The end of free banking

The pay-per-transaction system, which could be introduced here in the wake of the OFT's clampdown on charges, has been given the big thumbs-down by Britons.

moneysupermarket.com investigated the likely impact of the system, using typical costs from the British business banking model. The research found the introduction of the ‘pay-as-you-go’ charges favoured in many other countries could see British current account holders forking out an average of almost £300 a year.

It seems consumers are already wise to the affect transaction charges would have on their wallets. A recent survey from moneysupermarket.com shows only one per cent of the British population would choose to pay a fee for every transaction made and only eight per cent want upfront monthly or annual fees. The most popular option is to continue with the current system of free banking with high fees in place if you break the rules, but there is little chance of this system continuing in the long run.

Kevin Mountford, head of current accounts at price comparison website moneysupermarket.com, said:“We could well see the system prevalent in Western Europe, North America and Australia where there are a certain number of free transactions and then you pay for any additional ones.

“We have already seen some providers abandon the concept of free banking by steadily introducing a bevy of charges on their less profitable customers. HSBC and First Direct both introduced a £10 monthly fee on certain accounts, and HSBC's non-Premier account holders at its Canford Cliffs branch in Dorset are paying a fee for counter services.

"The introduction of transaction charges would drastically affect consumer behaviour as it has done in other countries. Those used to making multiple card transactions or cash withdrawals are likely to alter their spending habits to reduce costs.

"At the moment, free banking is possible largely because of the number of people who are hit with fees and charges. The OFT's clampdown on this, together with politician Andrew Tyrie's call for more transparency in charging, could well be moving us closer to a pay-per-transaction system – but one that Britons will resist."