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Yes, says Darren Cook
Moneyfacts.co.uk
The levying of fees, penalties or charges is an extremely sensitive issue for most bank customers, particularly while we all wait for the outcome of an appeal by the British high street banks against a judgment by the Office of Fair Trading (OFT) that charges on overdrafts are unfair.
However, whatever the outcome, I think it is a reasonable assumption that in future banks will start charging their customers a fee for conducting a current account. If we forget for a moment that a future charge would be seen as banks compensating themselves for losses in income elsewhere, I think that we could be better off paying for bank services.
I have spent a large portion of my working career in South Africa, where it is deemed an accepted practice to pay for your banking services. For example, the First National Bank of Southern Africa currently charges just under £5 a month for a standard current account with unlimited transactions and 32p per withdrawal from a rival bank's cash machine. Paying money into an account incurs a charge of 1% of the value of the deposit, with a minimum £1 charge, while the charge for a bounced item, such as a cheque or direct debit, is £7.50.
During my time in South Africa, I spent some time as a bank manager. Things may have changed since then, but I was never given targets on how many new accounts I should open, how many overdrafts or new loans I should grant or the number of insurance or mortgage applications I accepted. I needed to ensure that my customers were making best use of their banking products, that overdrafts and credit cards were used for short-term cashflow requirements and that the repayment term of a loan would never exceed the lifespan of the asset. For example, if you were paying for a holiday, full repayment had to be made before your next trip. More importantly, if a consolidation of credit cards into a loan was negotiated, it was seen as part of my responsibility to try to make sure that the customer did not see themselves in the same position in six months' time and that, in most cases, the credit cards were subsequently closed.
In the future, if we did find ourselves in a position where we had to pay for bank services in order to run our current accounts, I would not mind as long as the relationship added value in return, that my visit to the branch was a memorable experience and, most of all, that the person that I was dealing with was not product or sales target-driven, but was service-driven.
I would not mind paying for a service as long as the person I was dealing with understood the principles of lending and had enough expertise and qualifications to assist me in managing my debt, and made sure my savings were in an account paying the highest possible interest. Especially as we move further into a recession, I would expect the bank to be there to give me best advice when I might need it most.
The South African fees might seem steep and the change to such structures in the UK too radical, but a small fee in the UK would be beneficial if it brought value-added service. If banks started to see service as the key factor rather than cost, we might see some reputations restored in the high street.
No, says Phil Jones
Personal finance campaigner at Which?
There is no such thing as free banking. We have always paid for banking services, even before the recent taxpayer bailouts, but most of us don't realise it.
As the credit crunch bites deeper, more of us are flirting with our overdraft limits on a regular basis. Every time we slip into an unauthorised overdraft, our misery can be compounded with charges that seem out of all proportion to the cost to the bank.
Banks are not charities and the vast majority of us have always paid for the services we receive. Last year the OFT published a report on current accounts that revealed that the banks earned £152 per active bank account each year - more than for savings and credit cards combined.
It is true that transmission costs are free, at least until you try to send money abroad. Day-to-day account management services are also largely free, although there are some fees for statements and letters. However, banks make their money in a range of less obvious ways, from cross-selling of other financial products and expensive packaged accounts to overdraft interest rates that can hit 30%. According to the OFT, 81% of banks' revenue from current accounts in the UK comes from largely hidden charges (£2.6bn) and interest income forgone by consumers due to low credit interest rates (£4.1bn).
Following the recent turmoil, it has become even more important to shine a light on some of the darker corners of the banks' business models and it is obvious that they face several serious challenges. Consumers are angry that cuts in interest rates are passed on to savers but not to mortgage holders. Bad debt write-offs are rising and the recent Competition Commission remedies for the payment protection insurance market will further affect profits. Scarcity of credit and consumer reluctance to borrow more in the face of a severe recession is going to put strain on how banks have traditionally done business.
It has been argued, not least by the banks, that forcing them to abandon their reliance on unfair charges will simply mean they will hit customers with other fees, perhaps monthly or annual management charges. Customers should be wary of accepting this argument. Although we have seen some changes in the way charges are structured, on the whole these do not include monthly or annual fees.
Which? research has found severe scepticism among the public about the fairness of account management fees. Seven in 10 think it would be unfair for banks to charge any additional fee for the current levels of service. Eight out of 10 would consider switching bank accounts should their bank start to charge them. In a properly functioning market, this should provide a powerful incentive for banks to continue to provide some accounts free.
We need to be clear, however, that any change in charging needs to be transparent, fair and not increase financial exclusion. Given the banking sector's current reliance on the taxpayer, the government and regulators are well placed to ensure customers are treated fairly - indeed, you could argue they have a duty to achieve this. You will continue to pay for your bank account in the way you always have, but you will be well placed to avoid higher charges and get better customer service if you are prepared to shop around.
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