UK (Parliament Politic Magazine) – Online-only savings accounts offered by major banks may soon face extinction, while popular 0% interest credit card deals could be on the verge of disappearing. However, this shake-up in the UK financial services sector, set to take effect on July 31st, may also bring about a resurgence in bank branches and cater to customers who are reluctant to embrace digital banking.
The impending changes in the UK financial landscape have the potential to reshape the industry significantly. As big banks reevaluate their offerings, online-only savings accounts may be casualties of this transformation. These accounts, once favored for their convenience and competitive interest rates, could soon become a thing of the past.
Fair Pricing Of Products For The Buyers
The Financial Conduct Authority (FCA), also known as the City watchdog, is implementing a new “consumer duty” regime. This regime aims to ensure that financial institutions, such as banks, building societies, insurers, and investment companies, prioritize providing favorable outcomes for customers and preventing foreseeable harm.
Under this regime, financial firms are expected to offer fair pricing to all customers, take action against excessive charges, and facilitate easier cancellation or product switching.
While some may doubt the effectiveness of this new regime, financial firms are taking steps to comply with the stricter regulations.
For instance, Santander recently announced changes to its savings accounts. The eSaver and eIsa accounts have been rebranded as Easy Access Saver and Easy Access Isa, respectively, and can now be managed through various channels, including online, in-branch, and via telephone.
Previously, these accounts were exclusively available online. By implementing these changes, financial institutions are demonstrating their commitment to meeting the requirements of the consumer duty regime.
Some UK Banks Feel The Changes Will Not Bring Good Outcome
Some banks believe that it is not beneficial for customers to only have access to their accounts online, especially when there are other options available such as bank branches or call centers.
Andrea Melville, the director of current accounts, savings, and business banking at Santander, explains that they regularly review their products to ensure they provide the most value to customers and align with the new consumer duty principles.
It is possible that other high street banks will also allow non-digital customers to access their online-only accounts. However, it is too early to determine if this increased flexibility will result in lower interest rates.
According to an industry expert, banks have previously focused on encouraging customers to go digital. However, recent changes in the industry have caused them to reconsider this approach and take a step back.
Regulations may soon enable broader access to online-only bank accounts; however, it is possible that no-fee balance transfer offers will be discontinued. Interest-free deals will not be applicable to credit card shopping anymore.
Credit Card Interest-Free Deals Have Benefitted The Consumers
Meanwhile, credit cards that offer interest-free deals on balance transfers and purchases have always been highly sought after, providing significant savings for many individuals, sometimes amounting to hundreds or even thousands of pounds.
However, a crucial aspect to consider is that if these cards do not charge a fee, then their entire revenue is generated from individuals who fail to pay off their balances or miss payments.
According to James Daley, the managing director of Fairer Finance, a consumer group and rating provider, the Financial Conduct Authority (FCA) explicitly states that companies should not rely on profits derived from negative customer outcomes.
Daley further emphasizes that these new regulations present a significant challenge for certain products, such as fee-free 0% credit cards, potentially threatening their very existence.
Daley asserts that lenders are well aware that a certain percentage of customers who opt for these cards will either fail to make a payment, leading to the loss of their promotional offer or be unable to repay the balance by the end of the 0% term, thus making it impossible to refinance the debt.
The crucial question here is whether they can accurately predict which customers will prove to be profitable. Furthermore, Daley points out that penalizing customers who miss a payment by revoking their 0% deal does not seem to align with the new consumer duty requirements.