Tuesday, September 28, 1999 Published at 15:23 GMT 16:23 UK
Business: The Company File
Banks take a bashing
Branch banking is being taken over by the Internet and the phone
UK banks have become the latest consumer demon.
Chancellor Gordon Brown's attack on the sector is just the latest in a series of bruising encounters for the banks.
The government wants banks to charge less for their services, make these charges clearer and keep the door open to poorer customers.
No concrete demands are likely to be made until former telecoms regulator Don Cruickshank completes his investigation on banking competition later this year.
The confusion surrounding bank charges was highlighted by Barclay's plan to charge non-Barclays customers for using their cash machines. Barclays says that other banks do the same, but few make it public.
Competition in bank charges does exist, the Consumers Association says, but customers don't know what individual banks charge and often, it is the High Street Banks that charge the most.
The banks say the problem is not the amount charged, it is the lack of transparency.
Access for all
Next, the government wants everyone to have access to banking services.
About one in five households does not have a current bank or building society account.
Greater access to banking services would mean the government could make social security payments directly to a bank and poorer customers can use direct debit paying systems that, for example, utilities offer.
Last week, Scottish banks announced that they were to offer these kind of low-cost current accounts.
Sir George Mathewson, chairman of the Committee of Scottish Clearing Bankers, said: "Our strongly-held view is that it is very much in everyone's interest that we enable the disadvantaged to gain access to the financial system."
Participating banks are the Bank of Scotland, the Royal Bank of Scotland, Clydesdale Bank and Lloyds TSB Scotland.
This move has not been mirrored elsewhere in the industry.
Last week, the Halifax decided to charge holders of their basic card/cash account £10 for a bankers draft made out to anyone other than the holders of that account.
Halifax says that this covers the cost of the service, a service it says is rarely used by holders of this kind of account.
Bankers say that wider access is not just an issue for banks, and is a problem best solved by partnership between utilities, banks and the post office.
"It is not something that should be dumped on banks alone, when they are under this enormous competitive pressure," British Bankers Association director general Tim Sweeney said.
The problem for banks is that the government review comes at a time when they face increased competition from low-cost telephone and Internet banking.
A decade ago, First Direct introduced telephone banking, sparking a revolution which is expected to see one third of the population do some banking over the phone this year.
Many banks already offer online accounts, with Prudential's launch of its Egg savings account proving to be one of the most successful.
Increasingly banks have sought to get customers in the door by offering free current accounts and then make money by selling them life insurance and pensions.
Savings and investments are seen as the big growth area for banks, reflected by NatWest's bid to create a bancassurance operation by buying Legal & General.
But the Consumers Association has criticised the products banks sell, declaring them poor value.
As new internet and phone services cherry pick the most profitable customers, banks may seek to charge their customers for their "free" accounts as one way to recoup costs.
It is these charges that could ultimately alienate the banking customers the government now wants to include.
Retailers criticise charges
Consumers aren't the only group that are fighting back against bank charges.
Retailers have also weighed in with criticism of "excessive" credit card charges.
They say interchange fees - the fee paid by the bank to the credit card issuer for accepting a credit card payment from the retailer - are too high.
They are usually about 1% of the transaction value. Retailers also pay for transaction charges, which are negotiable and depend on the size of the business.
"We are happy to pay for clearance and settlement but this fee goes to the issuer for doing absolutely nothing at all," a spokeswoman for the British Retailers Consortium ( BRC) said.
The BRC wants charges levied on the basis of a flat rate per transaction, which is the case with debit cards.
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