Fairer Banking for UK Customers
Banks in the UK will now have a chance to prove that they can put their customer’s interests first, thanks to a new accreditation scheme for ranking financial products and services according to responsibility and customer benefit. And a positive reception in the UK could mean Australians will eventually see similar structures introduced here.
The FairBanking Foundation is a research-based charity that aims to encourage financial institutions to work to improve their customer’s financial well-being and develop products that help consumers stay in control of their finances.
The charity may become the financial services equivalent of Fair Trade labelling for food – by giving star rankings to financial products such as savings accounts and credit cards available in the UK, it hopes to empower consumers to find products that will help them budget, save and reduce debt, thereby encouraging banks to make these benefits a major consideration when structuring their products and services.
While originally established as a charitable foundation, after releasing several well-received reports discussing the benefits of socially useful banking FairBanking intends to reposition itself as an accreditation body, certifying which financial products contain features that will enable customers to manage their money.
FairBanking operates under the belief that banking providers owe a duty of care to their customers, and to their communities and country as a whole. The worldwide impact of the GFC made it necessary for banks in the UK and elsewhere to receive taxpayer-funded bailouts, highlighting the responsibility of financial institutions to give something back to their customers, or at least operate in their best interests.
Unlike price comparison sites such as Whistleout, the FairBanking Foundation doesn’t consider monetary factors such as interest rates or monthly fees. Instead, the Foundation looks at features that aren’t concerned with pricing, such as:
- How well the product provides incentives to customers to save.
- If the product gives customers access to budgeting tools.
- If the product provides feedback to the customer through account balances and alerts.
- If the product enables customers to plan repayments to reduce debt.
- If it helps customers to set and stick to savings goals.
- If it enables customers to keep track of their expenditure, especially for credit cards.
By analysing products offered by major UK banks, FairBanking hopes to implement a rating system in order to encourage product innovation and an increased emphasis on customer care. As banks have faced increasing pressure to become more competitive in their retail products and services and drive up profits, the development of a new industry standard to measure fairness may go some way in increasing customer confidence when it comes to dealing with financial institutions.
If you consider the potential image change and goodwill that could be generated towards banks getting involved in this system, it’s surprising that many UK financial institutions weren’t willing to submit products for evaluation. For FairBanking’s 2011 survey, only 27 of the 45 institutions approached responded by presenting their products for review. Of those, only two of the major UK banks – Lloyds TSB and RBS/NatWest – were granted the FairBanking mark for one product each, with three smaller institutions also securing a mark. All of five products awarded stars were either savings or transactional accounts, and as yet no credit cards have received the FairBanking tick.
Regardless, the FairBanking Foundation is pushing on with their initiative and hopes by the end of the year to have received approval from the government-appointed UK Accreditation Service, a move which will add real weight and authority to their current ranking system.
However, UK consumer groups have questioned the usefulness of a system that rates products on ‘fairness’ and doesn’t factor in pricing. When most of us look to compare credit cards or savings accounts, our main concerns are which has the best interest rate and the lowest monthly fees, qualities which are easily measurable and comparable, unlike ‘ability to budget’ or ‘provides feedback’.
Banks have traditionally never endeared themselves to customers, so by finding a way of ranking different companies and their accounts or cards according to fairness and social responsibility, an Australian equivalent of the FairBanking Foundation might see customers rethinking their finance provider.
In spite of their bad reputation, Australian banks have worked hard in recent years to build the image that they are socially responsible and care about their customers and community. All of the major banks, building societies and credit unions don’t downplay their efforts in participating in community and charity programs, supporting Indigenous customers and employees, promoting sustainability and corporate social responsibility and providing financial education and hardship assistance to customers in need.
Three of the ‘big four’ banks – ANZ, Westpac and NAB – feature on the Dow Jones Sustainability Index. Despite not being included, the Commonwealth Bank promotes its ‘Start Smart’ financial education initiative for primary, secondary and vocational schools, and offers specialised Indigenous financial services and customer assistance.
ANZ’s Money Minded program also aims to assist Indigenous customers, and the bank reaches out to customers experiencing hardship through its Customer Connect service. ANZ have also made a public pledge to act in the interests of lower income customers through their Responsible Lending and Responsible Business Lending commitments, offering drought consolidation and ‘no frills’ lending packages, as well as Community Banking initiatives.
Westpac offers Westpac Assist for customers suffering hardship (this option is also available to St. George and Bank SA customers) and supports microfinance initiatives to help remote communities both locally and overseas. The company also promotes financial education, with the Westpac-owned St. George partnering with Wesley Mission to offer support to lower-income and disadvantaged customers.
NAB upholds its’ ‘more give, less take’ approach through its commitment to responsible lending and financial inclusion and its NAB Care financial assistance for customers experiencing hardship . It operates both employment and assistance programs for Indigenous Australians, partners with Good Shepherd in offering microfinance and no interest or low interest loan schemes for people on low incomes, and runs financial literacy programs. NAB is also the world’s largest Fair Trade accredited workplace.
Of course, it’s not all positive. Despite their best efforts to come across as socially responsible and community-friendly philanthropists, Australian banks still have some of the highest interest rate margins and fees in the world. Even when posting billion-dollar profits, the big banks have remained continually reluctant to pass on full RBA rate cuts to their customers.
If you want to avoid dealing with the profit-hungry major banks altogether, credit unions – that are owned by and answer to customers (members) and not external shareholders – may be a preferred option. There is also Australia’s first ‘customer-owned’ bank, bankmecu, that prides itself on responsible and ethical banking. The downside of taking your banking to a smaller institution is that you may be inconvenienced by a much smaller branch and ATM network and lose access to some of the services and features provided by banks. And many credit unions use the big banks as ‘agents’ by allowing their customers to transact through the bank’s branch network, so you may not be able to escape the big four altogether.
Looking at FairBanking’s efforts in the UK, it is perhaps a little too idealistic to think that a third party charity will be enough to switch the focus of banking to people over profits. However, the hope behind it is that by introducing a scheme that assesses and rates the less tangible factors that affect a product’s social usefulness, there will be the potential to change product design, and just maybe influence banks to ask: are we giving people the tools they need to feel empowered about managing their money?