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Transparency, transparency, transparency

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.

After all, add on to this swaps mis-selling to small businesses, LIBOR and FX fixing, whilst all taking massive bonuses, and you can see why banks are viewed as suspicious.

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.

That’s it.

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.

Nothing’s hidden.

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.

How much?

About £50 a day on average.

How can you avoid this?

Sign up for our alerts.

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.

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Many banks around the world have shifted across to fee-based income as a non-trivial revenue stream. We’d probably need to look at how much that is, per bank. Banks aren’t known to slice off revenue pps on a whim or ethical nicety.