There’s no such thing as a free lunch, or so the saying goes. This is very true with consumer banking apparently, as highlighted in the Sunday Telegraph business section today.
It appears that in order to provide ‘free’ banking to consumers it is necessary to allow wholesale mis-selling so that banks can recoup the cost of ‘free’ banking.
RBS now finds itself having to pay for past scandals and is having difficulty limbo dancing under the decency threshold that is in layman’s terms: flogging things in a transparent and simple way. For example, borrowing at 1% or less and lending out at 5% seems a pretty simple, decent business model which most could understand. But no, we must be sold packaged accounts with insurances that we may well already have, or do not need, and instead of overdraft interest at a reasonable rate we are to be charged £12 per item up to 6 times per month if we accidentally stray into the red.
All they need is the ‘Granny Test’. Would they sell one of their products to their Granny? If they would because they are proud to offer a transparent and value for money product then fine, but if not then either the product is wrong or they should not be in business because the ethics of selling a ‘rip-off’ product to even their own families makes them either too daft or unscrupulous to be in that line of business.
If you build trust with your customers then you can look forward to a lifetime’s reward from that customer – even if it takes time to turn a profit from the relationship. If you abuse that trust then you might gain a quick sale early on, but you could find yourself alienating a customer for life.
I think Handelsbanken of Sweden has the right approach – nothing is free there but you know what you are paying and you know what you are buying. Thank God someone has got the right idea and they have branches in the UK! Hooray!
(I don’t own shares in Handelsbanken and am not being paid to mention them)