Martin Taylor, a member of the Bank of England’s Financial Policy Committee, has said that banks must do more to re-garner the favour of alienated customers, and hit out at supposed ‘fee-free’ bank accounts.
Taylor said of the banking industry: “We are in Siberia, where many people feel bankers belong, so perhaps there is hidden treasure under the permafrost.”
He said that customers have, for a long time, been feeling alienation towards the banking industry, blaming common practises like perceived overpaying, including the payment of large bonuses, as well as general lack of “public-spirit” and “character”. He said that there are signs that, since the financial crisis of 2007-08, banking practises have been slowly improving, but that “the length of time it has taken for this penny to drop has proved costly”.
He said that “the improbably glossy surface” that many banks present has done little to rebuild customer trust and that “sermons won’t fix it, and nor will advertising”.
“I have no easy solutions to offer” he said, “but feel that until issues like these are confronted, customer trust will continue to elude the industry.”
Taylor’s claims reflect a recent survey conducted by FIS Global, which found that in customers’ view, banks were largely “underperforming expectations”, particularly in terms of fairness and transparency.
FIS’ managing director, Martin Barber, said: “People feel they’re being farmed. Customers are concerned about banks taking advantage of them.
“Banks have got a challenge,” he went on, “they’ve got a lot of work to do to convince us that they’ve got our interests in mind and not that they’ve got profit and exploitation in mind.”
Taylor also took issue with ‘fee-free’ bank accounts, which he said led to “the mother of mis-selling scandals”.
Back in the 1970s, Taylor explained, banks would charge customers per transactions, unless they kept a minimum amount of money in their account. Then, Midland bank removed this requirement, followed by the whole banking industry, and free-if-in-credit current accounts became the norm.
This happened at a time when the Bank’s base rate was at 17%, and now that it has gone down to 0.5%, where it has stayed for several years, the banks have had to contort their processes in order to maintain fee-free accounts.
“The contortions the industry has put itself through to maintain this over-riding of the price mechanism have been very damaging, not only to the most vulnerable consumers who through penalty charges subsidies the better-off (they used to be known, revealingly, as ‘delinquents’), but also, I believe, to banking in general.”
Another problem Taylor mentioned was the idea of ‘teaser rates’, offered to new customers at the expense of loyal customers.
He said: “The habit of giving what are effectively disloyalty discounts has turned into a cynical and corrosive negative-sum game.”
He went on to say that “many recipients of pre-crisis teaser mortgage rates are now marooned on the standard variable rate and unable to refinance”.
All in all, he said, the banking industry has got itself into “ghastly collective jams from which extrication is very difficult”.