Change my bank? There's no point

We will soon all have more choice of where to bank.  Metro Bank is up and running with its first branch in Holborn, Tesco is trialling instore branches at six locations, while Virgin is bidding for the 318 Williams & Glyn’s branches which are being sold off by RBS.  Tesco is looking at opening full service banking in selected stores but has made no commitment so far and doesn’t yet offer a current account.

But bank customers must be asking themselves, why would a new bank go to all the expense of buying branches when I never set foot in my bank?  Moreover, with an increasing proportion of us using the internet for all the basic transactions such as paying bills, organising a personal loan and moving money between accounts, surely we will use branches even less?

Tesco seems to have the most sensible approach which involves opening retail banking operations within existing stores.  This doesn’t involve massive extra costs in acquiring properties and would provide a convenient banking solution for its retail customers.  But unless the new banks are going to target small businesses or high net worth customers, the need for branches seems almost irrelevant except for clients with above average needs – businesses and the wealthy – which is unlikely to be Tesco’s target market anyway. 

Most personal loans and credit cards are now applied for online, and an increasing number of mortgage applications are dealt with – at least initially – via this route too.  Those who want to remortgage or move house are more likely to consult a mortgage broker than their bank manager – which in most cases no longer exists anyway.  Banks' costs ought to have shrunk dramatically with millions of us now doing online what the banks formerly had to pay staff to do.  But still we are charged high fees and overdraft rates.

Meanwhile, a recent survey conducted for the BBC by ICM claims to show a high level of satisfaction with the services offered by the existing banks.  Some 92% of bank account holders questioned had not changed their banks in the past two years and 93% of those people were happy with their service.  Half of those who stayed with their existing bank thought all bank accounts were the same.

The most important of these findings is the last – that all banks are the same – which is not entirely true but not far off.  Changing banks is a hassle and there has to be a clear advantage to make most of us move.  If the new banks want to attract us, they will have to offer a better, and probably cheaper, service than the existing high street banks for those who use overdraft facilities.

What many customers object to is that those who are overdrawn currently cover the costs of running all retail current accounts.  Those who remain in credit are largely offered free banking.  The effect of this is that overdraft charges are ridiculously high – particularly now when Bank Base Rate stands at 0.5% and the average authorised overdraft costs a swingeing 17% - even if your credit track record is excellent and you have never defaulted.

For many of those who are overdrawn, choice is not an option anyway since other banks are, paradoxically, not keen to take them on.  Since the banks make their money from retail customer who borrow, why would a bank want to take on someone who is never overdrawn if they offer free banking to customers in credit?  They don’t – most people who change banks find that they will be offered an account with a monthly charge.

But there is no doubt that many of us would change banks if we could, or if the new bank offered what we want.  In the recent furore about unauthorised overdraft charges most of those surveyed said they would prefer their bank not to pay a cheque if it made them overdrawn.  But still banks continue to let people run into the red and inadvertently incur massive charges. 

In February, the Financial Ombudsman reported that the top five High Street banks accounted for more than half the 82,000 complaints it had received in the second half of 2009.   Given that most people have a bank account, banks are bound to account for the highest number of complaints - but it is still not good.

Metro Bank aims to offer better service to customers by staying open for longer hours and its first branch in Holborn opposite the tube station plans to open from 8am to 8pm six days a week and from 11am to 4pm on Sundays.  But do retail customers, most of whom don’t set foot in a branch from one year’s end to the next, really want this?  In addition, Metro Bank’s chairman, Anthony Thomson, freely admits that the rate paid on savings may not be as good as the best accounts.  So why would the average retail customer want to bank there?  

What many of us want is fairer charges, more internet services, fewer branches if necessary, but the ability to talk to a proper bank manager about our finances – and not someone who is simply a 25 year old sales person with no experience of real banking. 

Many of us would be prepared to pay a fee for this service – even if it meant travelling to a regional centre to get this advice or getting the advice on the telephone.  It is no accident that the banks which regularly top the Which? banking surveys for popularity are Smile, Co-op Bank’s internet bank and First Direct, also telephone and internet based.