Banks Tell Customers Last

Bailing out (of) the UK

Two days ago it was all over the national media that ING Direct UK's savings and mortgage business had been sold to Barclays, with the actual transfer to occur in Q2 2013. Yesterday, the media were telling us what it means for customers. Yet only this morning do I receive the self-centred email from ING Direct UK (extract below). I'm not suggesting that we customers should get the information ahead of the stock market (if it's price sensitive). But I think we should've been among the first to know directly, rather than being told by the national media. 

Of course, the note also reveals that the bank views its customers as just a bunch of financial assets, and that the deal is a huge blow to competition and innovation in the retail banking market. The first three paragraphs blather on about the wisdom of ING slimming down and how the business "is a good fit" with Barclays millions of other customers. This makes us feel so special. Then, as an afterthought, they add the weazily statement that "there will be no immediate effect on the services you currently receive." Weazle word: "immediate". As in, "get your money out immediately." If I'd wanted to save with Barclays, I'd have followed the 15 million other sheep long ago. My old Egg credit card got bought by Barclays and that experience hasn't been warmly personal either. Time to switch.

"We wanted to let you know directly that it has been announced that ING Direct N.V has entered into an agreement with Barclays to acquire ING Direct UK’s savings and mortgage business.

This decision is a result of ING Group’s continued evaluation of its portfolio of businesses, in line with its stated objectives of sharpening its focus and streamlining the group. It is expected that the actual transfer of ING Direct UK’s savings and mortgage business will take place during the second quarter of 2013.

ING Direct UK is a good fit with Barclays existing UK Retail Banking Business that looks after more than 15 million personal and 700,000 business customers in the UK. With a network of around 1600 branches in the UK, customers can bank in person, over the phone, online and through mobile applications. Barclays look forward to continuing to provide a secure home for your savings and/or mortgage in the future.

There will be no immediate effect on the services you currently receive."

Avoiding The Dire Strait of Retail Banking

So, competition in banking has worsened, according to research cited by the FT this week, and Which? is back on the warpath against "complicated and exorbitant" unauthorised overdraft charges.

Accenture's research found that in 2011 only 11% of customers switched at least one product and only 6% switched their current account - and 90% of us "had no desire to change providers". 

Financial services consultancy Oliver Wyman chipped in with this gem:

"if [banks] made their charging structures completely transparent, no one would want to pay them."

Forrester, the research firm, found that less than 25% of UK customers thought "their bank put their interests above the desire to generate profits."

Yet more reasons for levelling the playing field between banks and alternative finance models.

The Return Of Manual "Banking"?

There is no such consumer activity as "banking". Fiddling around with bank accounts is just something we do in the course of paying a bill, making a purchase, reimbursing a friend, investing etc. - an interim step in a much longer process. "Banking" is what retail banks think we're doing, because they only view the world, and how to make money, through the lens of their own products. Which are designed to make money for the bank, not to benefit the customer, as recent coverage of the PPI mis-selling scandal has highlighted.

Here's a little story.

In 2005 I opened a savings account that had recently been launched by the ill-fated Halifax plc. The only way they allowed you to access the funds was using a passbook, even though the Internet had been fully operational for a decade. So it was pretty clear they wanted me to shove my money in and forget about it.

The last time I'd had a passbook was in Australia in the '70s, so I was a bit nonplussed to be given one in 2005. But at least the Halifax IT system enabled the teller to complete all the little bits of paper they seemed to need each time you wanted to move money. You'd say what you wanted to happen, the teller would feed bits of paper into a printer, tap some keys, hand you the paper to sign, tap some more keys, and you could get the hell out of there. In my case, with a banker's draft - a cheque, for Christ's sake - that I had to then mail to a discount stockbroker before finally investing the funds. It was a miserable pilgrimage. And, sure enough, it declined in frequency from quarterly to annual. The bank did in fact get to hold onto my money for longer.

Cut to 2009, when Gordon Brown and I think one, maybe two other people thought it wise for the ill-fated Lloyds Banking Group to buy the ill-fated HBOS plc, the owner of Halifax. Then cut to this morning, when a Halifax teller patiently explained to me that, as a result of the recent transfer of my Halifax savings accounts onto the Lloyds Bank IT system, I must now complete all the bank's requsite bits of paper myself, by hand.

In other words, not content with the destruction of two financial conglomerates, mis-selling billions worth of products and becoming a drag on the country's finances, these people have spent the last 6 years removing any vestige of consumer-friendly automation from the process of accessing my money.

In fairness, the teller did explain that I can now sign-up for [trumpets] internet banking, to access these accounts. But I'm not convinced that would be a satisfying experience. I'd probably be expected to bring my laptop into the branch just to log-in.

Be Careful Saving With Your Mortgage Lender

You'll be aware of recent concerns about how much of your deposits are covered by the UK's Financial Services Compensation Scheme.

Their general guidance on the subject is here, but there was a twist announced indirectly at a recent conference - hat tip to the Fool Blog:

• if you have an offset mortgage - where the bank agrees to credit your savings against your mortgage balance and only charge interest on the difference (if any) - then if the bank goes under, your savings will simply be deducted from the mortgage balance, even if those savings exceed £50,000. So you won't actually have access to the money anymore (unless, perhaps, the mortgage is taken over by another bank on the same terms and you can draw down again, or you remortgage, which will cost you interest).
  

• if you're an ordinary saver who just happens to have deposits with the same bank who has your mortgage, indications are that the FSCS will treat you the same as if you had an offset mortgage, although only £50,000 of your savings may be protected. Again, you could merely be treated as owing the bank less, and not actually get your savings paid back to you.

It does seem fair that the FSCS is able to offset deposits against mortgages or other loans in the event of bank insolvency, regardless of whether or not you agreed an offset mortgage. The higher deduction for offset mortgagors is also fair. Otherwise, people who've saved more than £50,000 and who were therefore able to take on a bigger mortgage than their income might have supported, could find themselves penalised. That would be inconsistent with the principles of recent mortgage regulation.

But this could be a disaster for anyone who's tried to set aside 3 to 6 months' net salary as "rainy day" money - as a buffer against unemployment, lengthy illness etc.

So, you should consider making sure that your rainy day money is not deposited with your mortgage lender. Worth checking with the FSCS before making the decision. Here are their contact details.

Marketing Mad

Can anyone explain why Alliance & Leicester displays banner ads for its internet banking service within its internet banking account pages?

Is it a mistake? Or did someone consciously decide that this would impress all their internet banking customers?

Either way, it seems moronic to me, and I honestly consider switching to a new provider every time I see the damn banner.

Good to get interest on the current account balance, though. Great change from NatWest.

Time is Right to Innovate in Retail Financial Services

Two reports this week confirm it for me.

The first was from MoneyExpert.com, as reported in the FT:

"Since the revised banking code made it easier for customers to change their current account provider in 2005, more customers have taken advantage of the option. Over a six-month period to the end of October 2007, the number of clients changing provider rose from 1.8m to 2.3m. “The switching index shows that around 300,000 people a month are choosing to change their current account provider, and overdraft facilities are an important component for choosing an account,” said Sean Gardner, chief executive of MoneyExpert.com."

... Customer dissatisfaction over bank overdraft fees, as well as concerns over financial security prompted by the problems of Northern Rock, have accelerated the number of switches made recently, according to Mike Naylor at personal finance website uSwitch.com."

The second was from the Bank of England, to the effect that unsecured lending to households and small businesses is suffering a large reduction, and spreads between savings and unsecured lending have widened and are likely to widen further during Q1 2008. In other words, banks are helping themselves to more of consumers' cash as a result of their exposure to the credit crunch.

So, customers are adjusting to recent banking shocks and making alternative arrangements. And, while the banks need to offer incentives to retain or attract those customers, their hands are tied when it comes to anything really substantial.

The timing is great for innovation and new entrants to the retail financial services marketplace.

Yet the key to how retail financial services should develop is how consumers actually view and use money. Today's products and infrastructure are generally designed to suit the banks and other product providers, and they are ill-equipped to innovate from the consumer's standpoint. I reiterate my November prediction for 2008. And for my money, the essential characteristics of Financial Services 2.0 will mean that banks retreat from "owning" customer relationships to back-office service provision.

PS 7 Jan '08: First Direct's recent offer of simply paying people £100 to switch current accounts and receive the same old products, underlines the lack of real innovation amongst retail banks. Note the requirement to take an extra product or maintain a balance of £1500 in a nil interest account in order to avoid a £10 a month fee. The only real competition amongst retail banks is in the size of their marketing budgets.

PPS 21 Jan '08: The proportion of Britons still getting their financial advice from high street banks has declined from 28% in 2003 to just 4%.