Moneysupermarket.com editor Clare Francis speaks with Mark Parsons (MD for current accounts at Barclays) to find more information on the recent changes made to the structure of a Barclays current account...
Video Transcript
Clare Francis: Barclays has recently announced some quite radical changes to its current account structure, and I'm with Mark Parsons today who is the managing director of current accounts, savings and mortgages at Barclays.
Q1: Mark, can you just explain what you've done and why?
Mark Parsons: Well we have done a significant amount of research into what our customer actually want from a bank account, and that has informed some really quite significant changes, and I will summarise the changes in probably three ways.
The first is 'what happens when a customer goes beyond their overdraft limit?' We have actually removed the whole concept of an unauthorised overdraft area, and we have replaced it with something called a personal reserve. So all customers will have the ability to have a personal reserve and in the personal reserve for one fee, they have the ability within 5 working days to make as many payments as they like, as long as they correct their situation at the end of that period and every payment will be honoured. That's a significant change forward, that's the first thing.
The second thing is, we have looked at the fees that are paid when a customer goes beyond their authorised overdraft level, and we have significantly reduced those.
And then thirdly we have previously committed to free banking, and we reaffirm that commitment, but we are also keen that customers have choice, so alongside a free in-credit banking option we have introduced some new fee paying accounts which give for example in-credit interest, free overdrafts and some abilities to effectively purchase a range of insurances using Barclays size and market muscle to get those insurances cheaper. So those are the three things that we have introduced and are introducing progressively. The new accounts went live on the 3rd June and the personal reserve will go live on the 18th August.
Q2: The personal reserve that you are introducing is quite a new concept and one of the things Barclays is quite keen on is simple products. Do you think this is something that people will get to grips with quite quickly, or is it something that might be quite complicated for them to understand?
Mark Parsons: I do think that, because going back to the customer research we did people wanted things that were simple, so this is about as simple as it gets. For a period of time, 5 working days, you can transact as much as you like for one fee.
Now if you compare that with what we have previously had available and probably even more what been available through other providers, there are transaction fees, daily fees, monthly fees. We added up with one [particular] provider, they had seven different sorts of fees when you get into that unauthorised overdraft situation. We have one fee for a period of time, you can transact as simply as you like and as frequently as you like, provided [that] at the end of that 5 working day period you bring your account back within the overdraft limit.
Q3: But there is an upper limit, isn't there, on the amount that they can use within their personal reserve?
Mark Parsons: Yes, and there will be an upper limit which will be specific to each individual customer.
Q4: Is the reserve automatic?
Mark Parsons: Yes, we will be informing all customers of what their personal reserve level is, and we will be writing to customers through this month and though July to do just that. The one thing that we will say is if customers don't want to have the personal reserve, and for some reason some people may not, then they don't have to have it so they can actually opt out of that. But we think the vast, vast majority of customers will want to have this and welcome the facility.
Q5: The main things that have been flagged up with the changes is the introduction of the person reserve, and the fact that your unauthorised borrowing fees have come down from £30 to £8, and this is obviously great news for people that go overdrawn without permission or exceed their overdraft limit, but what about your customers who either are always in credit or have a authorised overdraft set up and stick within the terms and conditions of their account? This is the majority of your customers, and they're going to be worse off, aren't they?
Mark Parsons: There [are] a couple of things in there - firstly, on the in-credit interest. Yes we've removed the 0.1% AER in-credit interest that we were paying, so we don't pay that anymore. The reality again is our customer research says actually it's pretty meaningless - on average it was 2p a week that customers were earning, a £1 a year. So actually it wasn't something that the customers valued.
On the authorised overdraft rate - so where a customer has gone into an authorised overdraft - we have increased the rate that we will charge, but the rate that we charge is still pretty much the lowest amongst all the major providers, and the scale of the increase again is not that expensive, we're talking a few pounds in terms of it's overall impact. That compares with a reduction in the fee that people will pay if an item does get bounced, from £35 down to £8 - you've only got to do this once in a year to benefit from the other changes we've made.
Q6: You're obviously scrapping in-credit interest on your standard current accounts and you've launched some new accounts that do pay interest in-credit but there's obviously a monthly fee attached - are you trying to steer those customers who don't go overdrawn into these accounts and reap a monthly fee from them?
Mark Parsons: There's a lot in the media around 'the death of free banking' and we're absolutely committed to customers who want free, in-credit banking. If they want that, they can have that. For us it's all about choice - customers can choose to have free credit banking if that's what they choose.
However if they would like to have in-credit interest, if they would like to have a free overdraft, if they would like to benefit from cheaper insurances that we can give in a way that's attached to that current account then that's an option too, there's a fee that goes alongside that. But we think people will do the sums and work out what's right for them and what's right for their own personal circumstances. To my mind this is all about giving customers choice.
Q7: You've said that the changes to your unauthorised borrowing charges are nothing to do with the ongoing court case that we've got between eight financial institutions and the Office of Fair Trading (OFT), but obviously before the court case was announced last summer we'd seen a huge consumer backlash against these charges from people who think they're unfair. It must have had something to do with your decision to overhaul your current accounts in this way surely?
Mark Parsons: I can totally understand people making the connection, but I can say hand-on-heart that we began this work years ago, well before the court case or any of those issue had been raised. It's taken us a huge amount of planning the technological changes behind the simplification - believe it or not it's actually quite complex to make things simple - the technological changes behind it have been significant and have taken a long time to build. So we began this journey of change and these new changes we've just announced well before any sign of the court case, and it is fundamentally responding to the question we've asked of customers, 'what is it you want from your bank account?'
Q8: Barclays is obviously involved in the court case, so is your decision to cut your unauthorised fees from £30 to £8 going to make it harder for the banks to defend the fees of £30 plus? Because, obviously, you're now saying that you only need to charge £8 if somebody goes over their agreed limit?
Mark Parsons: I'm sure the Court's process will determine what's fair and what isn't fair. To my mind, this is responding to 'what is it that customers want'. We've competitively decided that we want to price at £8 - nothing to do with fairness, this is what we want to charge customers - and we think that is something the customers will like, and we are pretty certain that is what customers will like, because it is based on our research and we are proceeding on that basis.
It will be interesting to see how others in the banking industry respond to that. We think customers will like it, we think therefore other competitors might be thinking along the same lines themselves, but we certainly believe that by being first, by being a little bit bold, that customers will respond very positively to what we have done.
Q9: And how has your customer feedback been since you announced the changes, are people welcoming them, or do they think that they are now going to be worse off?
Mark Parsons: We launched the new accounts on Monday June 3rd and all I can say is that customer response in the first weeks since our new products went on sale has been far exceeding our expectations. So we think the customer will decide in the end.
Clare Francis: Thank you very much Mark.
Mark Parsons: It's a pleasure.
