Mulenga Agley, VP Growth at Monese 

Just last month we heard how the Bank of England has warned that bank complacency when it comes to lending could pose a serious threat to the economy. Banks and credit card companies are amongst the top offenders for ‘reckless lending’, both guilty of contributing to spiralling consumer debt. Not only are consumers being offered more than they might be able to take on financially, but it gives the banks the opportunity to impose stealth charges, such as missed payment fees. In short, taking advantage of consumers’ vulnerability to make a profit.

Shortly after this announcement, we heard how 590,000 Lloyd’s customers were mistakenly charged unaffordable fees after falling behind on payments. The correlation between the two is clear – hidden fees. This is something that we see time and time again, and while it’s great to see that people are waking up to the fact that there is no such thing as a ‘free lunch’ when it comes to banking, it’s time for financial services providers to realise that they can no longer operate in such a way.

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No excuse for lack of transparency 

While the majority of people understand that paying interest on a loan or credit card is the condition for being offered this line of funds, there are a whole host of other hidden fees associated with products such as these. But these hidden fees aren’t only associated with credit products – they are entrenched in even the most basic of banking services.

The BoE’s announcement serves as yet another reminder as to how prevalent opacity is within the retail banking space, with consumers falling victim to bank greed. If we take current accounts, for example, people have wrongly assumed for years that it is a free service. The reality? Customers are actually charged near to £100 a year for this basic service in hidden charges, such as overdraft fees, missed payment fees and money exchange fees. This is how banks make their money – sending vulnerable customers spiralling into debt by charging them to spend money that isn’t there.

Time to get realistic 

As the saying goes, nothing worth having is free. This logic now needs to be applied to the banking space so that consumers aren’t finding themselves faced with a set of charges that they simply can’t afford. Think of Netflix – the user knows exactly what they are getting for their money each month, there’s no hidden charges and they can enjoy all the benefits having paid a static monthly fee.

There’s room for this transparent Netflix model to be applied to the financial services sector, so that consumers no longer find themselves surprised when they are charged for a service they previously thought was ‘free’. This monthly transparent fee accounts for all of these ‘hidden costs’ meaning that unexpected overdraft charges, for example, become a thing of the past. A recent investigation by Which?found that some banks were charging customers several times the fees of payday lenders to borrow money. This area is now under the spotlight for regulators – the FCA has now demanded ‘fundamental changes’ to these unarranged fees, particularly due to the risks they post to potentially vulnerable customers.

A static fee would help consumers realise that there is a cost for banking services, and avoid the risk of them being caught out at the end of the month, as well as helping to budget better.

The financial services space has been tarnished with the brush of deceit and “muddiness”, but the tide is beginning to change. Alternative finance providers and other financial providers need to work to bust the myth of free banking and help customers to spend and save responsibly. No financial institution should be looking to catch out the consumer at every turn. To see real change, we must start with transparency – only then will we see a fairer and more inclusive banking ecosystem.