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Is It Really The End Of Free Banking?

The announcement by First Direct earlier this month, to introduce monthly fees to customers who don’t meet their revised account criteria, caused a real stir in the media.

People in the UK have become used to not having to pay for their bank accounts and are wondering if this is just the tip of the iceberg when it comes to having to pay for their current accounts.

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First Direct has a reputation within the banking industry for its high levels of customer satisfaction. By operating via telephone and internet channels, it doesn’t have the service issues associated with running retail outlets on the high street.

For the 15% of customers (approx 195,000 people) that First Direct estimates will be impacted by the new funding requirements, it will be interesting to see how many are prepared to make First Direct their primary bank, or are prepared to pay the monthly fee in order to continue to receive such a good level of service.

The other option of course is to close your account and transfer it to another provider, but surely it will only be a matter of time before other banks and building societies introduce a similar charging structure, so you could be back to square one, potentially paying a monthly fee and be faced with poorer customer service.

Historically, customers have been somewhat lethargic in switching current accounts, purely on the basis of interest rates on competitor products. However, when monthly charging and customer service levels are thrown into the equation, will these factors be the catalyst to make you vote with your feet?

UK banks have struggled to make decent returns from their retail banking operations, and if the OFT investigation into penalty fees results in fee capping similar to that seen in the credit card market, it will be no surprise to see the banks looking for ways to recoup revenue by other means.