Providers of free personal and business bank account services in the UK have been struggling with an ‘outmoded concept’ that works poorly if at all, according to Martin Wheatley, the head of the Financial Services Authority.
The FSA chief said that banks and building societies need to make money in order to provide services like current accounts. If a provider offers free services, Mr Wheatley added, the money to do so comes from subsidies taken from another area of their operating budget.
The FSA official’s words came as the watchdog agency came forward with a new report on retail conduct risk, enumerating the 15 largest that face UK households making use of financial services. Mr Wheatley, who becomes the head of the new FSA spin-off entity called the Financial Conduct Authority in 2013, said his words were not prompted by any desire to end free banking services but instead wanted to encourage banking providers to stop advertising ‘free services’ and then drown a consumer in countless usage fees such as those commonly associated with overdraft facilities, instead urging the industry to adopt more transparency in their pricing policies.
The Government has stepped in to overhaul how the industry is regulated in the aftermath of the credit crunch and resultant economic downturn. Mis-selling scandals have also marred the sector, with two decades of activity costing approximately £15 billion in compensation payments to the industry, with the most recent instance being mis-sold payment protection insurance to countless borrowers.
Customers need to rely on financial service providers and the products they offer in order to gain access to crucial services, said Mr Wheatley. Being unable to trust these firms and their products means these customers are less likely to use the products in the future, he added.