The end of free banking could be an opportunity for other financial institutions

Building societies and credit unions stand to benefit if we move towards a paid-for model.

While many of us start to recover from the shock revelation that charge-free bank accounts are a myth, and that banks have been incentivised to mis-sell other financial products for their loss-leaders, some financial institutions like building societies and credit unions are quietly looking forward to the end of free banking.

After the scandals that have hit banks over PPI misselling and the £9bn set aside to recompensate those who were its victims, bankers and regulators have shared a rare platform in agreeing that an end to free banking could prevent similar future episodes.

The argument goes that banks were only scheming because fees aren't being levelled towards customers for their accounts, and so inevitably it became necessary to cross-subsidise from one profitable bit of the operation to in-credit personal current accounts free of charge.

Indeed as the newly-appointed chairman of Barclays, Sir David Walker, has said: "Because banks are not charging, it drives them inexorably into this sort of position”.

The issue has been raised in parliament and will be raised again at the Parliamentary Commission on Banking Standards where bankers have already submitted evidence, highlighting free banking as one of the things that led to bad behaviour.

One of the practical problems that awaits this (some call it an inevitability) is if one bank makes the leap and starts charging, the likelihood is that their customers will run and go elsewhere. To be a renegade over this can promise a huge money loss, which undermines the point in doing it in the first place - some risks just don't come naturally to banks.

Of course the other problem is that if it became a trend among banks, nobody can promise against an outbreak in customer dissatisfaction. One of the concerns being raised is that for unethical banking, the general public is being asked to subsidise another income stream for Barclays, HSBC, RBS and Lloyds.

For Phillip Inman, economics correspondant of the Guardian and the Observer, this is like a pickpocket saying he was forced to steal wallets because he was denied other sources of income. The only way of stopping a naughty banker from selling you stuff you don't need, in other words, is by giving him money. One can understand the discontent at this twisted logic.

But from another angle some institutions are seeing an opportunity. While one of the appealing planks of David Cameron's big society was the building up of smaller financial institutions, realists could see the many market entry barriers for types like building socieities and credit unions.

While the mainstream is already occupied by big banks, it was discussed at the KPMG’s 22nd annual Building Societies Database recently that: “almost half of the UK’s 47 financial mutuals had increased their profit in the year to April 2012, and that they would benefit further from the end of free banking.”

This isn't the first time I've heard something similar. Speaking to someone recently who works close to the credit union industry, who preferred to go unidentified, they told me that Barclays' talk of transparent charging structures has made the prospect of credit union modernisation very interesting indeed.

Credit unions have always had such a structure, and if paid-for accounts led to more competition among smaller players then the notion of a credit union membership rise increases the chance of them lending more money, particularly to those who are currently having difficulties remaining creditworthy or are thinking about going to a payday lender.

Trouble is the paid-for model comes with many problems. Too many, perhaps. People don't want to be charged a fee. Customers may end up kicking up a fuss about who their banks lend to on the grounds that their fees subsidise them, which when trying to maintain an image of middle-class respectability, may see the number of creditworthy people diminish.

Though most of us do want more competition and for places like credit unions to have more relevance in the market. Some very complex conversations and arguments are going to be had over this subject, that much is for sure, but it is interesting to note that advocates for an end to free banking are not only the usual suspects alone.

A high street bank. Photograph: Getty Images

Carl Packman is a writer, researcher and blogger. He is the author of the forthcoming book Loan Sharks to be released by Searching Finance. He has previously published in the Guardian, Tribune Magazine, The Philosopher's Magazine and the International Journal for Žižek Studies.
 

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There's something missing from our counter-terrorism debate

The policy reckoning that occured after the 2005 terrorist attacks did not happen after the one in 2016. 

“Once the rockets are up, who cares where they come down? That's not my department, says Wernher von Braun.” That satirical lyric about Nazi rocket scientists has come to mind more than few times watching various tech giants give testimony in front of the Home Affairs Select Committee, one of the underreported sub-plots of life at Westminster.

During their ongoing inquiry into hate crime in the United Kingdom, committee chair Yvette Cooper has found a staggering amount of hate speech being circulated freely on the largest and most profitable social media platform. Seperately, an ongoing investigation by the Times has uncovered how advertising revenue from Google and YouTube makes its way straight into the coffers of extremist groups, ranging from Islamist extremists to white supremacists and anti-Semites.

One of the many remarkable aspects of the inquiry has been the von Braunesque reaction by the movers and shakers at these tech companies. Once the ad revenue is handed out, who cares what it pays for? That’s not my department is the overwhelming message of much of the testimony.

The problem gains an added urgency now that the perpetrator of the Westminster attacks has been named as Khalid Masood, a British-born 52-year-old with a string of petty convictions across two decades from 1982 to 2002. He is of the same generation and profile as Thomas Mair, the white supremacist behind the last act of domestic terrorism on British shores, though Mair’s online radicalisation occurred on far-right websites, while Masood instead mimicked the methods of Isis attacks on the continent.  Despite that, both fitted many of the classic profiles of a “lone wolf” attack, although my colleague Amelia explains well why that term is increasingly outmoded.

One thing that some civil servants have observed is that it is relatively easy to get MPs to understand anti-terror measures based around either a form of electronic communication they use themselves – like text messaging or email, for instance – or a physical place which they might have in their own constituencies. But legislation has been sluggish in getting to grips with radicalisation online and slow at cutting off funding sources.

As I’ve written before, though there  are important differences between these two ideologies, the radicalisation journey is similar and tends to have the same staging posts: petty criminality, a drift from the fringes of respectable Internet sub-cultures to extremist websites, and finally violence.  We don’t yet know how closely Masood’s journey follows that pattern – but what is clear is that the policy rethink about British counter-terror after the July bombings in 2005 has yet to have an equivalent echo online. The success of that approach is shown in that these attacks are largely thwarted in the United Kingdom. But what needs to happen is a realisation that what happens when the rockets come down is very much the department of the world’s communication companies. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.