However, long before this battle was concluded, the banks had lost the war. Even before the credit crunch banks had become significantly unpopular due to the ‘unfairness’ of charging customers for getting into financial difficulty. Banks were thought by many to be acting in an under-hand, dishonest fashion. Some high street banks began the dispute by allowing the legal cases to run their course in lower courts, and then failing to challenge them – resulting in (relatively) small payments to bolshie customers. Some banks (eg. Nat West) then changed tack and threatended to close the accounts of those who complained.

In my view, the banks’ position was undermined not by their tactics in the dispute but by the fundamental lack of honesty in the relationship with customers. Let’s be clear: free banking is a chimera. For too long high street banks have been providing a service (which in many cases has been excellent, improving and innovative) to customers without a charge and pretending that there are no costs involved. All the while they cut costs, outsourced administrative functions, closed branches, without ever seriously examining whether a different relationship could be struck up with customers. And as newspapers are finding out, if you tell people something costs nothing for long enough, you lose a sense of value in your business.

The distance that this helped create between bank and customer is further exacerbated by the lack of serious competition on the high street – even before the credit crunch brought a new round of consolidation – meaning that customers do not feel as though there is much choice as to who you bank with. When I was making the decision, as a young teenager, it was between Nat West’s free CD walkman and Lloyds TSB‘s free camera (35 mm, not digital) – hardly a decision which promotes responsible financial management. And the sense that the banks had all the power, and none of the accountability to customers, eventually ended up with the foolish speculation which brought about the credit crunch.

The banks may have won this particular battle but they have lost the respect of customers and will struggle to win it back. It’s a market ripe for a new entrant to break the mould.

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1. Dear Brian Hartzer, Nat West CEO
2. What happened to the credit crunch?

Thank you for your letter to me as a customer of Nat West.I’m sorry that the following letter is not more entertaining but bank charges makes for a dry subject.

I was surprised to read about it in a full page advert in The Times. I don’t usually get the Times in print so was pleased to have seen it. I was, though, taken aback that you decided to write to me publicly rather than emailing me or posting a letter in the first instance. I would have considered that a more effective way of communicating with your customers.

I’m really pleased that Nat West is reducing the fees charged on unarranged borrowing, although disappointed that it won’t save me the £250 that these fees cost me in the last month.

Unfortunately, I am not able to find out why I was charged these fees. The statement online is insufficiently clear to work out when I went over my overdraft limit. The dates on the statement do not match occassions when my count exceeded its limits. When I used telephone banking they told me that due to a change (which I had not requested) I had to re-establish my access to telephone banking. I hope that not communicating with customers by phone is saving money – if nothing else.

I was concerned to read that you have decided to reduce the charges as a means of supporting custoers “during these challenging times”. It suggests the charges will rise when you deem the challenging times to be over. Close observers of UK banking may rather think that it has something to do with the shaky legal ground of these charges and the threat of action by the Office of Fair Trading.

You are new to Nat West so I won’t hold you responsible for its past performance. If, however, you want to understsand how to continue to support your customers, the following may be of interest:

1. I bank with Nat West because no one else will give me such a large overdraft. That should be a concern to you.
2. When, in times of plenty, I tried to reduce my authorised overdraft, I was discouraged from doing so because (apparently) it would have hurt my credit rating. That was a pity
3. Banks levied these fees / charges in the first place because they are consistently dishonest with their customers: pretending that personal banking can be conducted free of charge. A more honest relationship with customers which reflected the true cost of administering their accounts may have led to a better relationship when fees (fairly assessed) were levy

Moreover, had Nat West not leant money to people who couldn’t afford it (each month I operate only within my overdraft limit. My account has not been in credit for all but a few days in the last ten years – since you gave me an overdraft) it may still be an independent bank. Had Nat West found a sensible business model for personal banking, it may not have had to chase more risky means of making money so it may have been an independent bank. And had Nat West communicated properly with its customers – rather than preferring espensive adverts – it may have had a greater bond of trust with them.

I look forward to your cheaper charges but hope that the tighter margins bring about more sensible, lasting change in the way that you do business. There must be another way.

Yours sincerely,

Matthew Cain

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1. Banks win the battle but lose the war
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