Title: The Future of Online-Only Bank Accounts and the Impact on Consumers
Introduction:
In light of the major reorganization of the UK’s financial services sector, there are potential changes ahead for online-only bank accounts. This article explores the implications of these changes, including the potential end of online-only savings accounts offered by big banks and the rise of 0% interest credit card offers tied to these accounts. Additionally, the push for bank branches and resistance from customers who prefer traditional banking methods will be examined.
Exploring the “Consumption Tax” Regime:
The Financial Conduct Authority (FCA), the city supervisory authority, has introduced a new “consumption tax” regime aimed at ensuring financial firms prioritize delivering good results for clients and preventing predictable damage. This includes offering fair prices to all customers, acting on fraud charges, and making it easier to cancel or switch products. While some skeptics may doubt the effectiveness of this regime, financial firms, such as Santander, are already making changes to comply with the stricter rules.
Evolution of Online-Only Bank Accounts:
Santander’s recent move to rename and reopen their previously online-only savings accounts, now accessible through all channels (online, in-branch, or by telephone), signals a potential shift in the industry. Santander’s director of current accounts, savings, and investment banking, Andrea Melville, emphasizes the importance of continuously reviewing products to align with consumer duty principles and provide maximum value to customers. As such, other commercial banks might follow suit and offer non-digital customers access to their online-only accounts.
Addressing Consumer Resistance:
While online-only bank accounts have gained popularity in recent years, some customers still prefer traditional banking methods and the presence of physical branches. The new regulations and the potential opening up of online-only accounts to non-digital customers may alleviate the concerns of these customers. However, the consequence of increased flexibility might be lower interest rates on such accounts. This remains a potential trade-off to consider.
Impact on Interest-Free Credit Cards:
0% interest credit cards that offer balance transfers and purchases have been well-received by consumers, enabling them to save substantial amounts of money. However, if these cards do not charge a fee, the income generated depends on customers who do not pay off their balance or miss payments. The FCA’s stance on firms relying on profits from bad client outcomes poses a challenge to such credit cards. The question remains whether lenders can predict which customers will be profitable within this model.
The New Consumer Duty Requirements:
The FCA’s new consumer duty requirements emphasize fair treatment of customers and discourage practices that penalize them for missing payments, such as depriving them of their 0% deal. As James Daley, CEO of Fairer Finance, asserts, it is unclear how this punitive approach aligns with the new regulations. The future of fee-free credit cards and how they adapt to the consumer duty principles presents an existential challenge for financial firms offering these products.
Conclusion:
As the UK’s financial services sector undergoes a major reorganization, the fate of online-only bank accounts and fee-free credit cards is uncertain. Changes in regulations aim to prioritize consumer well-being and fair treatment. Banks are already making adjustments to comply with the stricter rules. However, the potential trade-offs, such as lower interest rates on online-only accounts, need to be carefully considered. The future of fee-free credit cards lies in finding a way to adhere to consumer duty principles without penalizing customers who may encounter financial difficulties. Ultimately, the implementation of consumer-focused reforms will play a vital role in shaping the future of banking in the UK.
Summary:
The UK’s financial services sector is undergoing a major reorganization, prompting potential changes for online-only bank accounts. The Financial Conduct Authority’s new “consumption tax” regime aims to prioritize consumer interests and fair treatment. Banks like Santander have already adapted by renaming and reopening their online-only savings accounts. This move may lead other commercial banks to open online-only accounts to non-digital customers as well. The rise of fee-free credit cards offering 0% interest on balance transfers and purchases faces challenges under the new regulations since firms are discouraged from relying on profits from bad client outcomes. The new consumer duty requirements raise questions about the punitive measures used to penalize customers who miss payment deadlines. The future of online-only bank accounts and fee-free credit cards depends on striking a balance between delivering value to customers and adhering to consumer-focused reforms.
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Regulations may allow for broader access to online-only bank accounts, but fee-free balance transfer operations may be required
Sat, July 22, 2023 at 2:00 am EDT
Online-only savings accounts offered by big banks could become an endangered species and could be the tentpoles for some popular 0% interest credit card offers. However, there may be a push for bank branches and those customers who are resisting the push to go digital.
These are just some of the possible outcomes of a major reorganization of the UK’s financial services runs from 31 July.
The new “consumption tax” regime introduced by the city supervisory authority, the Financial Conduct Authority (FCA), is responsible for ensuring that financial firms, including banks and building societies, insurers and investment firms, focus on delivering ‘good results’ for clients and preventing ‘predictable damage’.
This should mean things like offering fair prices to all customers, acting on fraud charges, and making it easier to cancel or switch products.
While some may be skeptical that this new regime will make any real difference, financial firms are making changes to ensure compliance with the stricter rules. For example, Santander announced changes to some of its savings accounts this week. Your eSaver and eIsa accounts have been renamed Easy Access Saver and Easy Access Isa and can now be administered through all channels: online, in branch or by telephone. Previously these two accounts were online only.
It is understood that some banks believe it is not a “good outcome” for customers if they are only allowed to access an online account when other channels, such as bank branches or call centres, are available.
Andrea Melville, director of current accounts, savings and investment banking at Santander, says she continually reviews its products “to ensure they deliver maximum value for our customers and are in line with new consumer duty principles.”
Other commercial banks could follow suit and open their online-only accounts to non-digital customers. However, it is too early to tell whether the price of this increased flexibility might be lower interest rates.
One industry expert says that until now it has only been “banks trying to get people to go digital”, while moves like this, triggered by the new regime, are “backing off”.
Meanwhile, credit cards that offer interest-free deals on balance transfers and purchases have long been popular and have helped some people save hundreds, or even thousands, of pounds. But if they don’t charge a fee, all the income comes from people who don’t pay off their balance or miss a payment.
The FCA makes it clear that firms “should not rely on profits from bad client outcomes,” says James Daley, chief executive of Fairer Finance, the consumer group and ratings provider. He adds: “For some products, such as 0% fee-free credit cards, these new rules present an existential challenge.”
Daley says lenders know that a portion of customers who sign up for these cards will either miss a payment and consequently lose their promotional offer, or fail to pay off their balance at the end of the 0% term and be unable to refinance their debt. “The question is, is there a way to predict which customers will be the profitable ones?”
He adds that when it comes to punishing customers who miss a payment by depriving them of their 0% deal, “I don’t even see how that would meet the new consumer duty requirements.”
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