Hervé de Carmoy, the former chief executive of Midland Bank, who in 1984 were the first bank to offer free current accounts, has now said that free banking is “a major problem” in the UK. Midland Bank abolished fees for “statements, cheques and standing orders 30 years ago”, attracting nearly 500,000 new customers in a year. Naturally, their competitors imitated the model making free current accounts the norm, as long as the customer is in credit.
The Competition and Markets Authority (CMA) began an investigation into the current account market in November 2014, believing that banks “may distort competition” with their free current accounts, according to the CMA, by “cross-subsidising” with overdraft fees, so in general costs remain unclear and hidden.
The CMA want to change this by looking into “free in-credit banking, coupled with overdraft charges…(which) may enable banks to exploit customer behavioural biases, leading to higher prices.”
De Carmoy’s comments illustrated that “the banks in the UK have a great difficulty changing their business model to what’s required in the 21st century”. And many consumers choose not to change banks because the majority of those on the high street will offer some form of free current account, so there’s also no need for many consumers to switch.
The CMA is in favour of “opaque overdraft fees, which subsidise other current account users”, as currently, according to a survey conducted by Which?, very few British consumers understand their overdraft fees.
The ‘Big Four’ banks control 75% of the current account market currently, so any regulation changes put forward by the CMA are bound to have a big impact on hidden or unclear charges and the way British people bank.