Banks likely to play follow the leader on account fees
Britain's biggest banks are likely to move in lockstep if they decide to introduce paid-for current accounts, experts have warned - quickly leaving customers with little option but to swallow fees.
HSBC said this week that it could charge for basic banking services in some markets after losing money on a "large number" of customers due to ultra-low interest rates.
Analysts are now saying that other banks would follow suit rapidly once the first decides to introduce fees, meaning the number of free accounts available could fall dramatically in a matter of weeks.
Industry profits are already being squeezed by record low interest rates that could soon be cut into negative territory, meaning banks would be charged for hoarding cash instead of lending it out.
Simon Westcott, a financial services expert at PwC, predicted that "the industry would seek to move quite quickly together" if one bank starts charging.
He said that banks would likely seek to avoid a sudden surge of customers from paid-for accounts into unprofitable free ones, and the best way of avoiding this would be to introduce charges of their own.
One source said that charging for basic banking is one of a number of options being discussed by lenders as they prepare to respond in a Bank of England consultation on sub-zero rates.
There are about 73m UK current accounts, which could in theory generate revenues of £8.8bn a year if banks were to follow other markets such as the US, where fees are common and typically stand at about $14 (£11) a month.
However, it is thought any change by Britain's banks would be gradual, follow discussions with regulators and initially be targeted at those with the largest deposits.
John Cronin, an analyst at Goodbody, said: "I’m not convinced there is any great risk to one bank moving first from a fees perspective. Others will follow suit rapidly.
"However, I think the calibration of fees as well as who to apply them to needs some very careful thought."
Mr Westcott said he expected City regulators - which have long argued there is no such thing as free banking anyway because lenders load customers up with hidden charges - would welcome a transition if it is done in an orderly way.
Watchdogs have previously argued that fees such as overdraft charges hit poor customers hardest.
Mr Westcott said: "Those at the back of the plane are subsidising those in business class.
"The oxymoron with free banking is that a consumer thinks 'why should I pay for something that I previously got for free?', but paying for your current account in a simple and transparent way is better than the current apparently free model. Those not running their current accounts in a savvy way end up paying a disproportionate amount."
Banks traditionally make money by lending out depositors' cash and pocketing a chunk of the interest as profit. This allows them to offer banking services for free. However, this model has been broken by ultra-low rates since the financial crisis.
Last week Virgin Money boss David Duffy told the Mail on Sunday that banks could begin charging for basic services if interest rates turn negative, estimating that the industry would make small changes over the next three to five years to test which services customers are willing to pay for.
In a previous report, consultants at PwC claimed that British banks could charge an average £10 a month by 2025.
A HSBC spokesman said the bank was "committed" to providing basic fee-free bank accounts. She added that it always keeps "under review the pricing for our standard current accounts and associated services".
