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Why don't banks compete harder?

Robert Peston | 10:28 UK time, Thursday, 1 March 2007

There is a mindset prevalent at our banks that the customer is usually wrong. I was reminded of this recently when having a cup of coffee with the chairman of one of the biggest banks.

He said that the worst thing about being chairman was that he was always being assailed with complaints from friends about alleged mistakes made by his bank. But whenever he investigated, it turned out his friends were simply being dim.

Perhaps this chap has unusually dim friends. But even if he does, his remarks show that few banks yet think of themselves as proper retailers, fighting tooth and claw for every customer in a competitive market.

If they did, they would operate on the basis that the customer is usually right, even when he or she isn鈥檛. But what really grates for most of us is the all-too-common experience of the banks making a genuine error and then taking an age to correct it 鈥 and only then correcting it after a lot of shouting.

Which is why many of you will bristle when I point out that the Royal Bank of Scotland has today announced a solid set of financial results: pre tax profits rose 16% to 拢9.2bn in 2006, its costs relative to income were reduced, and losses on loans stabilised. The one concern that I would have is that growth in its US operation, 鈥 in which it has invested so much 鈥 has been very lacklustre.

That said, shareholders will largely be pleased 鈥 as manifested by RBS鈥檚 share price rise this morning. And since millions of us are shareholders through our pension funds or collective investment schemes, we benefit when RBS performs well and pushes up its dividend sharply (as it has today).

RBS also incurred a 拢2.7bn tax charge in 2007, most of it payable in the UK, which is a non-trivial contribution to the public services we all enjoy.

So is it irrational to raise concerns about RBS鈥檚 success? Well, as I recently wrote in my blog on Barclays, there is a question to be asked about whether there is sufficient competition in UK retail banking (the conjunction of 鈥渞etail鈥 and 鈥渂anking鈥 is not an oxymoron, but is the business of supply banking services to individuals and small businesses). The related question is whether the big banks are earning an excessive return on the capital they have invested in their domestic retail operations.

RBS itself does appear to be having a go at competing: it claims to have the highest share of customers switching accounts from other banks. But that may make RBS the best of a lacklustre bunch, rather than a truly inspirational retailer.

What鈥檚 striking is that no bank has broken ranks on the issue of so called 鈥渇ree鈥 banking and penalty charges. Putting to one side the question of whether or not the penalty charges they levy on customers who breach agreed borrowing limits are excessive in a legal sense (which may soon be investigated formally by the Office of Fair Trading), the sheer emotion these charges generate among consumers has surely created a big market opportunity.

Wouldn鈥檛 a bank that shouted very loudly that it would cap penalty charges at a relatively low level win both goodwill and lots of lovely new business? If no bank is prepared to do make such an offer, that may demonstrate that the economic model for retail banking is too dependent on fooling customers into believing that current account services are free 鈥 which wouldn鈥檛 be healthy. And it rather shows that if there is genuine competition in the banking market, which is what the banks claim, it鈥檚 not competition as we know it, Jim.

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  • 1.
  • At 02:50 PM on 01 Mar 2007,
  • Ian Kemmish wrote:

Perhaps they're concerned at the _kind_ of customer such a proposition would attract.... After all, as a high-net-worth individual, I would have no reason to switch to a bank offering low, capped, penalty charges.

I'd much prefer a "genuinely free banking, but break the terms of your agreement with us and you're out, no questions asked" proposition.

Maybe the true sign of competition in retail banking would be the emergence of some kind of brand differentiation?

  • 2.
  • At 02:50 PM on 01 Mar 2007,
  • city Boy wrote:


That a pretty simplistic view again Robert. If you ask Evan Davies about it, he will tell you that competition forces companies to give up EXCESS returns over the true cost of capital. In the case of UK retail banking, the fact is that returns are not high enough. You know that becuase there is no great rush of new entrants to cream of the excess profits. If you really want to lead the debate and have some influence Robert, take a look at the returns made by retail banks in the USA or Germany, or Japan or France and compare the average returns they make on their retail banking product with what the Uk banks make in the UK. then you will see that Uk retail customers simply do not pay enough for the service. You can't have call centres in Manchester and low cost retail banking. Low cost retail banking is internet based with Indian call centres a limited number of transactions and always in credit. I wish the quality of 大象传媒 financial joouranlism was better. you can have different views if you want but should you have the facts? You cannot measure returns using accounting data. You must use opportunity costs like real ivestors do.

City Boy

  • 3.
  • At 03:05 PM on 01 Mar 2007,
  • The economist wrote:

Good question but C- analysis and answer. If you have a word with Evan Davies the 大象传媒's economics editor he will tell you that the effect of competition is to drive out supernormal returns from the sector. These are returns that are in excess of those that investors need to stay invested in the sector given the risks they perceive. If there is not a great rush of new entrants and no pressure on the banks to cap and reduce charges it probably means that returns are too low in Uk retail banking. To really answer the question you raise should you assess how the ecomomic return (not the accounting return) on Uk banking compared with returns in France, US, germany etc? I think you will find that the UK public should be getting ready to pay more and not less for Uk banking...

Banks are seen as nasty money making machines, the reality is we should be proud of solid banks, which employ masses of staff, provide a good service and generate masses of tax income for the UK. The only issue I have is the 拢35 charges for returned DD and bounced cheque payments which are far too high for the cost involved. These actually generate a very small % of their profits, as most of their income comes from equity backed deals, mortgage lending and commecial deals. And by the way, I don't work in Banking!

Daniel Corby

  • 5.
  • At 04:56 PM on 01 Mar 2007,
  • Stu VW wrote:

Personally, apart from the charges debate, I cannot really fault the banking industry. DD's, paying-in and withdrawals are extremely easy. Telephone/ Internet banking is a doddle (phishing victims surely must take some of the blame, how many warnings must there be before we understand) Banks are not here to organise your money for you, they process it. Debit cards, buffer zones, cheque books, fraud guarantees. Apart from the interest on my mortgage - the rest is free!! Enjoy it whilst it lasts.

  • 6.
  • At 05:11 PM on 01 Mar 2007,
  • Stu VW wrote:

Personally, apart from the charges debate, I cannot really fault the banking industry. DD's, paying-in and withdrawels are extremely easy. Telephone/ Internet banking is a doddle (phishing victims surely must take some of the blame, how many warnings must there be before we understand) Banks are not here to organise your money for you, they process it. Debit cards, buffer zones, cheque books, fraud quarentees. Apart from the interest on my mortgage - the rest is free!! Enjoy it whilst it lasts.

  • 7.
  • At 05:21 PM on 01 Mar 2007,
  • Phil Chapman wrote:

Surely the last people the Banks want as customers are those whose DDs and cheques they have to return, they will by definition be the ones that are most likely to default as they can't manage their money.
I would imagine the charges levied are so high as they are there to induce those customers to bank elsewhere.
Any Bank breaking ranks and reducing its charges would almost certainly have the rest of the sector cheering as they rapidly dumped their most troublesome customers.

  • 8.
  • At 05:23 PM on 01 Mar 2007,
  • Jake, Woking wrote:

The only customers that would switch banks on the basis of the cost of excess fees are going to be customers who go overdrawn regularly. If they never go overdrawn it makes no difference to them how much the bank charges. Therefore any bank that did lower excess charges would attract new business, but most if not all of that new business would be of no real long term strategic benefit to them, because as a result of going overdrawn those customers' internal credit ratings would be negatively affected and make it less likely that the bank would be able to lend money to them - which is what all banks seem to put at the forefront of their operations these days. THAT is why no bank will break ranks on this isue.

  • 9.
  • At 05:43 PM on 01 Mar 2007,
  • Gavin wrote:

The reason no bank would choose to shout about having low penalty charges would be the kind of customers it would attract - those that manage their accounts contrary to the terms and conditions they agreed to and who are likely to present a significant risk in terms of potential bad debts. In the same breath as decrying penalty charges many financial pundits are highlighting the cost of bad debts !! All this campaign on unauthorised overdraft charges is likely to achive in the long term is higher banking charges for those customers who choose to behave responsibly - its a bit like making all drivers pay for speed cameras rather than those who choose to speed and incur a fine !!!

  • 10.
  • At 05:47 PM on 01 Mar 2007,
  • Joe wrote:

It is a bit strange how people over look the fact that most of the so called 'Big Five' banks, now have a global reach and make the vast majority of their income/profiits from commercial & international banking and not from retail banking.

I agree that some banking charges are rediculous, but at the same time, can you expect banks to hand free money. There has to be a dis-incentive for people who go into the red. There has to be fiscal responsibility from the consumer as well.

I also do not agree that UK banks are lacklustre, they are simply following business practise, and besides it is a matter of juggling customer demands with profitablity. They are not charities or government institutions. They are there to make money.

If banks were to give free banking, don't charge for unauthorised use etc, give really low rates for borrowing and very high saving rates, then they would all go bust.

There is a image problem with banks, they do need to be more honest and accountable, but at the same time, people must realise that they have to be responsible and not expect to get something for nothing.

Nobody expects to get charged and so people don't make decisions based on that.

Presumably the other barriers to switching are:
1. Lack of easy comparison. No obvious sites like uSwitch.
2. Low interest rates (public don't understand that interest rates are compared to inflation).
3. Local banks.

The really interesting market is the mobile phone market.
For the last 2 years, I've had completely free calls, completely free txts, completely free line rental and paid about 拢120 total for 2 high end phones & headsets - and I've never had to change my number.
This is because the mobile phone companies compete for customers who are prepared to switch. There are little advertised deals for those in the know: (feel free to mod the URL).

According to my Dad, there are less radical but similar obscure opportunities in investments like high interest rate accounts, tracker funds etc.

Cruickshank's final report on Review of Banking Services in the UK was published on 20th March 2000 and it concluded the work of the review following thorough investigations into this industry. Don Cruickshank's Report highlighted the areas where banks overcharged UK consumers, did not compete, and had been and were profiteering - money transmission featured heavily in markets that Cruickshank considered as being a monopoly. His review compared UK banking specifically with Europe and on a like for like basis. Bank shares went up that morning (7 years ago) and at IBAS we considered that this was proof that the market was already aware that the Government had in fact shelved any plans to curtail bank profiteering at that time. Cruickshank himself has since publicised that issue and his thoughts. I will not try and reinvent the wheel here. It is quite simple - Banks do not 'compete harder' because they have no reason yet to do so. Hopefully, they may be provided with enough reason in the next year. It has certainly been a long time coming!

Eddy Weatherill
Chief executive
Independent Banking Advisory Service

  • 13.
  • At 07:07 PM on 01 Mar 2007,
  • Schmuel wrote:

In my opinion Banks are nothing more than legalised thieves.

Follow this train of thought, you have 2 accounts and one is likely to go overdrawn if a D/D or S/O goes through so you transfer enough to cover and keep the account in the black, but then the Bank spots your little game and slams an overdraft charge through BEFORE acting on your transfer. Another one, a company you deal with takes against a D/D money which is due to them but not at the time you expect and due to circumstances beyond your control YOU end up with the overdraft charge and does the Bank listen? NO!! why? because they are getting fat on your overdraft charges and interest fees.

A bank employee once told me "We don't make a profit on accounts in the black." Question, as banks are supposed (of origin) simply to 'look after' their clients monies - WHY should they be allowed to make profits? yes! cover their costs by all means but profits, especially running close to 拢10BILLION PRE-TAX, that is taking the mickey.

And who do they think they are fooling, I opened an account in 1958 when I was 18, did not need to provide identity (though I did), all transactions in and out were charged a minimal amount per week, NO computers involved, if there were problems likely to arise the Manager asked to see you BEFORE applying any charges, each Branch was responsible for its own clients and you, the Client, was treated with courtesy and respect. That has ALL gone out of the window. Time these banks were stamped on HARD. If a bank goes bust it must be made to honour ALL its debts, Account Holders FIRST, stop all mergers and preferably cut them all down to size.

They have ALL got TOO big for their boots.

Banks do have competition from Credit Unions. However, the law prevents Credit Unions from growing to any significant size (they can only serve a "local" community or a common employer). How about letting Credit Unions grow bigger - that way banks will face more efficient competition for loans (which is where the money is to be made).

  • 15.
  • At 07:45 PM on 01 Mar 2007,
  • Anonymous wrote:

We are told that 'robust' and 'solid' returns from UK Banks helps give us a strong and reliable sector that will avoid the errors of the secondary banking sector failures some years back. This may be the case but one has to wonder why noone seeks to enter the market to attract all the disillusioned clients that seem to exist across the whole sector. Branson pretended to do so with Virgin One but in reality acted only as a marketing exercise for an existing bank. If unsatisfactory risk/reward ratios apply to retail banking then we should all be prepared to pay more to stimulate real competition which hopefully will see banking go the route of the airline industry with the company(s) giving its clients what they want rising to the top and the original giants wondering what happened as they continue to lose clients hand over fist to the ones focusing on real clients needs.

  • 16.
  • At 08:53 PM on 01 Mar 2007,
  • Dave W wrote:

For those people that are unable to manage their finances properly should we all be penalised into having to pay for our banking? I think not! I am repaying student debt and yet I can manage my finances so that yes I do use an overdraft when I need to but I can stay within my limit, it is not the banks that should be penalised but customers who have entered into an agreement to respect limits set on their accounts and stay within them rather than see them as a target. When one bank breaks the mold and charges for its accounts just remember who to blame, its the journalists that have spread the word about reclaiming "unfair" charges, learn to live within your means not live off credit.

The banks making a profit is a good thing, in any other country RBS, Barclays and Lloyds would be congratulated for growing their business, pension schemes would be struggling without these banks! We can't rely on the government for a pension anymore we need to make our own provisions.

  • 17.
  • At 09:06 PM on 01 Mar 2007,
  • Chris wrote:

City Boy, nice try, but I think your argument is the wrong way around. You're assuming that there is healthy competition, and reasoning that if the profits are excessive, then this would be shown in a queue of new entrants to the industry.

The very fact that there is not a queue of new entrants to the UK retail banking market probably indicates that there are significant barriers to entry, ie. a protected market. After all, wouldn't you queue to get a whopping 39% return on your capital, as Barclays shareholders do from their UK Retail operations? Or, if you are an existing bank, fight tooth and nail to get Barclays customers, as they are clearly happy to pay alot for their banking?

I think the unfortunate reality is that no one knows what they are paying for their banking (or even realise that they ARE paying for their banking), and that suits the industry just fine.

In my opinion, banks need to be made to unbundle the financial aspect of their services from the operational aspects, to make it clear to the customer what they are paying. Personally I believe that banks should be forced to pay at least the same interest on deposits as they pay each other (daily interbank rates), and then be free to levy proportionate charges as they see fit. That would quickly flush out the actual charges, and there would be nowhere (or at least fewer places) to hide from competition.

  • 18.
  • At 11:04 PM on 01 Mar 2007,
  • Brian L wrote:

Number two is talking rubbish. If UK retail banking is such a low margin exercise, why have there been so many new entrants in recent years (including Egg, Ing, Smile, Intelligent Finance, Sainsbury's, Tesco, Virgin Money etc). Admittedly few of these are making real money yet (and several are just fronts designed to permit existing players to reach new market segments). The opportunity sensed by these players is to cross-sell often worthless insurance products etc to their mortgage and current account customers. Many Brits have fallen for the scam.

  • 19.
  • At 11:25 PM on 01 Mar 2007,
  • Andrew wrote:

I think banking charges are over-complicated and unfair - they affect those who do not understand money well, and those who find it difficult to raise a fuss, but unfortunately these customers are also less likely to switch banks to avoid fees.

People who are comfortable complaining to banks and have a strong understanding of finances will be less likely to be affected by fees, and are more likely to switch from a bank that charges them a flat fee. This could be solved by legislation - governments can impose penalty caps, but this would likely hurt domestic banks and cost money in red tape.

I think the best solution is to change the culture of banking. Tell your banker friends that you think excessive penalty charges really hurt the image of their bank, and abolishing them would enhance the brand far more than a makeover or advertising campaign.

It might be useful if city boy could provide us with some of this data, rather than just abusing the writer. Similarly how many localised German banks have o'seas call centres.
In respect of new entrants looking to cream off profits, the hurdle costs to entering this this regulated market might help explain this, plus what are ING et al if not new entrants creaming off the fat of retail banking ?

  • 21.
  • At 09:47 AM on 02 Mar 2007,
  • Murfus wrote:

I just do not understand, banks keep my money safe and move numbers around when I spend my money with a card. The Knights Templars stopped moving the actual money around back in the dark ages.
So sure they provive a service but most of it seems to be worth a few pence.
Yet Barclays declare a 6 billion profit and Tesco who get a lamb, slaughtered it in New Zealand, freeze it, ship it here and sell it to me in their shop. But make only 2 billion. I can see the actual service here.
banks hide their service and try to make it a much bigger deal than it really is. They charge me 拢20 for moving money abroad (bank a/c to bank a/c) that is two large legs of lamb all the way from from New Zealand.
The truth is that manufacturing has produced great productivity gains but the service industries have made great productivity losses. Banks have bought the cheap manufactured computers and not passed on the productivity savings. It is also like a house of cards.

  • 22.
  • At 10:04 AM on 02 Mar 2007,
  • John West wrote:

It is obvious that retail banking is not a competitive market, how else can so many suppliers, including the high street banks, building societies and internet banks, all seem to make good profits ? in a proper free market with so many suppliers and probable overcapacity they would be tearing each other apart to survive,I used to bank with HSBC, from a customer perspective they are completely incompetent, yet they make massive profits, another case of a complacent British industry ripping its customers off.

  • 23.
  • At 10:10 AM on 02 Mar 2007,
  • SW wrote:

I know almost nothing about banking, but as someone who has in the past fallen into a spiral of debt created by bank charges, I think my opinion is valid... Robert's comment about the bank chairman accusing his friends of being dim seems to me to embody the complacent attitude banks have towards their customers. Banking is a complex business and the vast majority of people have little or no interest in knowing about its technicalities - it's up to the banks to explain in straightforward terms what we need to know and not to mislead, cover up or hide behind snorting elitism. That's basic customer service. Businesses have to work hard to earn profits in every sector - nobody has a right to make money.

  • 24.
  • At 10:28 AM on 02 Mar 2007,
  • Stu VW wrote:

Personally, apart from the charges debate, I cannot really fault the banking industry. DD's, paying-in and withdrawals are extremely easy. Telephone/ Internet banking is a doddle (phishing victims surely must take some of the blame, how many warnings must there be before we understand) Banks are not here to organise your money for you, they process it. Debit cards, buffer zones, cheque books, fraud guarantees. Apart from the interest on my mortgage - the rest is free!! Enjoy it whilst it lasts.

A 7 months ago I had taken out a CD at Captial one,Due to Family illness I wanted to close the Cd "So They required a letter from me to close it "Then I find out they were going to charge a penilty " I told captial" "No please don't close it . Then 4 wks latter I get a letter with a check telling me my CD was closed and they subtracted over $2600.00..I called :Asking who cancel the CD.I told you to forget the cancelation of the CD if there's a charge. She told me I never did.I asked then why was my CD canceled if you require a writen 24 hr cancelation letter before a CD is canceled..She said well I have to look into that and call u back.. She calls me back and says The CD was canceled because you wanted it to be and not required to give any other answers about the letter.She knew the bank made a mistake/or did they was it a plan to steal over 2 1/2 k from my acct.

  • 26.
  • At 12:09 PM on 02 Mar 2007,
  • Helen wrote:

Banks are not the only retailers not fighting tooth & nail for customers - I have experienced horrible customer service from various companies recently - it seems the customer is no longer right - one company's customer service department told me that their job was not to help me but to "manage my expectations". Apparently expecting a product I had already paid for to be delivered as agreed was too much!

  • 27.
  • At 12:24 PM on 02 Mar 2007,
  • Chris wrote:

Banks, like many industries, enjoy economies of scale, but with it also increased market power, and the competition authorities' job is to balance these two factors for the best of the economy.

However, there may also a more complex argument for why natural concentration occurs in the banking market. The financial sector relies on an antiquated payment network that penalises anyone trying to pick and choose services from different providers. Transfers are usually immediate within the bank's own network, but take 3-4 days between different banks (or mortgage providers, savings providers, your employer etc), which adds complexity in managing your money. The clever addition of high "stupidity" penalties for getting your timing wrong adds to the risk involved. Needing five passwords for five web sites is another cost. You are therefore more likely to choose services from the same provider as you already use, and your spouse uses. You will also want a bank that provides all the services you need, not just a high interest savings account, for example. It means you may forego that juicy interest from a building society if they can't also, say, do international money transfers online.

What you have in network terms is a high cost of interconnection between networks, which makes any one network likely to grow (the "network effect", demand side economies of scale). It's the kind of thing that made Beta obsolete and VHS supreme, although competition authorities currently stop this happening to banks.

While there are developments underway to get payment times down to 1-2 days (available in many countries for decades), this is still not as good as it could be. By forcing opposite banks to accept the SAME value date for a transactions (the day it was actually instructed), you make it almost as easy to move your money between providers as within. You can then leave it up to the banks to work out how they should get their interconnectivity up to 21st century standards, they would now have a powerful incentive, rather than the disincentives that exist currently.

My bank knows immediately if I have used my debit card on a competitors network, even if this doesn't clear for several days (not that they do anything as helpful as actually telling you this). Why shouldn't the same apply to bank transfers?

  • 28.
  • At 12:47 PM on 02 Mar 2007,
  • andy wrote:

I have to say the debate here has some very good points, let me clarify/suggest a few.

1) The big UK banks (like US overseas competition), make nearly all profits from the Corporate, Business & Wholesale banking activities (not from us the UK general public).

2) They make no profit from the so called "good customers" - personal accounts that keep their balance at near zero all the time, whist using expensive services like ATM's, Cheques, branch's etc.. What they really like is regular overdraft interest, or high account balances getting low interest paid.

3) Competition is very limited in the sector due to barriers to entry! Competition will only ever come from overseas banks (that have the back office infrastructure but not the customers), or from well know customer facing brands (that have the customers but not the back office infrastructure). Hence the reason the only competition is from other financial services or the big retailers 鈥 but it鈥檚 a limited competition, as they can鈥檛 afford the infrastructure of the full banking service (Branch network, ATM鈥檚, Cheque, BACS & Chaps clearing systems).

However there are some aspects of UK banking that is so antiquated, it鈥檚 ridiculous (and they do charge high fees for these bits):

1) Cheque clearance time 鈥 ludicrously long and costly in lost interest, but I have to say cheques are so out of date 鈥 I can鈥檛 blame the banks for keeping it slow.

2) Bounced DD鈥檚 鈥 this is daft the fees for processing are electronic only, should cost pence..

3) Currency charges are my main complaint 鈥 why does it cost nealy 拢10 to make or receive a foreign currency electronic payment (foreign cheques I can understand due to manual processing).. Just look at Paypal, to see how cheap it really is (and PayPal is very profitable even at these fees).


I suspect these are all areas where the IT systems in use by the banks, are not up to date so processing these transactions are expensive. They know the cost of upgrading their systems is huge and the competition face exactly the same issue 鈥 so none of them bother!

I think we have to accept that since the UK retail customer doesn鈥檛 generate huge profits for the banks, we don鈥檛 get a big voice in their future strategy. However 鈥 they will not move away from the 鈥渇ree鈥 banking we currently enjoy whilst we have a Labour government short on tax revenue.. They know damn well that a windfall tax on their UK profits would be very popular with voters (even if unjustified), so all they can do is a bit of talking on the subject and dipping the odd toe in the water. You will notice how quick they are to dismiss new bank charges (ATM鈥檚 etc) and defending branch closures when the chancellor mentions he is aware of the public concern..

Peston here. In reply to City Boy and "the economist", their analysis is predicated on the notion that just about anybody can set themselves up as a deposit-taking institution. However, as I'm sure they must know, the regulatory barriers to entry into this market are huge. First of all the Financial Services Authority won't give a banking licence to just anyone - gaining authorisation to look after our pennies is not easy. Then, the ongoing compliance costs are huge. And the regulatory capital requirements are immense.

Also, of course, there's the famous inertia of bank customers. Thanks to the internet, bank customers are becoming a bit more mobile, but it's astonishing how long all of us put up with a famous-name bank that provides lousy service.

As for the notion that the returns of British banks' retail ops are lower than those in Germany, France and so on, actually that's by no means clear. I'm sorry that we have to rely on published accounts, but on the basis of the available information some of the overseas banks generate a considerably worse return on capital than British banks and some generate a greater return on capital.

Finally if you want evidence that the UK retail market market isn't lethally competitive by any stretch of the imagination, you only have to look at the decisions of Santander to buy Abbey and Citi to buy Egg - two businesses with inferior market power relative to the big banks - at substantial premia to book.

  • 30.
  • At 04:59 PM on 02 Mar 2007,
  • Tri wrote:

I find this article simplistic and ridiculous.

Firstly retail banking is a very small part of the business for these multi-national banks. Secondly the average retail customer actually COSTS the bank money because they do not have any additional facilities - banks are profit-making not charities, they are not in the business of providing free services. Thirdly, and most importantly, if banks were to offer lower penalty fees they would be accused of promoting a culture of irresponsible credit. The only people who pay penalty fees are those that abuse their facilities. Why should that be encouraged?

Finally, I constantly get stuck in those tedious conversations about terrible banking experiences. 99% of the time I can explain to people exactly why the fault did not lie with the bank. The real problem is that it is incredibly difficult for banks to recruit and retain quality retail branch staff and as a result the people behind the counter, despite all their training, are not able to put themselves in the customer's shoes and give clear explanations. In other words, the customer is not dim, just uninformed, the bank is not evil, but, yes, the staff are often, not always but often, very dim indeed! I started my career in retail banking so I speak from experience. There is no easy solution to that problem.

  • 31.
  • At 05:52 PM on 02 Mar 2007,
  • Bill Potter wrote:

I have a strong feeing Robert Preston is included among the dim friends of the Bank. The banks provide an excellent service provided the customer takes responsibility for their actions. I want a bank that doubles the current charges for being overdrawn, forgetting payment times etc as that way those of use who use the professional services wisely will get a better return on our investments and we won鈥檛 have to subsidise the dim customers who, in my view should pay for their dim-ness.

Should a bank compete by capping penalties then the message they would send out is 鈥榳e want careless customers and we will find some others to fund you鈥. By sending that message, many of us would take our services that are valuable to the bank, elsewhere. Please remember the best competition among banks is for their best customers who hold nice big balances.

  • 32.
  • At 11:02 AM on 03 Mar 2007,
  • Chris wrote:

Andy, some good comments there, I forgot about cheques! When will they stop passing those silly pieces of paper around?

The clearing time is even more unacceptable when it comes to electronic transfers, why this should take more than minutes I don't understand. I think you are right that there are no incentives for banks to improve this, but I believe there are great benefits in having better connectivity between service providers, as niche operators would stand a much better chance of competing with the "one-stop shops", and not need the vast infrastructure that these have built up. Hence I would put the onus on the banks to update this, by taking the "lag" time away from them, and require transfers to be credited on the same day they were instructed.

As for the profit they make on retail, I think it's important to not confuse the size of the market with the profitability of it. Barclays may make more profit on overseas and business services, but I doubt if these activities return 39% on capital!

A similar comment goes to Robert, the regulatory capital costs may be huge, but firstly they are proportional (unlike the compliance requirements), and secondly, it doesn't seem to stop Barclays making a huge return on it!


  • 33.
  • At 12:10 PM on 03 Mar 2007,
  • Jonathan McBrand wrote:

Lets widen the debate a bit...

I find an issue that is usually not factored into these debates is how the banks MIS-USE their "management" of your money in the form of the transfer periods for the cashing of checks and such.
The modern e-money transfer system occurs in a virtual instant. The justifiable amount of time maximum is that working day. The reality is that the banks suborn your money for an additional 2 days minimum and in some cases 3-4 days as well or even more. An example of this is the up to 10 working days foisted on building societies to cash checks of their users.
How many BILLIONS are made yearly by the banks of the UK "Taxing" their customers in this manner?
I think any bank that came clean on this issue and promised instant check cashing (as the systems allow) and not profiteering would gain tremendously.
AND any bank that screamed bloody murder about this can easily be shut up by demanding to know how long it takes their American branches to cash a check??
Not only can any one in America tell you it is instant, they would be up in arms and in court immediately if their banks tried to hold their money hostage in this manner.
Why can't we have the same without this privateering? And if the domestic market is such a small percentage of their profits how would this hurt? It would promote a freer flow of monies to and from the consumer to the trade industries and would have a vast positive knock on effect on UK business.
I suggest maybe a whole new Blog on the merits of this reform might be in order.

  • 34.
  • At 11:48 PM on 04 Mar 2007,
  • Andrew wrote:

The banks are geared purely on retention. As a branch manager for a high street retail bank, everything we do is based on sales. There is no time for servicing existing customers, thats what the offshore call centre is for. We are targetted to sell based on whatever campaign is running at the time, for example, unsecured personal loans, current accounts or remortgages, nevermind what the customer actually came in for.

Fortunately we have so many ignorant customers who have been with us years and think changing is hard work, we survive and have to use persuasive techniques to get further business out of them.

Needless to say, I am soon leaving the banking industry, and am grateful for the insiders experience so I know how to handle any problems that may arise in future.

  • 35.
  • At 03:20 PM on 05 Mar 2007,
  • Ant wrote:

Liz, post 25, post some more details about what happened. You should be able to claim your money back. I would expect all calls to be recorded and if they did something you didn't fully agree to and charged you for it, then you're due your money back.

Check with the Financial Ombudsman

and Citizen's advice


If the case is as clear cut as you indicate, do not give up until you're refunded.

Robert, could you fire her an email please to let her know that she should seek advice?

  • 36.
  • At 05:19 PM on 05 Mar 2007,
  • brian coughlin wrote:

ok @good@customers


how about the insurance on a loan that i took out to protect me from illness or other mishap.

sept 11 occured and i was made redundant

i applied to the bank for the insurance to kicking to be told unless you can prove that the redundancy was not caused in any way by your actions we will not pay out

so i went into debt 5 years later im still paying it off. now i a few weeks ago i had a ddebit returned for a charge of 35 pounds. the dd was for 8.99 i had 7 pounds in the account and had lodged 10 pounds in at 9 am that morning.

the charge was raised as my lodgment was processed after the ddpebit had been refused..

so 35 pound charge for dd 35 pound charge for unauthorised overdraft and 25 pounds for the letter telling me this

in my eyes this seems the bank make almost 100 pounds for a 1.01 shortfall that had been made up as the bank opened.

so dont say that its people who cvan manage there finances the banks are not interested in people they are interesting in making as much money as possible from you.

i wait with eagerness to when a bank charges one of the above posters when they make a mistake or heaven forbid their company is late in makign there payment and see how forgiven they will be then..

Interesting comments.. :D

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