I disagree wholeheartedly with the conclusions made by Dr Garry Smith in his article Current accounts and free lunches (The Actuary, July).
In particular, I wish to challenge Dr Smith's manifest conflation of transparency and fairness. Transparency in banking fees should not be an end in itself but rather a means of achieving better outcomes.
Dr Smith's own assessment of the impact of introducing a fee-based system is increased costs for the poorest members of society via the removal of the cross-subsidy currently generated by wealthier account holders (among other reasons). I would question whether such a scenario truly represents a desirable or 'fair' outcome for society.
Furthermore, in his thought experiment outlining the practicalities of a fee-based system, Dr Smith concludes that all banks would be forced to charge for banking services were one of them to do so, to avoid anti-selection from poorer (less profitable) customers. He suggests this could result in these poorer customers being driven out of the traditional banking arena altogether, in favour of alternative institutions such as credit unions.
Unfortunately, Dr Smith doesn't explain why his anti-selection arguments wouldn't apply equally to these alternative institutions, ultimately leading them towards charging for banking services. Nor does he consider whether the UK's fledgling credit union industry is sufficiently developed to cater for the additional demand generated by the influx of new customers.
John Fitzgerald, 7 July 2015
