Lots of talk this week about transparency in banking, and how banks are too opaque and secretive in their approach to customers and charges.
Certainly that’s been the case in the past, and certainly it’s still the case in some areas of banking today.
For example, we’ve just had our major UK banks pooling money into a pot for paying back charges plus interest on a product that no-one needed: credit card protection policies.
The policy is an insurance against fraud, but was provided as cover under the banking regulatory structures anyway. In other words, the policy gave no greater benefit than an easy to call number.
The product was also mis-sold, like Personal Protection Insurance (PPI). In this case, new credit cards were sent out to customers with a telephone number to activate the card. Instead of calling an administration centre, customers were calling a sales centre however. A sales centre incentivised to sell credit card protection policies – these now useless policies – and so most customers were disturbed into buying them.
Now the banks face a £1.3 billion ($2 billion) bill to pay them all back and, if PPI is anything to go by, add on 25% or more to that cost in terms of the administrative costs of processing claims.
What a mess.
The issue strikes to the core of banking though, and why people think it is broken.
We then say that banks are trusted, and what we mean are banks are trusted to move money safely because they are backed by a compensation scheme that promises to payback if any monies are lost.
There’s no real trust of banks from a customer viewpoint other than that.
Customers don’t trust banks to do what’s right for them. Customers don’t trust banks as advisors. In fact, the very opposite. They are very wary of banks today. And this is not just a British thing, but pretty true of banks across many developed markets.
Just look at the USA where debit payments are processed before credit payments, just in case you get tipped into an overdraft before the credits are applied.
This is where other companies are making their mark.
Companies like Zopa and their brethren, where interest and risk is laid out transparency on their home pages.
Or companies like Wonga.
Why do people like Wonga?
Because they are absolutely transparent in their fee structure and charges.
It may cost an arm and a leg to borrow off Wonga, but at least you know they’re going to take one arm and one leg and not sneak up on you at night and cut them off whilst you’re sleeping, which is what people now think banks will do.
So let’s start a new campaign: transparency in banking.
Let’s get a campaign going for full transparency in bank charges.
Not charges hidden in terms and conditions, but charges made clear right up front:
You take this bank account, and we will charge you a fortune if you are overdrawn.
About £50 a day on average.
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Even then, banks get it wrong as there was a recent news report that banks were alerting customers at the point when they were going overdrawn on the day, rather than alerting a day or two before so that the customer could do something about it.
So where is the trust in banking?
It will only appear when banks demonstrate their intentions are in the customers’ best interest and not the banks.