The Financial Services Authority (FSA) has told the banking sector they must stop cross-subsidy of services in order to claim some of them are free.
Speaking at an industry conference, FSA director Andrew Bailey confirmed to the audience “there is no such thing as free banking”.
The myth of “free banking” has been around for many years.
Because current and savings accounts typically have no explicit charges, it is easy to see how they might appear ‘free’.
In practice, the banks make money from every customer in a variety of ways.
Direct charges on accounts, including taking a cut of interest payments on savings and charging for overdrafts, makes up some of the revenue banks derive from customers.
A potentially much larger source of revenue is the ability to market to customers and sell them expensive financial products.
On every trip to my local bank in the past year, I have either overheard a cashier trying to lure a customer into the purchase of another product or been on the receiving end of these sales tactics myself.
Transparency of pricing has become a very hot topic in retail financial services recently.
We believe that explicit account charges will replace the opacity of ‘free’ banking within a few years, as banking customers demand to know what they are paying for these services.
Photo credit: Flickr/NickBracko
