In an effort to reduce the level of financial exclusion in the UK, the Chancellor of the Exchequer, Alistair Darling, has decided to impose a legal requirement upon UK banks to provide accounts to anyone who can prove their identity and address. In effect, the banks will be subject to a universal service obligation, similar to the legislation under which public utilities operate.
According to figures quoted by the British Bankers' Association, the number of UK consumers without a transactional account has fallen from 3.57 million in 2003-04 to 1.75 million in 2007-08, mainly as a result of the introduction of basic bank accounts that allow account holders to conduct simple banking transactions. However, this still leaves a substantial minority of consumers, more than half of whom are in the poorest 20% of the population, without access to banking services.
Most banks will also refuse accounts to those with fraud convictions, or those who are undischarged bankrupts. Unbanked consumers lack the ability to deposit wages, benefits or other payments, leading them to use expensive alternatives, such as cheque cashing services. They are also unable to enjoy the discounts available from paying by direct debit or from paying bills online. The government sees action to help these consumers as instrumental in its efforts to reduce social inequality.
However, the chancellor's proposal is unlikely to be welcomed by the banks. Not only does it highlight the degree to which the balance of power has shifted from the banking industry to the government over the last couple of years, but it also creates an added burden for the banks.
These accounts will almost certainly be unprofitable to operate, as the new customers will be unlikely to maintain large credit balances, and will also afford very limited opportunities for cross-selling.
Should this scheme come to fruition, one possible, if unintended, consequence, could be to hasten the move away from free banking for all those in credit to a model where fees are charged, as banks seek to preserve profits. By seeking to safeguard the interests of one section of the population, the government may end up penalizing another, much larger, section.