It appears that the law of unintended consequences might strike again and this time it could result in customers being charged for current accounts (and not just those which have all those extra perks such as travel insurance, mobile phone cover etc.), as the government looks to increase competition between the high street banks (something on which they don’t have a great track record!).
The government’s laudable aim is to force banks to allow customers to switch their bank accounts immediately (the current time limit is only 7 days), which is hoped will increase competition in the industry and drive up service levels. It is thought that this aim known as current account portability – could feature in the next Conservative manifesto “if the cost-benefit analysis stacks up”, Ms Leadsom, a former City fund manager said. Ms Leadsom, the economic secretary to the Treasury, has told the Financial Times: “I don’t think it needs to mean the end of free, while in credit, [banking] but at the same time, I would imagine that it would lead to a variety of methods of paying for your banking,”.
The problem lies with the fact that the technology to allow such an immediate transfer is not yet in place and its feared that the high costs involved of upgrading the existing technology could be up £10 billion. I somehow can’t see the banks being willing or able to swallow such a cost.
So does this mean that we will see the end of most high street banks offering free current accounts, with some offering extra services such as free overdrafts and travel insurance for a monthly charge and that we will soon be following the US model where banks regularly charge for current accounts?
Vince Cable, the Business Secretary, said this morning there is a “debate” around charging for current accounts, and the costs of implementing the technology for current account portability are “very considerable.”
Although it’s often said that people will change their spouses more frequently than their bank accounts, is this desire to increase “switch-ability” really worth the end of free banking? After all, a 7 day wait doesn’t seem that unreasonable to me, especially after my recent experience of trying to switch my electricity provider (3 months and counting…).