In a very interesting study by the consumer magazine Which? it turns out that the two most expensive financial services organisations to have an overdraft with are First Direct and Nationwide Building Society. These two organisations also have the distinction to have two of the highest customer satisfaction and customer advocacy scores amongst all the banks. Two conclusions could be drawn from this. Firstly that customers want more than anything to have good service and that they are prepared to pay for it. This would be good news for the banks and particularly the alternatives to the Big Five such as Virgin Money and Metro Bank who want to differentiate themselves on customer service, as it would be yet another proof point that good customer service can lead to higher profits. The other conclusion, and the one that Which? draws to is that most customers don't understand the fees that the bank charges them and therefore don't have a basis to compare fees between banks. Or simply that they don't care.
The Which? report comes on the back of a study by PwC into digital banking that comes to the conclusion that customers will be prepared to pay for digital services and that digital banking will becoming the dominant way that customers bank by 2015. Whilst this may be the case, as less and less customers use branches and less frequently the cost of branch banking will soar. This will either result in significant branch closures and the pressure to introduce differentiated pricing significantly increase, whereby the cost of banking in the branch will become higher than online. This will naturally impact those least able to afford it. Of course the banks have tried this before with the brave trying to introduce charges for using a teller, but rapidly withdrawing this when the competition didn't follow suit. However with the introduction of new regulation, the requirement to hold greater levels of capital and increasing demand from consumer groups, such as Which?, for greater transparency around banking fees inevitably the days of so-called 'free' banking are numbered.