Should Britain consider regulation to end the current model of no-charge banking?
YES
Alex McEvoy
Banks sell a very complicated set of products and clarity is vital so that customers understand what they are paying for. It costs a bank hundreds of pounds a year to service an account – for cards, secure websites, statements, and anti-fraud systems, as well as complying with regulations. Banks currently make this money back through other routes, like artificially low interest rates on current accounts, while charges and fees for additional products are often opaque. The Payment Protection Insurance scandal was a direct result of banks looking to generate profits by other means. Transparent charges should also drive improvements in customer service. The fact that so little has changed in recent years shows that the market can’t solve the problem itself. If one bank were to introduce charges, customers would desert it. This is what happened in the US last year. Regulation is needed so that all can move forward together.
Alex McEvoy is head of financial services at Moorhouse.
NO
Philip Booth
It is always tempting for regulators to complain that markets do not conform to the undergraduate textbook and seek to reorganise a particular market to make it do so. However, enforced changes in markets tend to have unforeseen consequences. We still suffer today, for example, from the abolition of minimum commissions in the life insurance market in the mid-1980s. Free banking is popular with consumers – even if regulators don’t like it. It’s true that free banking is both a symptom and a cause of a lack of competition. But what we need in banking is innovation and completely new models. Supermarkets providing savings products without current accounts, peer-to-peer lending and e-money may make the debate about free current accounts irrelevant. Regulators must consider whether excessive regulation is impeding innovation in the financial sector.
Professor Philip Booth is editorial and programme director at the Institute for Economic Affairs.