The Darker side of the Northern Banks

While the media is currently riddled with the latest news on the Northern Bank raid and its political fallout for Sinn Fein, the story has thrown into the background a super complaint by the former Consumers Association in the UK as regards banking charges in Northern Ireland, which are way out of line with normal UK prices.

Unsurprisingly, all 4 banks - Northern Bank, Ulster Bank, Bank of Ireland and First Trust (i.e. Allied Irish Banks) are the 4 largest banks in Ireland, where this kind of orvercharging has been de rigeur for many years. The absence of a strong UK or international bank in the Northern province has allowed these banks, in particular BOI and AIB to apply exactly the same extortionate banking charging structure as they do in Ireland. Except in Ireland the nearest equivalent to the consumers assoication, the IFSRA is actually recommending that regulation of bank charges be discontinued thus INCREASING charges for the consumer, in an already uncompetitive market.

The two larger Irish banks account for the vast majority of accounts in the south, and in the absence until a week ago of a banking code for account transfers, this left all the hard work to the consumer. Moving bank was not unlike moving house. Every single direct debit, standing order, utility or payer had to be manually changed. When I moved from AIB's rotten egg "Cashsave" account to NIB's "Freebank" account, I wrote at least 6 letters to payees, had to manually setup some utilities as the the NIB internet banking is not a walk in the park, had to tell my employer myself, etc. It was hard work, but well worth reducing my bank charges by 16 euro per quarter for. For the previous 2 years (after BOI closed my current account, which I admit I had overstretched by running 1000 euros over the agreed credit limit, or more correctly, my SOs and DDs had) I had been dependent on an AIB Cashsave account which once upon a time was a genuine simple account. Until AIB decided to levy the same charges as a current account, despite the fact that I had neither overdarft, chequebook or laser card and no option to obtain one. In fact AIB to this day charge the same for what is basically a cash account as they do for a full blown current account. Hence the enormous charges.

Its quite interesting that up until now, not a single bank in Ireland has offered standard current accounts at a low cost. What has been offered are cut-down current accounts - generally without an overdraft or chequebook, or with free banking for those holding 400-1000 or more in their accounts at all times. What this has amounted to in the former case is poor man's current accounts for the thrifty (which is not in itself a bad thing) or free banking for the rich only the in the latter (which is deeply unfair). Incidentally, AIB promised at the time of stopping the practice of not charging for cashsave accounts and those holding more than 500 euro in their accounts that they would introduce a "basic account", a no-frills account with less charges. Two years later this is yet to emerge.

For the first time it appears that minnow Permanent TSB has introduced a genuinely good value Current account without the restrictions. The bank has started a "Switch" current account designed specifically to attract customers unhappy with the rip-off merchant pricing of the larger two banks. It remains to be seen how many people will genuinely believe that the switch is as painless as they expect it to be. Part of the problem in Ireland is that people tend to personalise services - for example people stick with rip-off merchants if they are happy with the local branch staff, for example, even when they are being truly extorted by them. Many people are deeply ignorant of banking practices, and think that any goodwill extended by the bank in terms of loan approvals, etc, is due to personal feeling rather than sophisticated customer profiling. For example my mother closed an account with Irish Permanet because she didn't like the fact that a local young woman whom she regarded as nosey could access her account! Similarly another friend of mine is unwilling to change her bank account because she thinks that the bank will not let her keep her SSIA if she closes her current account. She pays over a hundred euros a year in bank charges, and her bank will not give her a laser card, cheque book or overdraft. She earns well over 30k a year also, yet she has virtually no customer service from her bank.

I think the problem in the north is not inertia from customers, but the dominance of First Trust/AIB and BOI. If these two banks can be forced to offer customers a better deal in the coming year, whether by order or by competitive necessity, then customers both side of the border will benefit.

The big test will come when Danske bank complete their transition of NIB and start agressively looking for customers. At present 75% of all current accounts are held with BOI/AIB which leaves a lot of manouvere for smaller competitors. So far neither Ulster nor NIB have agressively marketed their no-frills products (though interestingly Ulster has marketed its upgrade product heavily, while NIB's Freebank account has repeatedly won the prize of cheapest account to run hands down on IFSRA surveys). PTSB has been the first bank in Ireland to take the route of not only introducing a cheaper current account, but to market it heavily. Hopefully other banks will follow suit and force the larger banks to create cheaper options for customers.


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