‘It’s the end of free banking, as we know it,’ I sang to myself in the style of R.E.M earlier in the week.
A perfect storm is brewing which could potentially see more and more customers charged a monthly fee for having a current account.
This is a blend of coronavirus, a crackdown in overdraft fees, lingering low interest rates and essentially, big banks struggling to make as much money out of customers as they did in years gone by.
Warning shot: HSBC hinted that a future of monthly fees for current accounts could be on the horizon
Profits are down. HSBC revealed a 35 per cent fall in quarterly profits and it fired a warning shot to customers that it could start charging for ‘basic banking services’ in some countries.
That isn’t necessarily a threat specific to Britain, but it said it is losing money on a ‘large number’ of these accounts. Talking about the UK, a spokesman said: ‘We always keep under review the pricing for our standard current accounts and associated services.’
Experts believe it could happen, especially if the threat of negative interest rates materialises.
Our readers were not happy, with many in the comments section of our story saying they would move current account if this happened, or even just keep money under the mattress.
The trouble is, if one big bank like HSBC made a move like this, it is likely other major banks would simply follow suit.
Many of them now routinely offer 0.01 per cent savings rates and there aren’t many more places left to trim the fat – although HSBC is currently offering a £125 incentive to switch to it.
Latest figures from the Current Account Switching Service out this morning show that Monzo and Starling, the digital challenger banks, were our number one and two destination to move current account to between July and September.
Last year, I wrote a piece asking if you’d pay to have a metal debit card.
Now, Monzo have launched an account that comes with one – with a raft of other ‘perks’ – for a £15 a month fee.
If you lose the card, you’ll have to fork out £50 for a new one.
It doesn’t seem like the most pressing financial product required during a pandemic.
This is significant because starting a bank doesn’t come cheap, nor does acquiring good quality customers – that is, someone who actually uses it as their sole or main current account, rather than a secondary one for casual, contactless spending.
In the past Monzo has boasted of millions of customers, but it is still haemorrhaging cash running accounts that lie dormant and run at a loss.
It’s likely that mainstream banks will be in a similar boat when it comes to servicing those accounts – but they have a whole shop of other products to offer customers and make money from.
Banks like to attract current account customers, to then cross-sell them profitable stuff, such as mortgages, investing services, personal loans, credit cards and insurance.
But Britons have become wiser in the last decade, shopping around for the best deals, rather than simply relying on their bank – who they may have been with for a long time – to act in their best interests and reward their loyalty.
We’ve also become accustomed to free-if-in-credit banking. The counterbalance comes in the form of customers who dip into their overdraft and are charged now-high rates of interest.
It is likely with new 40 per cent rates and Covid-19 putting finances in sharp focus, more people than ever before are clawing their way out of there to prevent being charged.
End of free banking as we know it? Michael Stipe, lead singer of R.E.M in action
Mark Mullen, chief executive of Atom Bank and former UK head of marketing for HSBC and chief executive of its stablemate First Direct tells me that free-if-in-credit baking is ‘relatively unique to the UK.’
He said: ‘It was first introduced by Midland Bank (now owned by HSBC) way back in the mid-80s, today most of us take it for granted.
‘But just because you’re not paying a fee for a current account doesn’t mean that it’s not being paid for – subsidised – either by you indirectly or by somebody else altogether.
‘For years banks charged customers exorbitant overdraft fees and paid little or nothing in the way of credit interest on current account balances to recoup their costs and increase their profits.
‘But today, greater pressure from regulators and consumer groups combined with historically low interest rates have undermined the free-if-in-credit model.
‘Make no mistake, over the decade’s banks have benefitted enormously from free-if-in-credit banking.
‘Someone once said that a banker is a guy who’ll give you an umbrella when the sun is shining and take it away when it starts to rain.
‘Right now, it’s raining but someday soon the sun will shine again. When it does, I wonder will banks be as quick to talk about making it free again?’
So, it could be a risky move to start charging for an ordinary account, but not one – given the testimony from Mr Mullen – that is outside the realms of possibility.
In the meantime those who are annoyed or dissatisfied with their banking services should use the seven-day switching guarantee and find a new home for your money. I used it a few years ago without a hitch.
Banks all essentially do the same thing for a run-of-the-mill customer: hold your money safely with Financial Services Compensation Scheme protection of £85,000.
However, you may be able to find one with slightly better customer service, will pay you a bribe to join, have a better online and app banking facilities, or a branch that is actually still open near you, or maybe even a slightly better overdraft rate.
Because of all of the banking options on offer, I find it difficult to conceive a Britain without a free current account available – but stranger things have happened.