don't see how it has?

pacontracting wrote: »

Have the FCA essentially killed off the overdraft?

I can't see how you'd reach that conclusion - just to reiterate, all the FCA have done is to eliminate some complexities around the structure of overdraft charges, i.e. prohibiting 'per day' charges (which will therefore lead to headline APRs increasing) and differential unarranged/arranged rates. They didn't do anything specifically relating to the level of the charges, although as I pointed out in an earlier post, I can't follow their logic that they apparently expected costs to reduce!

ndf9876 wrote: »

I am certainly no expert, but I would bet a round of drinks on seeing a lot of hardship \ FOS complaints when this really starts to bite; in 5 years' time I'm sure there will be a well trodden path to "reclaim unfair overdraft charges".

Unfair in what way exactly? Perhaps higher for some, maybe even most, but that's not necessarily unfair as such - there was similar gnashing of teeth when LBG changed their overdraft charging a couple of years ago but again that doesn't mean it was unfair.

ndf9876 wrote: »

My perception - and I could well be wrong - is that a lot of folk who use larger overdrafts think nothing of "living" in them, for whatever reason.

I'm sure that many (maybe most) who live in large overdrafts don't think nothing of it, they're probably doing so because their finances are so stretched that they feel they have no choice.

ndf9876 wrote: »

I can't see this change in overdraft fees ending well.

Possibly - any changes to the rules leads to different interpretations by the banks and it remains to be seen whether others adopt the same approach as Nationwide....

System

It will be interesting to see what happens long term - the app banks and some other smaller providers will be able to make inroads with a 40% EAR for overdrafts.

pacontracting

eskbanker wrote: »

Possibly - any changes to the rules leads to different interpretations by the banks and it remains to be seen whether others adopt the same approach as Nationwide....

I'm not sure there are many options. The FCA have said there are to be no differences between authorised and unauthorised fees, no daily charges. The only conclusion is that banks compete on interest rate - which will be set accordingly.


As banks cannot now charge a penalty for unauthroised overdrafts, they have to make money from somewhere; the only option is to increase the interest rate for authorised overdrafts.

eskbanker

pacontracting wrote: »

I'm not sure there are many options. The FCA have said there are to be no differences between authorised and unauthorised fees, no daily charges. The only conclusion is that banks compete on interest rate - which will be set accordingly.


As banks cannot now charge a penalty for unauthroised overdrafts, they have to make money from somewhere; the only option is to increase the interest rate for authorised overdrafts.

While I agree that being forced to use a blended and inclusive rate is likely to lead to higher headline APRs (and that this will inevitably be the basis on which market options are compared), I still see a range of outcomes being possible when the other institutions make their plans:

They may not increase rates to the same extent that Nationwide have.

They may or may not follow Nationwide in introducing controls to try to prevent accounts reaching unarranged overdrafts in the first place.

They may lower overdraft limits as reported above for HSBC.

They may decide to withdraw overdraft facilities altogether for some customers.

And so on....