Offering free bank accounts is an unsustainable practice that increases the likelihood that British banks will try and squeeze profits from customers elsewhere, PwC have argued.
In a report released on Monday, the consultancy firm said offering only paid current or checking accounts would make banking charges more transparent and improve competition and levels of service, Reuters reported.
Most major banks in Britain offer both free and paid-for accounts, with the latter offering perks such as travel and mobile phone insurance. But the former are not as free as they seem, said Steve Davies, retail banking leader at PwC.
“UK current accounts are not free at all and are paid for through overdraft charges, penalty fees and uncompetitive or zero rates of interest,” he said.
“The free current account results in some customers being served at a loss to the bank. A more sustainable approach is that customers are asked to pay a fair price in return for reasonable services, which would reduce the risk of banks seeking to recover these costs by selling other products and services that the customer may not want or need.”
“We can trace the history of this problem through the various mis-selling scandals in the industry over the last decade,” Davies added.
The ‘free’ account model also stifles innovation, Davies continued, making it difficult for new entrants whose presence many see as vital to increase competition.
“It requires new challenger banks to achieve scale very quickly if they are to survive and it fails to reward banks that come up with new ideas as costs cannot be recovered,” he said
PwC found that out of 2,000 people surveyed for the report, many were aware that free bank accounts often carried hidden charges.
But one in two would be likely to change banks if an upfront free was introduced as an alternative. In fact, nearly two-thirds of respondents were not prepared to pay anything up front, and 27 per cent would not pay more than £10 a month.
Britain’s competition watchdog is considering whether banks should charge customers for holding their personal current accounts as part of a wider inquiry into the industry. But some of the country’s banks have countered, saying that free accounts should remain and charges should not be imposed in order to shake up the market.
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