New proposals drafted by the European Commission that would allow Europeans to switch bank accounts across borders without charge might bring an end to free bank accounts in the UK, experts are warning.
In its draft laws published yesterday, the Commission said that it wanted to improve transparency as part of a sweeping move to make it easier for consumers across Europe to compare the costs of banking (read more).
But analysts believe that UK banks may adopt the European norm of charging for services including current accounts and ATM withdrawals to compensate for being undercut elsewhere and to prevent thousands of overseas clients opening UK accounts to avoid charges in their home nations.
"The overall cost of adding a new customer to a banking system is not trivial. If customers start bouncing back and forth, costs for the bank are going to go up," noted Ralph Silva, Director at research organisation SRN.
The proposed changes, which could impact British banks if they are approved to EU law and the UK remains within the Eurozone, decree that banks will have to send customers a "fee information document" – a list of charges for basic services to allow consumers to compare between different institutions.
"Our aim is that consumers are better informed about fees both before and after they open an account, and that they can change their provider rapidly and easily if they so wish," said Tonio Borg, European Commissioner for Health and Consumer Policy.
But banking business models vary so greatly across different countries that straightforward price comparison will prove almost meaningless unless banks harmonise their pricing models.
"This could hasten the demise of free banking in Britain," said Gareth Lodge, senior analyst at Celent.
"Forcing banks to accept customers regardless of profitability or risk moves the banks from a business to a social tool."
Keith McDonald
Which4U Editor
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