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At what point did banks become public services?
I understand that everybody wants free and convenient access to their money, I'm inclined to want the same. But I'm not sure that there exists an obligation for banks to provide such services without any consideration to the actual business implications of doing so.

Some handy excerpts from the BBC News website, reflecting 'public opinion' or something closely approximating it..

"Branches are being closed to increase profits"

No they're not. Branches are closed to cut losses. We wouldn't close a branch if it was adding more value to the business than it was costing to run. Obviously the overall goal is to increase shareholder value, but cost cutting is a valid way of doing that, and it's how businesses actually work. The way people phrase it, it almost implies that we do it to increase revenue..

"the top five UK banks have reported record profits"

It's been a good year, economy-wise.. Lots of companies have reported record profits. This isn't because they've stolen more money from customers, but because the business has grown - if we didn't get more money from growing our business, what would be the point?

But the main issue in this article is the privately owned cashpoints (usually owned by Moneybox) that charge you to withdraw your money:

"I do not see why I should have to pay to withdraw my own money from my own bank account."

You don't need to. You can use a branch, or you can use a non-charging cashpoint, or you can keep your money outside of a bank. In many cases it's not possible to operate outside the banking system, but it's not actually the banks that are responsible for that. The government dictates that pensions must go into a bank account, and companies dictate that salaries must be paid into bank accounts, but the banks themselves didn't force anybody to use them.

If you honestly believe that banks have an obligation to provide free cash machines and local branches, then that comes under the heading of 'public services'. Why not suggest to your local MP that you pay more tax, and that the government then uses that to subsidise the banks? If this is a public service, the public can pay for it.

Banking is, after all, a privatised industry driven by market forces. If it was profitable to put branches in the small villages that don't have them, then somebody would have done it by now. Since it's not, the industry is under no obligation to behave like a public service until the government starts to subsidise it like one.

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Its great to hear an alternative view of the banking industry but the problem we have is that even living in London they have closed all branches near us and to get money out without charging we have to go a distance to a main shopping place to get to a cash machine or get cash back.

I think that banks do have a service to provide free machines that everyone has access to but the MP's debated cash charging machines and they did not stop the proposal of them. I just think they are horrid things though, little machines in shops that charge you £1.50 a transaction.

But it is customers own fault! If we shopped with our feet and moved around to banks that provided more machines and ditched old ones we would see changes! This is already happening with credit cards, people are going for the interest free and at the end changing to another one and changing again.

I totally agree with you though they are a business and not a public service and they need to make profits but what about the old lady who lives in a village in the middle of nowhere? They close her local bank because its very unprofitable. There is an obligation to provide service to a customer. People pay loads in bank charges and interest, it would be nice to see it go back into the bank rather than on profits.

Then again post offices have closed so many local branches that are unprofitable and they are supposed to be a privatised company and a public service!

In the future when hopefully money as a currency is over and everything is on a card somehow it will be so much easier for everyone! When you can pay for anything with a card and coinage and notes are over. It will cut banking costs a lot!

btw in my local area is a small village type shopping high street mostly filled with old people and they campaigned to their mp for a free no charge cash machine in that area. There used to be 2 banks but both such tiny branches and closed about 10 years ago. I am not sure what bank it is, but there is now a no charge link cash machine in the street which is a bit like a telephone, its in a cubical on the pavement. So maybe consumer action is the future?

what about the old lady who lives in a village in the middle of nowhere?

Well, to be blunt, that's her problem. Or, rather, society's problem. Next that little old lady will be complaining that there isn't a tanning salon nearby (or similarly whimsical establishment), and start blaming the tanning industry for not meeting her needs.

The truth is, if the public as a whole thinks that the little old lady deserves a nearby bank, then they should pay more in taxes to enable the government to subsidise the industry..

People pay loads in bank charges and interest, it would be nice to see it go back into the bank rather than on profits

They do, but they'll never go into funding unprofitable stores.. That would damage shareholder value, and at the end of the day, they're the ones that get to call the shots. We're unlikely to ever consider spending money just to prop up poorly performing stores..

It's very strange reading about how different US and UK banking are different from Canada.

Since there really is only 5 banks here, there's almost always a branch-affiliated bank machine somewhere nearby here. (However, I did recently switch banks, mostly due to the reason that they offered my company's employees, as building-mates, no serviec charges for a year, but also due to the fact that their bank machines are more accessible to where I live and work). Although, even though that's somewhat academic due to the ubiquitous use of point-of-sale direct debit transactions.

Pfft, how dare you talk about UK and US banks in the same breath? ;o)

You and the US are all about the service charges on cheque accounts, we do free bank accounts.. if we charged our customers just to have an account, we could afford to put ATMs everywhere too ;o)

I didn't mean to imply they were the same. I just meant to say they are both different.

And I definitely agree paying $12.95/mo to just put my money in the bank and remove it is quite silly. (There are cheaper options, but come with per-transaction costs instead... I use A LOT of transactions). However, at $1.50 (for EACH bank) for using a foreign ATM, the $12.95/mo to subsidize their branches/ATMs starts to look pretty attractive :)

Hehe, I know.. I'm sure that as a Canadian you understand how painful it is for people to insinuate that your nation in any way resembles the US though ;o)

And $12.95 is crazy! I really don't think we could get away with anything like that over here.. The default setting for UK cheque accounts is that everything is free.. You can have as much or as little in there as you want, and using ATMs doesn't cost you anything. I don't think I've had to use a fee-charging ATM for years now..

The problem is that as banks redeploy their ATMs to more profitable locations, private companies then come in with their own machines, which charge you money. The bank ATMs (with the exception of one bank) are all free, as are transactions (funds transfers, cheques, etc.)

I dare say the banks here would love to be able to charge flat fees for providing the service, but unfortunately for them there are certain financial services companies in this country that would never do that. And while those companies exist, any cartel-style move by the big banks would only result in them hemorrhaging market share to the companies that remain free..

Though at the same time, I do think that banks should be obligated to deliver a certain level of service for the virtual fee you do pay. Yeah I/people don't tend to pay bank subscription fees but the money we effectively invest be storing in a bank should go somewhere.

Presumably this somewhere is paying for the running of services, the banks subsidy of other accounts and of course, the profit margin.

But I'd presume there's a certain service level agreement that should by default be built in to this service, be that "I can get money out of one branch, as promised" to "I can get money out of 600 branches, as promised".

In the end sure it is a service based industry?

Virtual fee you what now?!

We don't make money off current account holders. They make a vital contribution to our fixed costs, but overall running current accounts leaves us at a slight loss.

We provide you with our time, free of charge, in branches. We send you out free monthly statements. We provide free Internet Banking. There is no bank-imposed charge for taking your money out of an ATM, nor for transferring it via branch or Internet or telephony centres. Where are these virtual fees? ;o)

Granted, we do use your money for stuff, but it's not as valuable as you think when taken against the cost of running accounts and providing all our other free services.

It being a free market, you are of course welcome to move your current account to another provider that gives you a higher rate of credit interest. In fact, changing your current account has never been easier. If you (that is, a general you, rather than you in particular) are dissatisfied with the service, there are always other banks competing in the marketplace for your business.

And you're right, this is a service based industry, and there is an implicit requirement for us to provide services. But we're still a business, we don't have to do anything. The penalty for us not providing the service customers expect is that they'll migrate away, and we live with that. When we withdraw a branch from a small village we're aware that we're risking a certain part of our customer base, but it's preferable to running a branch at a loss.

The vitual fee you just described the use of. I of course do expect you not to make money off of all accounts, but as you've said, running costs and all.

Generally you don't HAVE to do anything, but that all depends on the explict contact you sign with your bank I'd suspect. While I've foolishly not looked, I'd hope it mentions something about access to money ;o)

Oh and I've always wondered, are cheques still processed manually or do banks actually just use the clearance period to sit on interest these days?

You mean the fee that we've spent on actually running your account (at a loss) should be further stretched to offering local branches (that we run at a further loss)? ;o)

And believe me, there is no such contract. We do have certain obligations as a regulated company, and the government gets pissy with us if we screw people over. But there's nothing that says we need to keep a branch within a couple of miles of your house or anything. If we want to close a local branch and relocate the resources to a nearby commercial centre, then we can just do it.

Our obligation to give you access to your money just stretches to us having branches at all. If they're not local to you, you're free to vote with your feet and change bank. Oh, and we also give you access to your money via the Link network - if you use your bank card issued by us on another bank's ATM, we pay them for the privilege, at no cost to you. Which is jolly nice of us ;o)

As for cheques, it really does take three days (and in theory longer) to clear them. That's because the system is very manually intensive, and the mechanism which allows cheques to bounce means several days have to be left to ensure that a bank doesn't get back to us and say "Oops, can't have that money". It's inherent in the cheque concept, because you can issue a cheque without sufficient funds. Declining volumes of cheques mean it's not practical to spend the million (more likely billions) on upgrading the whole system to a computerised same-day deal.

There's something really big I want to say on what we're doing with cheques, but it relates to strategically important information that isn't in the public domain, so I can't. Suffice it to say, watch this space :o)

Oh I don't doubt the fact that you run a hell of alot of accounts at a loss and the charges probably barely cut even if ever, however without these loss leading accounts you'd also not have any profitable accounts, and without offering service coverage, you'd have no business at all.

I agree that "local" is quite a relative term and while it's very much the banks perogative, without services like link, the consumer banking market would likely just crumble because nobody would want to use a bank without convenient financial access.

I can see why people get annoyed at it, to be fair, it doesn't bother me all that much but it really is a swings and roundabouts situation.

As far as cheques go, as far as I was aware people still have to physically sign them off don't they? (literally "check" them at both branches before they can clear...)

You're right, the accounts that run at a loss are then marketing platforms for additional products (such as credit and insurance) which make us a profit. Additionally, the loss-making current account customers contribute towards our fixed costs (such as scaleable IT systems) and as such, they improve our overall financial viability. And yes, without decent service coverage, our business would suffer. But ultimately where we deploy that coverage is a business decision, rather than a humanitarian one. Location of branches is dictated by business needs, rather than community needs.

Now usually those two intersect, because we want to be accessible to customers just as much as they want to have access to our facilities. But in the case of rural areas, it's bad business sense to be there. I agree that the ATM network is also crucial because without it, nobody would be able to get at their money. But again, definitions of locality come into play - ATMs are largely concentrated around commercial areas (which is where consumers demand them), which means that there's a skew away from rural residential areas. If there was more demand, they'd be more cost effective, but there just isn't..

As for cheques, it's been a while, but if I recall correctly the general idea is this.. When a cheque is encashed, it is encoded. Data is printed onto the bottom of the cheque detailing the sortcode and account number it's drawn on, along with the amount. The funds are then credited to the destination account, but they cannot be drawn against. Most banks will pay you interest for this time, provided the cheque eventually clears.

The cheque is stamped, copied to microfilm, and then the original is sent back to the issuing branch via clearing. This in itself means that an overnight trip across the country is usually required, if not more. At the issuing branch, the funds are debited to the account electronically by processing the encoded cheque through a reader, and a response goes back through clearing to answer whether the cheque has been returned unpaid, or whether it has been paid. No signature checking takes place as part of the standard cheque clearing process (though a special clearance process exists that can be used if the person encashing the cheque thinks it's possibly dodgy).

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