Not-so-free banking
Those who run our biggest banks frequently ask me why nobody loves them and their institutions. One reason is the kind of note that is being sent by NatWest to its customers about changes being made to charges for use of their debit cards outside the UK.
This note says that as of 5 June, the transaction charges for withdrawals of cash from ATMs and for shop purchases when abroad are changing. But it doesn't say what the charges were before or whether the impending changes represent an increase or a cut. Nor is there any explanation for why the charges are changing.
Can you think of any other service business that would alter their charges without trying to tell their customers why they were doing so? These days, even the power companies endeavour to make a case for their tariff changes.
To be clear, charges levied by banks when we use our plastic abroad are far from trivial. It's one of the hidden ways that the banks make proper money out of so-called free banking. For the big banks collectively, well over a billion pounds in revenue is levied from retail customers from charges on these non-sterling transactions with debit cards.
Depending on which bank you use and how much you spend when abroad, you can easily provide your bank with revenue from charges of £60 or so on a single trip. On my calculations, during a typical family holiday abroad, if you use your debit card for cash withdrawals and shop purchases totalling between £750 and £1500 on aggregate, you are likely to pay your bank anything from about £20 in charges to £120 in charges.
Anyway there seems to be great similarity in what the banks charge for using ATMs outside the UK but quite a lot of difference in what they levy for buying stuff in overseas shops with a debit card. For what it's worth, Nationwide seems to be the cheapest (since it doesn't levy any charges) and Halifax seems to be the priciest - though depending on how you use your debit card, other banks can cost you more than the Halifax.
I should also point out that I've not investigated whether all the banks charge an identically competitive exchange rate on these transactions. All the benefits of lower charges could be wiped out if your bank sold you dollars, euros or yuan at a worse rate than another bank would. But of course, when using your debit card at an ATM or in a shop, you just have to take the rate you're given, you can't shop around.
To return to NatWest, when a colleague of mine, Claire Mace, first approached its press office, she was told that there were no plans to change the debit card charges - even though the leaflets announcing the changes had already been sent out. Which again doesn't imply that this bank attaches great importance to explaining its tariffs.
Anyway, what the leaflet sent to NatWest customers says is that a transaction fee of 2.75% will be added to all cash withdrawals and shop purchases. And then there'll be a further 2% charge on cash withdrawals, subject to a minimum of £2 and a maximum of £5. On transactions in shops, there will be a separate flat fee of £1.25.
All quite complicated and confusing. Does that represent an increase or decrease in charges? Guess what, it depends how you use your card. The basic transaction fee is going up from 2.65%, but the other ATM fee is being reduced from 2.25%. However the flat rate fee for buying in shops is rising significantly from 75p per transaction.
The effect of all this is that from June if you withdraw £100 from a cash machine that will cost you £4.75 compared with £4.90 right now. But if you buy something for £100, that'll cost you £4, up from £3.40.
What it means is that if NatWest customers tend to use their debit cards for shopping when abroad rather than taking out cash, it will be quids in. Which sounds to me a bit like a price rise. What does it sound like to you?
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As an ex-NatWester, I am perhaps not impartial however..
How much does it cost TESCO to sell a can of beans or for a solicitor to sell a house? Maybe these are bad examples but you see what I mean, there are many things we buy that we don't know what it costs (and frankly we don't often care).
I agree that banks make a bad job of explaining their charges but then I think we (the public) seem to treat banks differently.
Anyone fancy paying for your current accounts, as they do in Europe, the States...
Excuse my ignorance here but don't banks make money on the money that we give them anyway? Isn't charging us to then use that money, well, bad manners?
And on a side note to Nick, saying what other banks do in other countries bears doesn't necessarily highlight the fair or 'right' thing to do.
I have a French bank current account & I do not pay charges for it. Neither do I get paid interest but the main high street banks in the UK pay such low rates of interest that this is pretty irrelevant anyway.
I have always looked on the Banks as a nessasary evil. They constantly fail to consider the Customer, and there one and only concern is to their share holders. I went and put in a bankers draft for ?1018 and wanted it fast track, which I was willing to pay for. HSBC informed me that all this does in confirm the funds are available, and that the funds would not be available untill the 4th Working day. My question is WHY? when I was willing to pay someone to pick up the phone and speak to the issuing bank and credit my account with the funds then email a copy of the check to the issuing bank to complete the transaction. Why is this so difficult or why is this not allowed. Of course the real tester for the banks uncaring side is the unjustifiable bank charges. that alone tell everyone that all they care about is making a profit on the back of illegal charges.
Do I sound bitter, yes I am. I have always tried to live my life desently and honestly. Is it to much to ask that national institutions and FORCED to do the same thing?
After nearly 40 years I have just dumped NatWest. They put payment protection insurance on my account even though I expressly said no; then refused to apologise; someone accessed my account, then some dumbo suggested maybe it was someone in my home - my wife; I asked for a cheque book to be stopped and had the new one stopped instead, including my ISA payments. The list is endless.
It took me a long time to move, but enough was enough. However, I am not under any illusions about the other high street banks. They are all the same.
Retail banks simply have a bad business model, handing out bonuses to front office staff for selling products people do not want or need, then wonder why staff try to aggressively sell credit cards, loans and other sevices. It's the model, stupid.
"Those who run our biggest banks frequently ask me why nobody loves them..."
Do they Robert, do they really? Somehow I doubt it ...
I got a letter from my bank telling me that "for my convenience" they had removed the insurance for holiday travel bookings from my credit card.
This is pretty much the only thing I bother using credit rather than debit for, so I phoned to ask how it would make life "more convenient" for me to lose a service. Was some other part of the system going to work better as a result? Was there a benefit to me if it was for my convenience? Were they reducing the APR?
The girl said I was "being picky" and "no, it was just taking something away, nothing was being added" and "of course not" when I said was it really for my convenience? She then advised I cancel the card!
I think it was the only time I've enjoyed talking to my bank in about five years!
Natwest.... Another way. This company is meant to be driving towards a better banking future for its customers by bring call centre back to the UK, keeping local branches open etc however this error in judgement around the clarity of communication with regards to the changes it levees on customers makes a mockery of everything they are trying to strive for
Another change that NatWest is making to their credit cards is to reclassify certain transactions as cash withdrawals. I phoned them to clarify what the small print meant - the wording was "cash substitute - A voucher, gift card or other stored value card" and was told that record tokens, store gift vouchers, book tokens etc. would now be treated as cash and attract interest charges from the date of the transaction. I didn't think to ask if a theatre or airline ticket was a voucher by this definition!
Hal,
Good post. I too am having similar probs.
What are the alternative out there for banking though if you wish to not go with a high st bank
What does the FSA actually do, apart from talk a lot.
I think the banks negative stance on charges (sorry fines) proves the point that we need more legal controls and a regulatory body prepared to use them.
Banks charge their customers for using their own money. However it is OK for them to have their customers’ money for 2-3 days when money is transferred. Why does it take 2-3 days to transfer money electronically, it leaves your account immediately but doesn't turn up in the other account for 2-3 days in the mean time the banks are using that money to invest and make money for the banks, but the customer loses out on interest etc. Banks have no money of their own; it is their customers money that they use without paying any sort of loan charges but instead charge the owners of the money i.e. the customer.
The outrageous charges for overseas use of the debit card was what finally pushed me to switch from one of the big 4 to Nationwide - and I don't have any regrets.
This is very much linked to the excessive overdraft charges debate and highlights the way that banks have seek to offer a basic "free banking" and then gouge customers for for the maximum amount do something outside the basic service.
It is a rip off and it matters because competition is distorted when charging structures are so opaque and so complex - it is very difficult for individuals to understand all the different charges, how they affect them, and what the total cost to them might be, and so to make an informed and rational choice about which bank to use.
To my mind the FSA has been asleep on the job when it comes to these charges - they are very questionable in terms of several of their key principles of business (Integrity, communication with clients, treating customers fairly.)
Re: Post 1
Nick
Who in their right mind engages a solicitor to sell their house without first getting a quote?
As for the Tesco/beans analogy, the difference here is simple - Tesco have spent many years & no doubt £££ in fostering a spirit of TRUST in their customers. As a result I haven't a clue how much beans are but I trust them not to rip me off. Additionally, their prices are clearly published for all to see should they wish to check them.
Retail banks could learn many good lessons from a retailer such as Tesco when it comes to serving the customer.
I think one of the core problems is the inflexible nature of changing banks.
Many people complain about the new charges, or changes, but rarely change banks as a result because it is such a lengthy process. With this in mind it means that there is very little competition in terms of who supplies the best service for the cheapest rate as people aren't willing to endure the incredible insignificance of changing banks just because they have to endure some charges here and there.
I would prefer to see methods of flexibility being implemented as i feel this would enable customers to move more freely between banks, and therefore improve competition. Without this banks currently have little incentive to supply customer satisfaction to keep their customer base. People are loyal, but not willingly so.
Interesting point related to the news today: since these charges are so opaque, they can't be included in the inflation figures can they? So they are part of inflation that can't be counted.
r.e. Nick's comment about the Tesco beans and the solicitor. These are not really parallels because I can easily see how much I will pay before it happens (if your solicitor won't tell you then switch to a better one - mine does).
A better parallel is phone tariffs which are hideously complex. It is not really practical for most people to work out whether they would pay less with a differ supplier. However even in this case you get an itemised bill after the event which you don't from the banks where the charges are usually hidden.
Maybe the government should legislate for itemised bills in banking like I think they did in telecomms. So I would get a separate charging statement each year or quarter telling me what I was charged for and giving the total.
As you say, Nationwide are strong for foreign travel. I have used my Nationwide debit card to withdraw cash in five continents and have used my credit card just as widely. Never a charge and they also give you the bank's currency conversion rate (much better than a Bureau de Change/Cambio rate). Unless this changes, I will never leave Nationwide.
The two who comment on beans and the solicitor have missed Nick's point. He asks how much it COSTS Tesco to sell the beans, the price to us is clearly displayed; likewise we don't ask the solicitor how much it costs for them to do the work but we do know how much we'll be charged.
So why do we expect banks to be different?
It's because banks have free use of our money while it sits in our accounts but then have the gall to charge us when we spend it.
Anyone who travels abroad much would be mad not to use Nationwide with their totally free use of debit/credit cards in shops and cash machines. The rest are not at the races!
Re: post 19
I haven't missed the point at all. It's just that the point wasn't in the slightest bit relevant. Consumers don't choose to buy or not to buy based on what the cost price was to the retailer/service provider. They choose to buy or not to buy based on whether the cost to the consumer represents good value.
It is for that reason that I shop in Tesco (generally good value), shop around for solicitor's quotes & take the price/service combination I am most happy with. Oh, and I bank with Nationwide. I don't care what the product or service costs any of these businesses. I care what it costs me. I haven't gone with Nationwide because I care what it costs them. I've gone with them because it's clear I'm getting ripped off elsewhere.
In the case of Tesco their pricing is also broadly similar to that of their competitors. Most solicitors charge a fee that is within a fairly narrow band. It's a result of the free market. With banks however, the fee structure is deliberately opaque so it is difficult to determine with which of the main providers you will get the best deal - it depends on value, volume & type of transaction.
Maybe the argument goes that we do care what the cost is to the banks else we wouldn't be whinging. But the fact is that it isn't the banks "mark up" that annoys us. Make a profit in return for a service - that's fine. It's the being charged three ways for the service they provide that grips us i.e. they have use of our money. In return we expect a free service. But then we get a poor exhange rate & charged a withdrawal fee.
And as for this mindset:-
"So why do we expect banks to be different?
It's because banks have free use of our money while it sits in our accounts but then have the gall to charge us when we spend it."
Vote with your feet. Move to a provider like Nationwide where you'll get a good rate of credit interest, a competitive overdraft rate, no charge for using ATM's abroad & an exchange rate I have never been able to better elsewhere. Vote with your feet. And your wallet. Go on - you know you want to!
Banks Being Greedy, This problem arises from the banks using poverty as a source of profit—a great deal of profit. The bank commission of ³ÉÈËÂÛ̳ 2's "The Money Programme", which included eminent business academics and a former senior NatWest executive, concluded that the absolute maximum administrative cost to a bank of processing a bounced cheque—the most labour-intensive of the processes in question—is £4.50. For all other items, such as unauthorised overdrafts or bounced direct debits, the commission concluded that the absolute maximum, in this electronic age where everything is done automatically through a computer, is £2.50. However, the average charge is approximately £30. Some are as high as £38, and they are charged every time people make what the banks consider to be an unauthorised transaction. That is a substantial profit for the banks, which rake in some £4.5 billion, without even taking account of the similar examples that the Federation of Small Businesses found in business banking accounts.
Almost all of what is charged is profit, not costs. It is profit at the expense of hard-up customers. It is the biggest bank robbery in Britain, and it involves the banks robbing their own customers, especially their poorest ones. A common response when the practice is described is that there should be a law against it; but there is a law, or there are laws. First, under common law, disproportionate and punitive charges have always been illegal. In layman's terms, if a consumer breaks the contract the other party—the bank, in this case—cannot impose a charge greater than the reasonable estimate of its loss. That common law has been unchanged for 100 years, and numerous cases in the higher courts have confirmed it. However, we can go further. The rights in question are protected by statutory instrument. The Unfair Terms in Consumer Contracts Regulations 1999 made that clear.
In my experience banks also give relatively poor rates of exchange, too.
These days I generally withdraw cash in sterling and then change it at one of bureaus de change that offer good rates around Victoria.
saves me a bit, but I mostly do it cos I feel ripped off by the banks otherwise.
One of the nifty little capers that banks get up to is differential exchange rates.
On a trip to Australia in 2005 I had an incorrect credit card charge taken by a restaurant. The restaurateur noticed the error and immediately put a full credit through. My credit card company applied different rates to these near simultaneous transactions and expected to get about £10 profit off a charge-and-reversal of approx £170.
After I protested they did refund the charge.
Yet another way that banks win all round:
They offer loans to those who are least able to afford them; insisting that they also take out insurance - why? Because they know that they're probably going to be unpaid.
So, the banks get their money back from the insurance companies AND then sell these 'defaulted' loans onto some collection agency.
Anyway you look at it. They can't lose.
I'm another ex-Nat-Wester and I now live in the US. I enjoy free banking here until I want something fairly basic such as a cheque book or even a paying in book for which I am charged.
On the rare occasion when my U.S. bank has tried to extract a charge (on both occasions due to their error), the charges are at least similar to the UK in their excessiveness. On their latest attempt, I was charged $32 with the threat of a further $28 every five days until my 'overdraft' was cleared.
I well recall from my days with NatWest just how hard it could be for customers once they got into an unauthorised overdraft position for them to get out of the charges cycle, especially if they had one or more cheques bounced. It could be a bitter and expensive cycle.
Sure a bank has to cover costs like any other business, but their price tariff should be clear, understandable and easily compared. If they can't do this for themselves then they invite regulation on charges.
As an employee of a high street bank I agree with most of what is being said. However, I wished people realised that most front line staff, certainly counter staff, don't get any bonuses for selling the bank's products. We are threatened with disciplinary procedures if we don't achieve personal targets and that's why we are leaving in droves!Customers are not alone in being treated without respect, make no mistake-PROFIT IS KING!!
I recently banked a cheque at a Natwest branch for £28.00, and then withdrew £20.00 from the account leaving me, (according to the ATM), £8.00 in credit. The next day the cheque that I had been given bounced, I was pushed into an unauthorised overdraft of £20.00, and I was charged £30.00. This was applied to my account the month after it happened. This was fine, and I accepted it. My fault for going overdrawn.
What really irked me was when Natwest made a 2nd attempt to present the cheque, which credited the £28.00 to my account again, (putting me back in credit because the £30.00 charge was defferred). 2 days later the cheque bounced again, pushing me £20.00 overdrawn again, and ANOTHER £30.00 charge. Adding to this I recieved no communication, and by the time I found out about the cheque bouncing, I was £80.00, (plus a bit of interest), overdrawn.
Say what you like about them, The know how to make money for thier shareholders !!!
I think that like water, food and shelter; money should be a basic human right.
To a certain extent it is, but at a level much lower than the national average and just above the subsistence level.
Banking should be free - totally free!
It is the leftover remnant of the earlier feudal system and should be totally abolished in its current format(and not to be replaced with a similar system).
To continue to discuss or debate the whys and wherefores of the banking system is totally missing the point that there is no place in the modern world for loan sharks.
Organized Crime at the highest level!!