Is Bank of Ireland leading the way for UK banks?

The Bank of Ireland is making some bold moves that the UK banks have to be curious to see whether they are successful. From November customers with the Bank of Ireland will need to maintain a current account balance above 3000 Euros (£2400) to avoid paying charges for banking services. The UK banks will certainly be interested to see how customers react to this, what is essentially an end to free-banking for a large proportion of the Bank of Ireland customers. There are two obvious outcomes from this move. Some customers will simply accept the charges  and some will leave, either for other banks and building societies or will join the ranks of the unbanked. The customers who stay  with the bank will become more profitable, certainly a requirement for the bank to overcome the problems it continues to face as a result of the financial crisis. However will the bank be less profitable as a result of the customers leaving? The majority of the customers who will take their banking relationship elsewhere will be those with low current account balances, arguably some of the least profitable customers they have, so the bank may not be that upset to see them leave. Indeed the Bank of Ireland may actually be delighted to see these customers joining competitors taking up their rivals time and resources.

The second bold move on the part of the Bank of Ireland is to reduce over the counter cash services in 40 branches to only three days a week. In these branches on the days when a teller service is not available customers will be able to use self-service devices. The Bank of Ireland argues that in their successful pilots 80% of over the counter cash transactions can be serviced by other banking channels. When you examine the personal customers that continue to use teller executed cash transactions the vast majority will fall into the low current account balance segment that will be hit by the introduction of bank charges, those who are currently unprofitable and therefore those that the bank wants to either pay their way or are happy to see leave. However it is the business customers who carry out the majority of over the counter cash transactions and these are, generally, profitable customers. It is these customers that the Bank of Ireland will want to retain and hope to do so by persuading them to either use self-services machines, other banking channels or restrict their cash transactions to Mondays, Tuesdays and/or Fridays. Of course ultimately if customers can live without tellers for two days a week the Bank of Ireland must be hopeing that in the end they live without them at all.

The reason that these moves by the Bank of Ireland are particularly interesting for the UK banks are that they are faced with pressure from the Government to end so-called ‘free banking’, there are too many customers who are simply unprofitable and all the UK banks have too many branches. If Bank of Ireland can prove that the introduction of fees does not result in a significant defection of profitable customers to rivals then it is to be expected that the UK banks will follow suit. If the Bank of Ireland can also demonstrate that business customers can be persuaded to use other banking channels and self-service devices for over the counter cash transactions then UK banks can look at reducing the costs of branches by reducing the number of staff that are employed in them or even closing them.

When it comes to personal customers using teller services all of the major UK banks with the exception of Santander, have signed up with the Post Office to allow their customers to carry out these transactions in the Post Office branches. It doesn’t take a great stretch of the imagination to hear the banks make the argument that if there is a Post Office in town then there is no need for a bank branch and for branches to subsequently close. This could lead to the Post Offices processing the vast majority of over the counter cash transactions. The irony of this outcome is that the bank behind the UK Post Offices financial services is none other than the Bank of Ireland.

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