Leaving basic accounts to the market isn't working
THE Co-operative Bank has had just about enough of the basic account market.
On Monday the bank's Cashminder account stopped accepting applications from undischarged bankrupts for the novel reason that the policy is making it too popular.
"As a responsibly led business, over the years we have worked tirelessly to promote access to banking... However it is now time that all providers acted equally on this issue," John Hughes, Co-op's Managing Director of Retail Banking said.
Access to basic accounts has long been the UK's strategy of choice for preventing financial exclusion among the most vulnerable consumers.
A £120 million investment in the Financial Inclusion Task force, for example, reduced the number of unbanked UK adults from around 2.8 million to 890,000 between 2005 and 2008.
Left to the market that legacy, and consumers, are at risk.
Shaming the market to action
Co-op are willing to rethink their decision if competitors change their policies, Hughes noted.
Essentially, the bank claims that it is trying to shame the basic account market into accessibility: inconveniencing a few so that many can benefit from a stronger basic account market in the future.
Unfortunately, shame by itself seems an unlikely motivator in this notoriously gridlocked sector of the market. Just ask Citizen's Advice how well its worked in the past.
The numbers seem to support that theory.
Co-op operates 330,000 basic bank accounts at the moment.
If we estimate, conservatively, that there are two million basic accounts in the UK, that's about 15% of the market.
It's a disproportionate share - certainly considering a third of those accounts are held by recent bankrupts - but probably not disproportionate enough to persuade larger banks to step in.
Ultimately, however well intentioned Co-op's buck passing is, it's nothing new in the basic account market.
When RBS and Lloyds announced that they were restricting basic account holders' access to ATM machines, for example, competitors quickly warned that they could be 'forced' into doing the same thing.
Just like equal access to the ATM network, the basic account market crumbles when players stop sharing responsibility.
Barclay's is now the only bank still accepting undischarged bankrupts.
When Barclay's is your moral compass you really are in trouble.
"The UK... has a successful basic bank account policy"
All in all then it's clear - although, frankly, not all that surprising - that banks are unwilling to work together on this issue.
What's really troubling is the lack of intervention from regulators.
Indeed, as the EU considers legislation which would make access to basic accounts a right for all consumers, the UK Government has leapt to the market's defence.
"The UK Government is committed to improving access to financial services... However, the UK already has a successful basic bank account policy," our consultation response reads.
If they want to convince the EU, they may have to work a little harder.
Meanwhile, there are rumblings that basic accounts are the wrong focus in the fight against financial exclusion.
In a speech to the British Bankers Association on Tuesday, Mike Dailly of the Financial Services Consumer Panel argued that making access to a basic account a basic right wouldn't solve the problems of those who are unbanked and financially excluded.
"We need a much more sophisticated response, tailored to meet the individual needs of consumers," he said, suggesting that credit unions could pick up the slack.
Yet credit unions - drastically underfunded and fighting low take up partly as a result of their 'poor man's bank' reputation - are likely to have the same 'someone but not us' response as Co-op.
The more obvious suppliers of a more 'sophisticated' response are fee charging managed account and prepaid card providers.
Both have long targeted this market though the benefits to consumers are hard to discern.