MSE News: OFT to investigate current accounts

Consumerist wrote: »

That suggests to me there is little competition in banking. In a competitive market prices tend to converge.

Prices have mostly converged. Prices for basic banking services are universally zero or near enough zero. If any bank deviated from this their free competitors would crush them.

Consumerist wrote: »

Not according to opinions4u earlier. You can't both be right.

You have, however, restricted your comparison only to "basic" services which you can then go on to define to suit your convenience.

So there are lies, damned lies and statistics, as ever.

We're both right.

Most people use current accounts for payment services (debit cards, standing orders, Direct Debits, cheques, bank transfers) and the receipt of wages. No mainstream bank charges for these services on personal accounts. There is no price competition on this front. Certain services (CHAPS, drafts) do attract different prices but these are niche services which a small minority of people will ever need to utilise to any great degree, thus rendering it somewhat irrelevant.

Some people borrow on these accounts - there is price differentiation on borrowing costs, but aside from certain banks' pricing structures (Halifax and Santander and their flat fees spring to mind) most of these are around the same level, within a few percentage points of each other. Not much competition there. Meanwhile, current accounts that pay credit interest or a monthly reward a la Halifax are very much in a minority. Most pay nil, or close to nil.

o4u makes the point that some accounts offer better deals than others. This is true. My point is that most accounts offer the same or thereabouts. A few outlying examples do not change the fact that by and large, the bog-standard free personal current account offered by most banks is much of a muchness, with the only real differentiating factor being the quality of service provided and (possibly) borrowing costs. Compare this, for example, to business banking or loans, where there is an intense variability in pricing structures between banks.

I think the issue of "switching being hard" is largely a myth. Things can go wrong with the automated switching process, but this is largely due to issues with DD originators screwing things up at their end and claiming from the wrong accounts. If you wanted to do it manually to be safe, it's probably about half an hour of phone calls, tops - not ideal, but a negligible amount of time really.

I'm also not sure how there is a lack of transparency in what services are on offer. I'm not even sure there's all that much to be transparent about.

Consumerist wrote: »

And my point is that it must be accepted that these services come at a cost to the bank and if you are not paying those costs then who is? And is it fair that others should pay the cost of your banking services? Or are you suggesting that credit balances on your current account at zero interest are paying for them?

You are arguing with me on that point when I agree with you. My point was rather that free banking stifles competition as there is no meaningful difference between most current accounts.

To all those who say an end to 'free banking' would be fairer because it shouldn't be subsidised by overdraft interest/charges something you've not mentioned. It is also subsidised by people with credit balances earning little or no interest. The banks make more from absorbing interest on credit balances than they do from charges!