Permanent TSB wins with free banking

Bank customers are realising they do not have to pay charges, says DAVID CLERKIN.

NEVER turn down anything that’s on offer for free. It might not qualify as the greatest piece of financial advice of all time, but more than 20,000 bank customers have acted on it by switching their current account to Permanent TSB since its free banking package was launched in January, according to industry estimates.

Permanent TSB won’t confirm the figures for competitive reasons, but head of marketing Niall O’Grady says current account traffic has been one-way since the bank moved to shake up the market and take advantage of new rules to make switching easier. New customers are outnumbering switchers moving in the other direction by around 25 to 1, says Mr O’Grady.

It seems bank customers are finally getting even instead of getting mad. Permanent TSB’s share of the current account market shot up from 8% in 2003 to 12% last year and the bank is on track to hit the 15% mark this year.

But there’s still a long way to go before the message gets through to most customers. AIB and Bank of Ireland continue to maintain a stranglehold on the market, with over 70% of all current accounts. Switching is only just beginning to catch on, despite a recent survey by financial watchdog IFSRA, which blacklisted the country’s two big banks, among others, and found that typical customers paid up to €80 more each year than they needed to.

Where Permanent TSB charges nothing for day-to-day transactions, such as cash withdrawal, bill payment, writing cheques or using a Laser card to pay for goods in shops, the big two have no problems asking customers for between 20c and 30c for the privilege every time - and customers seem happy to pay it.

Shopping around is more difficult than expected. Most banks’ pricing plans are relatively complicated and act as a barrier to switching. Mobile phone users who have signed up for Vodafone, but try to work out whether they’d be better off with O2 or Meteor, will know the feeling of needing a calculator and patience to do their sums.

AIB, for example, charges a €4.50 flat fee every quarter and 20c or 30c for each transaction. Bank of Ireland offers two options - no quarterly fee but 28c per transaction, or a flat fee of €11.40 and no ongoing transaction fees thereafter, up to a maximum of 90 transactions. Unfortunately, each can claim to be cheaper and they’ll both be right, depending on how each customer uses their account.

The attraction of switching to Permanent TSB lies in its simplicity. “Free banking” means what it says - almost. In Permanent TSB’s case, it means ordinary transactions are free. Customers who fail to play by the rules, just like those of most other banks, face once-off penalties if they go outside their overdraft limit or write cheques that are later bounced. The bank also charges for granting an overdraft but this is standard across the industry.

The government has also done its best to make free banking impossible. Revenue takes €40 out of every wallet that holds a credit card, through an annual stamp duty that is unheard of in most countries, and a further €20 from holders of Laser and ATM cards. Those who write cheques face an additional duty.

Permanent TSB’s move will put pressure on other banks if their customers follow the example of the first switchers.

The initiative taken by the bank was timed to take full advantage of the Irish Bankers’ Federation’s new code, which transferred the burden from customer to bank and forced banks to do the legwork involved in redirecting payment instructions.

Customers who are aggrieved at their bank’s charges are running out of excuses to continue footing the bill. As Bank of Scotland bears down on the Irish retail market with aggressive plans for 54 branches and cut-price banking from November, the balance of power will continue to shift. From now on, anyone paying bank charges will only have themselves to blame.