Guilty as charged!

There is nothing so unjust as when you have to pay for something that you think should be free or if you have to pay far more than the value that you perceive. News on the Internet, credit card annual fees, tomato ketchup sachets to go with your sandwich, credit card surcharges or ticket booking fees for example. In many parts of the Western world, people have become used to certain goods and services being free, such as a new mobile or day to day banking.

Banks are struggling in the current climate of higher capital requirements and higher funding costs, so many of them are seriously thinking about introducing charges for services which have traditionally been free up until now. In the recent past, big banks have introduced charges for banking services only to have to perform a U-turn when faced with the furore of a public opinion outcry. So in this world of reverse brinkmanship, who will be brave enough to be first to introduce charging in a big way and how will they do it? And more importantly - will they be successful.

In the airline industry, low cost carriers were the first to experiment with the model of charging for items and services that used to be free. Some of these have been successful; not many people expect a full meal on a short haul flight any more unless they pay more money for example. Some of them have been less so - the aforementioned ticket booking fee springs to mind - why should I pay £12.50 per ticket. So perception is the key - people don't mind paying as long as the charge is proportionate to the value they receive and it is considered "fair".

So how are they going to pull it off? I think that we are going to see the introduction of thresholds for various types of transactions. As they are brought in, there will be little angst because the limits below which no charge is levied will start off as generous and reasonable. No-one will bat an eyelid if a bank introduces a 10% charge on debit card transactions of less than £2 say or a charge for more than 250 transactions per month. From there - once people have got used to the idea and other vendors have started to follow suit, they will slowly ratchet the threshold so that more and more transactions are caught in the net.

We will start to see more imaginative schemes where customers can save on these charges. For example - I would hazard a guess that any large retail bank can apply the 80:20 rule to the payees of payments from their customers' accounts. Rather than every individual customer having a different payment date, how about offering an incentive to sign up to a group payment on a given date, thus reducing the number of payments a bank makes to external systems.

Clever banks will link their charging regime to the level of service offered to the customer. Will we ever see a charge for an appointment with the bank in the same way that you pay for an appointment with your dentist or solicitor - I don't think so, but we will see charges for expensive services increase. When was the last time you wrote out a cheque for example - would you change banks if they introduced a £5 or even £10 fee per cheque ?

However it comes to pass - it will be a minefield and many will get it wrong, before someone gets it right. I feel duty bound to say that There is an alternative to all this which is that banks could cut their costs by replacing their expensive bespoke core banking system with a nice shiny package - but I'm obviously biased!