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.

Even Faster Payments, Please

My refusal to pay for a current account landed me at Alliance & Leicester some time ago, as it also took the extraordinary step of paying decent interest on a regular balance. "Clunky" is not the word for it, and you really need your wits about you to avoid the fees lurking within. Being a retail financial services lawyer helps mightily.

Recently the bank left me a message to say that it had decided to introduce so-called Faster Payments. This is hardly dazzling - you may be aware that this has its roots in the tidal wave of frustration at slow payments that was punctuated by the Cruickshank Report in March 2000, and the ensuing regulatory saga. I was there to help "sink the slipper", as a quaint Australian rugby expression would have it. Typically, the UK banks fought tooth and nail to avoid the inevitable conclusion that:

"there were profound competition problems and inefficiencies associated with payment systems in the UK. The report found that the underlying economic characteristics of the systems did not deliver price transparency, good governance, non-discriminatory access, efficient wholesale pricing and innovation."

I won't bore you with the catalogue of dithering over implementing a solution, but the fact that "faster payments" are long overdue is evident from the APACS's bizarrely triumphant puff:

"Faster Payments is the first new payments service to be introduced in the UK for more than 20 years. For the very first time phone, internet and standing order payments can move within a few hours - almost at the touch of a button."

But compare the APACS puffery, with the statements below from Alliance & Leicester. Note the nasty little catches marked by * and **. I've brought the weasel words up from the footnotes and placed them in bold italics immediately after each. I've even had to use red text to show the nasty catches within the nasty catches. There's a way to explain what they're doing without making such sweeping claims or promises in the first place. Faint hope that nonsense like this might disappear under the tighter FSA regulation of retail banking.

"We are improving our service to you by taking part in a payment scheme being introduced across the banking industry called Faster Payments. This means that when you move money electronically either by internet or telephone banking it will usually be available for you to use on the same day*. Other types of payments such as direct debits and the time it takes for a cheque to be available will not change. Payments to Alliance & Leicester Credit Card will not be sent using the Faster Payments scheme. This means that the time it takes for these to go through will also not change.

What this means to you

Currently, if you move money between accounts or make bill payments, it will normally be available 3 to 4 working days later. Faster Payments means your money will usually be ready to use on the same day.

We are now able to receive money by Faster Payments and have started to send money by the scheme. We plan to have the Faster Payments scheme fully implemented later this year. Certain conditions will apply**. If the bank (or account) you have requested the money to or from is not part of the Faster Payments scheme, your money will continue to be moved using the BACS (Bankers' Automated Clearing Services) scheme and will be available for you to use 3 to 4 working days later. The Faster Payment scheme limit is £10,000 for immediate transfers and one off transfers that are set for a future date. The limit for standing orders is £100,000. Standing orders move money to another account on a regular basis. To start with we will have lower limits. These limits may change at any time without us telling you first. Other banks' limits may be different. Additional security checks may be carried out to protect you from fraud. If this happens your money may not be available on the same day.

You can easily make transfers or bill payments 24 hours a day, 7 days a week using our internet or telephone banking services.

[skipping several paragraphs of guff about internet and telephone banking that separates the * and the ** from the corresponding footnotes]

The Faster Payments scheme will allow you to keep your money in your account for longer."

A little premature to make the last claim so unreservedly, I'd say.

PS: 18 June '09: Here's John Kay's piece on the anniversary of the "faster" payments programme.

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%.