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FCA chief: There is no such thing as free banking

FCA chief executive Andrew Bailey

FCA chief executive Andrew Bailey has said “free” banking services such as current accounts do not exist because they are subsidised by other services.

In a speech at a British Bankers’ Association conference today, Bailey took stock of the retail banking market since the financial crisis, saying it was “hard to escape the issue” of free-if-in-credit banking when looking at banks’ business models today.

Bailey said that “closing” free services as many predict was a misnomer because some clients would already be paying more to fund free services from other products.

He said: “I do not advocate ending free-if-in-credit banking. Why?  Because there is no such thing to start with, so it cannot be abolished as such. Nothing in life is free – sorry to disappoint.

“Some of you may be saying ‘what is he on about?’ Of course, banking isn’t free. So, free-if-in-credit means that costs are recovered and charges levied on some products and services more than others.  And, this means some customers pay more or less than others depending on what mix of products they use.”

Bailey noted that on current accounts, for example, a lower interest paid out to users is a cost, so they are not free.

He added that the “imbalance of returns” across products could have been what drove the creation of higher return products like payment protection insurance.



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Bravo bravo Andrew….. encore, encore, I hear the masses shout !

    You should expand on the whole subsidy thingy especially in financial services ….

    FCA, FOS, FSCS, MAS, also subsidised and paid for at great expense (millions) by the clients of the financial services industry

    I hear you are angling for a stage slot at Glastonbury next year…… way to go,

  2. Oh god, not this tired old semantic debate again. I thought the credit crunch crisis killed it off, once we had real problems to talk about.

    If I open a Santander 123 account they pay more in interest and cashback than they charge in account fee (unless I’m an idiot), so does that mean there’s no such thing as paid banking?

    If I’m not paying for it then it’s free. We could say that because someone else pays for it (even though they do so willingly) or because the bank is expecting to make the money back off me later (even if they never do) it’s not free. We could say that smelling a wild rose or kissing your sweetheart is not free because the act requires energy which in turn requires you to purchase or produce food, and the rose itself cost the universe energy to assemble the particles that produce a pleasing smell. We could say that, but why rob all the meaning from a perfectly good word?

  3. Dear Andrew

    I invite you to come round and see how I have had free banking all my adult life.

    I don’t have any additional services and only keep enough in my current account to pay expenses and bills anything else is either invested or goes to an interest paying account which pays (Currently) well above base rate. My credit cards are paid off in full every month. I don’t think I have paid a penny in interest of charges to any bank for over 35 years.

    That my good situation is subsidised by the feckless who seem to be in debt over their heads worries me not one iota. In early married life I had to borrow, but always paid off my overdraft (in preference to a loan) at or before the time agreed.

    • Harry, I think his point is that he wants to protect the feckless from those, like you, who benefit from their fecklessness.

      On the one hand the FCA seem to want people to pay for what they use without subsidy from others. On the other hand that will mean a big increase in exclusion of the less well off which would no doubt draw fire against firms for different reasons.

      This is regulation in silos, on the hoof. It lacks coherence and is often self-contradictory. Another example of this is PRIIPs and MiFID II. They want transparency and they want something the client can readily understand but they create rules that don’t work together. Two examples. Disclosure of the allegedly same charges under PRIIPs and MiFID II will give different results. They want simple but the amount of documentation going to clients will significantly increase and the PRIIPs KID cannot be understood by anyone other than a sophisticated client without explanation. There are many more examples.

      On the other hand this constant sniping is easy to come by, makes politicians glow, and plays to the crowd. But there’s no real logical, consistent, unified plan or strategy. Do they even know what they want? I don’t mean the high level fluff like ‘good culture’, ‘treating customers fairly’, ‘transparency’ and ‘low cost’… that’s not a plan, it’s a way of keeping things going whenever anyone asks “are we there yet?”.

  4. I echo your sentiments totally on this Harry, the trouble right the way through society the idea of saving up to buy anything is derided – put it on the card instead. I do worry about the size of the unsecured debt mountain which is still growing as it could drag all of us down. Unfortunately the sense of entitlement that is endemic will only serve to encourage more and more borrowing – the only thing being, individuals have to pay their loans back while (any) government can inflate, defer, ignore(!)or use creative accounting then borrow more!

  5. Julian Stevens 29th June 2017 at 3:19 pm

    Of course banking isn’t free. How could it be? The provision of services costs money and that money has to come from somewhere. I receive no interest on the credit balance in my current account. The bank keeps it and that’s how its services are paid for.

    If Mr Bailey has a point, does he consider that it’s one about which anything needs to be done and, if so, what?

    Perhaps it was just that he was booked to make this speech and couldn’t think of anything of any real interest or practical value to anyone so he came up with this. Yawn.

  6. The question is whether the banks, having made a profit from their business, are ‘free’ to decide what and how they distribute that profit. If they choose to provide ‘free’ banking then in a ‘free’ society surely that’s their choice.

    This appears to be a precursor to exercising more control over the market. How much freedom is to be lost before it goes too far? Does the regulator even have sight of a workable end-game in this race?

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