Why a bank charges win doesn’t mean the end of ‘free banking’ blog discussion

exil

Sure, the personal sector as a whole is profitable - but accounts like mine, which have large numbers of transactions, never go into the red and never have more than a month's pay in them,are surely not profitable. My account is being cross-subsidised by charges on others. This is hardly fair and therefore I support the OFT case. But the likelihood is that free banking for people with small amounts in credit is unlikely to continue.

Tim_L

Hadn't read the blog entry before posting today, but it's excellent. However, one thing I really do want to quibble with is this statement:

If you’ve never had a charge, no change is even more likely. The well-managed account holders who the spin says “will lose out” are actually, if anyone were to lose out, the least likely to. That’s because they’re the ones the banks want the most.

Well managed accounts are probably the least likely to be profitable for a bank. That is because they will tend to have the right amount of money in to be optimum for the account holder, neither too much nor too little. And such customers are likely to be au fait with better value products wherever they may be found.

If I were cherrypicking customers it would be the marginal overdrawers I'd choose. Good credit risks who don't bother looking after their cash. And I'd take high net worth people with large balances who didn't bother either.

Careful people are very unlikely to gift me their money.

chipbeck

Tim_L wrote: »

Hadn't read the blog entry before posting today, but it's excellent. However, one thing I really do want to quibble with is this statement:



Well managed accounts are probably the least likely to be profitable for a bank. That is because they will tend to have the right amount of money in to be optimum for the account holder, neither too much nor too little. And such customers are likely to be au fait with better value products wherever they may be found.

If I were cherrypicking customers it would be the marginal overdrawers I'd choose. Good credit risks who don't bother looking after their cash. And I'd take high net worth people with large balances who didn't bother either.

Careful people are very unlikely to gift me their money.

Excellent post my friend. Worth more than just a click on the thanks.

exil

Indeed. My bank manager must hate me!

vikki2k1

i got charged £38 today for going £2 over and to top it all off they didnt even pay the money out!!!

PhiltheBear

exil wrote: »

Sure, the personal sector as a whole is profitable - but accounts like mine, which have large numbers of transactions, never go into the red and never have more than a month's pay in them,are surely not profitable. My account is being cross-subsidised by charges on others. This is hardly fair and therefore I support the OFT case. But the likelihood is that free banking for people with small amounts in credit is unlikely to continue.

I've worked in banks - and I've been on the receiving end of ludicrous charges.

In the 'good old days' before mass computerisation of banks individual transactions were charged because the banks had to use man power to process every step. Thus, when you issued a cheque to someone it had to be paid in at their bank, entered into their ledger account, sent to the central clearing operation, sent to your bank to see if the money was available and entered into your ledger. If all was OK that's a LOT of manual work. If your cheque bounced then there was even more work, so charges were inevitable and reasonable.

Today the amount from your cheque and the details of your account are computer read, transferred by data transfer and affect accounts by computer posting. The actual cost of doing that is almost zero. However, the banks do have to pay for computers, programming, etc. The levels of charge for refusing a payment now - particularly for a standing order / direct debit / late processed debit card is completely out of sync with the real cost. BECAUSE THERE IS NO HUMAN INTERVENTION. A computer checks the transaction against your balance and/or overdraft limit and bounces it if there's not enough money there. It automatically raises a charge on your account. It passes the details to another computer that prints out a charge letter. No one from your bank looks at it. It passes into an automatic enveloping machine and is sent to you.

Consider somewhere like Brazil where all bank processing happens overnight - not 3/4 days as happens here. All cheques pass through the central bank in one overnight operation and are paid into or taken out of the respective accounts by the time the banks open in the morning. Cheques don't bounce. Because the banks guarantee them. BUT if you go overdrawn more than 5 times without bank agreement you'll lose your account and never be allowed to open an account again. To stop this happening the bank gives you an automatic loan when you go overdrawn - which you have to pay back smartish.

The simple facts are these. Our banks are inefficient. Our banking system needs an overhaul. The banks will be screaming blue murder at present because of the 'credit crunch' from the US sub-prime debacle. FACT - most of our banks aren't affected directly - but they will use it as an excuse to get rid of charges that are an embarrassment and that they'd otherwise be pushed to hide.

FACT Current accounts do not cost the banks money. They make money. Especially now the banks, with the collusion of major retailers, are doing away with cheques (Tesco stop taking cheques in February). Paying by card is fast and allows money transfer instantly - or, it should, but our banking system is still so crap that it takes an overnight process. And it costs virtually nothing.

FACT - the banks will try to charge for current accounts. But as long as there is one out there that doesn't it'll fall down. In exactly the same way that the fees on withdrawals from ATMs fell down. They are most likely to make charges starting on a cheque usage basis - because they want to phase out cheques.

Don't forget that there's also a move in Europe to standardise the amount it costs to transact across borders so that paying money into an account in, say, Germany will cost the bank exactly the same as paying money into an account in England (except that you'll be shafted by exchange rates and commission fees).

The banks can bleat all they like. The simple fact is that until there's some political will to slap them down they'll get away with whatever they want.

PhiltheBear

nickmack

PhiltheBear wrote: »

BECAUSE THERE IS NO HUMAN INTERVENTION.

Exactly, and the banks gave up trying to use this as an excuse for charges a couple of years ago. Many template letters for charge refunds have asked banks of details of Manual Intervention on their accounts. I've only ever heard of less than half of dozen who've provided this information.

Bank insiders have revealed more accurate costings for example, cheque processing, so the preferred method of justification is now the 'service charge'.

Consider somewhere like Brazil where all bank processing happens overnight - not 3/4 days as happens here.

The simple facts are these. Our banks are inefficient. Our banking system needs an overhaul.

The OFT have been on at the banks for several years about speeding up processing times for payment systems. Last thing I heard, it should at last occur this year. I don't know whether it's been the OFT, the banks or both who've been dragging their heels over this, but it's a nice earner for the banks, so this will be another stream of income that will have to be found elsewhere.

The banks can bleat all they like. The simple fact is that until there's some political will to slap them down they'll get away with whatever they want.

Of course, the bank wants to make as much profit as possible and they will do virtually anything to ensure they maximise this. I don't have a problem with companies making a profit, it's the way they make it that causes an issue. If it's morally or even legally questionable, then as consumers using an essential service, it's only right we can challenge them over this.

I'll stop short of calling it a game, but there's certainly an element of the banks seeing what they can get away with and customers playing the system in order to maximise personal gain/minimise losses with banking in general.

PhiltheBear

nickmack wrote: »

The OFT have been on at the banks for several years about speeding up processing times for payment systems. Last thing I heard, it should at last occur this year. I don't know whether it's been the OFT, the banks or both who've been dragging their heels over this, but it's a nice earner for the banks, so this will be another stream of income that will have to be found elsewhere.

It's been the banks. However, they haven't released the 'rules' yet. So the question is, when overnight processing occurs will they process debits or credits first? And, yes, it is an important question.

nickmack wrote: »

Of course, the bank wants to make as much profit as possible and they will do virtually anything to ensure they maximise this. I don't have a problem with companies making a profit, it's the way they make it that causes an issue. If it's morally or even legally questionable, then as consumers using an essential service, it's only right we can challenge them over this.

I'll stop short of calling it a game, but there's certainly an element of the banks seeing what they can get away with and customers playing the system in order to maximise personal gain/minimise losses with banking in general.

We can challenge all we want. It won't make a scrap of difference. Consumers have been screaming about bank charges for a long time. How long did it take the OFT to start action? Was there any other intervention? No, there wasn't. Even after the court case I don't think there will be much change.

I firmly believe that even if the OFT win their case the court will not ask for charges to be repaid unless the customer asks for them. And they may not even order that. Why? Because the banks are such an important part of the British money-earning economy that no government is going to cause them too much of an upset. They didn't put a plan together to rescue Northern Rock. The plan was to stop other banks being hit. So, there may be a ruling that the charges were too high. There may be a ruling asking the banks to pay back the excess fees (i.e the difference between the £39 charged and the £12 they should have charged). But I'd bet a lot of money on that ruling not applying automatically across the board - because the banks will argue that it's a huge amount of work to identify and pay out all those charges and that each one will have to be considered for its own circumstances.

You might think this is cynical - but I've been in there and I've seen what happens. At the end of the day - the banks will win. I don't like it. But I'm damn sure that consumer pressure will make very little difference. The only time it has is when ATM charges got blown out - and that was because consumers could hit bank profits by not using the facilities.

Cynical? Moi? You bet.

PhiltheBear

Phoenixx73

With all the "evil" of the banks. I don't understand why someone has not set up an alternative, although I can guess, Pressured by the banks, the banks not working with these comnpanies so therefore it is isolated.

Forget bank charges, the banks in general are far too powerful, they are a law unto themselves and need to return to being public services as opposed to buisnesses with shareholders etc.

exil

"Howe"ver, the banks do have to pay for computers, programming, etc"

The fact that an individual transaction costs virtually nothing is neither here nor there. It still costs money to provide the computers, networks, support staff, backup, admin, etc. These have to be paid for.

It costs a bus company virtually nothing for me to board their bus and travel from A to B. However - the service still has to be paid for so I expect to have to pay a fare to board.

The OFT case revolves round HOW the bank's service is to be paid for. Today, it's paid for by big charges on a minority of customers. If the banks can't do that, they'll charge a smaller amount to everybody.

It's not only the government that doesn't want banks to collapse. I don't want them to collapse either - since I'm in the black - the bank has my money so I would rather it didn't go bust. Nevertheless - I think the banks are in the wrong in this case. But, at the risk of repeating myself, it is likely to mean the end of free banking for most people.