Online-only savings accounts offered by big banks may face extinction, leading to the potential end of popular 0% interest credit card deals. However, this shake-up in UK financial services could also benefit bank branches and customers who prefer traditional banking.
The Financial Conduct Authority (FCA), the City watchdog, is introducing a new “consumer duty” regime on July 31st. The goal is to ensure that financial firms prioritize providing “good outcomes” for customers and prevent any foreseeable harm.
This means ensuring fair pricing, combating excessive charges, and simplifying cancellation or product switching.
While skeptics doubt the impact of this new regime, financial firms are already making changes to adhere to the stricter rules. For instance, Santander recently renamed and expanded the accessibility of its savings accounts to be administered online, in branches, or via telephone, instead of being exclusively online.
Some banks believe that limiting customers’ account access to only online platforms is not a “good outcome” when other options like branches and call centers are available.
Andrea Melville, Santander’s director of current accounts, savings, and business banking, emphasizes the continuous review of products to maximize customer value and align with the new consumer duty principles.
Other major banks may follow suit by allowing non-digital customers access to their online-only accounts. However, it remains uncertain whether this increased flexibility will result in lower interest rates.
Previously, banks focused on pushing customers to go digital, but the new regime prompts a shift away from that strategy, according to an industry insider.
Additionally, 0% interest credit cards that offer balance transfers and purchases have been highly popular. However, if these cards do not charge fees, their entire revenue depends on customers who fail to pay off the balance or miss payments.
James Daley, the managing director of Fairer Finance, states that firms should not rely on profits from detrimental customer outcomes. 0% credit cards without fees face an existential challenge under the new rules.
Daley questions whether lenders can predict which customers will be profitable when some may miss payments and lose their promotional offer or struggle to refinance their debt after the 0% term expires. Additionally, punishing customers by revoking the 0% deal for missed payments may not align with the new consumer duty requirements.
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