Banks accused of charging retailers ‘excessive’ card fees

Retailers are calling for action over what they say are “excessive” fees charged by credit and debit card providers in the UK.

Card use rose steadily from 54% of transactions in 2016 to 61% in 2019 and Covid-19 has accelerated this trend as more customers shopped online or paid by card in store, the British Retail Consortium (BRC) said.

Meanwhile, the cost to retailers of accepting payments reached £1.1bn in 2019, of which £950m was from card payments. Shops are charged an average of 18.4p per credit card transaction (up 15% from 2016), and 5.9p for every debit card transaction (up 6% from 2016). On top of this, businesses have received notices in the past year of new fees that will be charged to accept payments online.

These increasing fees are putting further pressure on retailers at a time when they are already facing higher costs due to coronavirus and Brexit. Ultimately these costs, equivalent to £40 per household, will be reflected in consumer prices, the BRC said.

The trade body has joined forces with the British Independent Retailers Association, Association of Convenience Stores, Federation of Small Businesses and UKHospitality to call for “decisive action” to tackle increasing card fees.

“With card payments accounting for almost 80% of retail sales, it is vital that the Government takes action to tackle excessive card costs,” said Andrew Cregan, head of Finance Policy at the BRC. “Without action we will see businesses put under further pressure and it will be consumers who are forced to pay the price.”

James Lowman, chief executive of the Association of Convenience Stores, added: “The way that customers pay in convenience stores is continuing to diversify and the costs that must be met by retailers to provide these options are rising. Recent years have seen the financing of ATMs undermined, causing many machines to become fee-charging regardless of retailer preferences, and some parts of card fees double for retailers.

“There are two priorities for retailers here: everyone would benefit from a restored national network supplying access to cash, and action is needed to allow retailers to effectively find the best deal and switch card payments providers.”

Bank of England asks banks if they are ready for negative rates

The Bank of England has contacted UK banks to ask them how ready they would be if the base rate was cut to zero or turned negative.

Although the Bank has no current plans to make such a move, Deputy Governor Sam Woods said that officials need to know whether there were any technological or operational challenges involved.

The Bank of England cut interest rates to the current historic low of 0.1% at the start of the Covid-19 crisis. Some central banks, including the European Central Bank, have already implemented negative interest rates as a monetary policy tool.

“For a negative Bank Rate to be effective as a policy tool, the financial sector — as the key transmission mechanism of monetary policy — would need to be operationally ready to implement it in a way that does not adversely affect the safety and soundness of firms,” Woods wrote.

The letter asks bank CEOs to provide “specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration — and the steps that you would need to take to prepare for the implementation of these”.

“We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes,” Woods added.

In a recent Citizen’s Panel open forum held by the Bank of England, Governor Andrew Bailey said the pandemic meant that negative rates should be considered as part of its “tool kit”, the Guardian reports.

Covid-19 ‘bounce back’ loans could cost UK taxpayers £26bn

Up to 60% of borrowers may default on business loans provided through the UK Government’s Bounce Back Loan Scheme, the National Audit Office (NAO) has warned.

A new report by the spending watchdog says that the scheme “succeeded in quickly supporting small businesses” but the Government faces a potential loss of £15bn to £26bn through businesses not being able to repay the loans and fraud.

The Bounce Back Loan Scheme was set up to support smaller businesses during the Covid-19 pandemic. Loans are delivered through commercial lenders and small and medium-sized firms can borrow between £2,000 and up to 25% of their turnover, with a maximum loan of £50,000 available.

Demand has been greater than anticipated, with the total value of loans provided through the scheme now predicted to be £38bn to £48bn, up from an initial estimate of £18bn to £26bn.

However, the Bounce Back Loan Scheme has less strict eligibility criteria than other Covid-19 related business loan schemes, relying on businesses self-certifying application details with limited verification and no credit checks performed by lenders for existing customers.

This lower level of checks presents credit risks as it increases the likelihood of loans being made to businesses that will not be able to repay them, the NAO said.

What’s more, the Government’s 100% guarantee against the loans reduces lenders’ incentives to recover money from borrowers.

An earlier third-party review commissioned by the British Business Bank found that, while some risks can be mitigated, there remains a “very high” level of fraud risk, caused by self-certification, multiple applications, lack of legitimate business, impersonation and organised crime.

The full extent of losses, both credit and fraud, will emerge when the loans are due to start being repaid from 4 May 2021.

The NAO called for the Government to implement a thorough debt-recovery process with lenders and consider how it might better prevent fraud in any similar schemes in the future.

Co-op Bank to close 18 branches

The Co-operative Bank has announced plans to cut around 350 jobs and close 18 branches across the country.

The high street bank said that the move was necessary due to the current economic uncertainty and the shift to online banking.

As well as jobs lost due to the branch closures, the cuts include middle management and head office roles.

The bank said that, where possible, it would look to redeploy colleagues into alternative posts.

Expressing regret over the news, Co-operative Bank chief executive Andrew Bester said: “Unfortunately, we’re not immune to the impact of recent events, with the historically low base rate affecting the income of all banks and a period of prolonged economic uncertainty ahead, which means it’s important we reduce costs and have the right-sized operating model in place for the future.

“At the same time, we are responding to the continuing shift of more and more customers choosing to bank online, with lower levels of transactions in branches, a trend which has been increasing for some time, across the banking sector and more broadly.”

Bester added that the bank is in a “resilient position” after making progress in recent years, and its focus is on maintaining this and supporting customers through the crisis.

The branches set for closure are those in Ashton, Bradford, Cambridge, Chatham, Chester, Chichester, City of London, Dartford, Halesowen, Harrogate, Luton, Oxford, Rotherham, Solihull, Truro, Wakefield, Walsall and York.

Mark Carney criticises protectionist trend

Bank of England Governor Mark Carney has spoken out against the ‘low road’ of protectionism, saying the trend would cost jobs and growth, according to Bloomberg.

Carney said signs of strain were beginning to show on the world economy as a result of trade barriers.

The Governor said: “We can choose between a low road of protectionism focused on bilateral goods-trade balances and a high road of liberalisation of global trade in services.”

“The low road will cost jobs, growth, and stability. The high road can support a more inclusive and resilient globalization.”

Carney said the impact of US tariffs imposed in June was likely to be small, but a larger increase “would have a substantial impact” including indirect effects on the economy through reduced business confidence and poorer financial conditions.

Carney said he believed interest rates would, in the long run, return to pre-financial crash averages. This means around 5% in the UK, ten times the current level. However “a lot of things have to go right for that to be the case.”

The Bank of England head also said that in the event of a no-deal Brexit, banks would probably face a ‘disorderly Brexit stress test’ in March 2019.

FCA floats basic savings rate plan

The Financial Conduct Authority (FCA) has proposed a minimum interest rate for savings accounts to improve returns for loyal savers, according to BBC News.

The FCA has said savers who stay with the same bank or building society for a long time are sometimes penalised by being given poor rates. Some banks pay only 0.05% on instant access accounts.

A Basic Savings Rate (BSR) would apply to all easy access ISA cash products and savings account, applies once the account had been open for a set period, for example one year.

Christopher Woolard, executive director of strategy and competition at the FCA said: “Providers can take advantage of high levels of customer inaction to pay lower interest rates to longstanding customers.”

Citizens Advice estimates that customers lose around £48 a year by now switching accounts.

The FCA has proposed that banks would set their own BSR, which would be featured prominently on their site and materials, allowing consumers to compare rates more easily.

The FCA has attempted to address the problem before, by encouraging customers to shop around and asking banks to share information about how to switch accounts. It has also named and shamed the brands paying the lowest rates, but the problem remains.

Lloyds to cut back office staff, invest in tech

Lloyds Banking Group has announced plans to cut 450 back-office jobs in the latest attempt to cut costs and focus on digital initiatives, according to Reuters.

The group has said it will create 255 new roles at the same time, part of a $3.95bn investment in developing the bank’s technological capabilities. The net job loss will be 195.

Earlier in 2018 Lloyds announced the loss of 930 jobs from the central office and hundreds of cuts and closures of branches. The bank is facing sharp competition from industry disruptors who keep costs low through using low-cost tech and online platforms.

The decision to cut branch numbers has proven controversial with customers and politicians, who say the impact on staff and certain categories of customer is excessive.

A Lloyds spokeswoman said: “Today’s announcement involves making difficult decisions, and we are committed to working through these changes in a careful and sensitive way.”

Address alpha male culture in UK banking, says report

MPs have called for a change in the ‘alpha male culture’ at UK banks in a parliamentary report that cites the gender pay gap and hazy criteria for performance bonuses as key problems, according to the Guardian.

The investigation into women in finance found that an alpha male culture was one of the main reasons women gave for opting not to move into senior management at City firms. The culture was said to be particularly noticeable in negotiations over bonuses, where men are said to secure higher bonuses by making forceful demands.

The committee found that financial firms often feature a ‘pyramid’ structure where women are filtered out at each level of seniority, until the upper levels of management feature very few women at all.

The report comes two months after the deadline for UK companies with more than 250 employees to report on their gender pay gap, which highlighted significant gaps in UK banking. Barclays’ investment division pays men a median of 43.5% more than women, compared to the national average gap of 18.5%.

The Women in Finance report identified a 49% gender pay gap in UK bank bonuses and 38% at building societies. For every £100,000 in bonuses awarded to men, women receive just £56,500. The hourly pay gap in finance is 28%.

Treasury select committee chair Nicky Morgan said: “The benefits of gender diversity are highlighted in the report, including better financial performance, reduced groupthink and more open discussions.

“The next step must be for firms to set out how they will abolish their gender pay gap and support the progression of women. Firms should focus on changing the culture in financial services firms, which remains a deterrent for women, especially the bonus culture.”

The report calls on banks to tackle the gender pay gap through measures such as encouraging more men to take up flexible working, discouraging presenteeism and long hours culture, developing gender pay gap strategies and including partners and subsidiary companies in gender pay gap reporting. Recruitment and promotion policies should also be developed to prevent unconscious bias.

Visa says broken switch caused 1 June payment failures

Visa has cited a broken switch as the root cause of payment processing problems on Friday 1 June that saw failed transactions across Europe, according to the Guardian.

Some 5.2m transactions failed during the IT outage. A hardware switch was supposed to turn on a data centre but did not function as intended. In the UK 2.4m transactions were unable to complete while a further 2.8m were disrupted in Europe.

Visa Europe chief executive Charlotte Hogg wrote to the Treasury Select Committee confirming that the problem began at 2.35pm on 1 June and was not rectified in full until 12.45am on Saturday.

Hogg wrote: “The incident was caused by the failure of a switch in one of Visa’s data centres. We understand what hardware malfunctioned (the switch) and the nature of the malfunction (a very rare, partial failure). We not yet understand precisely why the switch failed at the time it did.”

The data centre was intended to work as a back up in the event that Visa’s main system malfunctioned, but in this case the back up also failed.

Hogg said: “We operate two redundant data centres in the UK, meaning that either one can independently handle 100% of the transactions for Visa in Europe.

“In normal circumstances, the systems are synchronised and either centre can take over from the other immediately … in this instance, a component with a switch in our primary data centre suffered a very rare partial failure which prevented the backup switch from activating.”

Nicky Morgan, chair of the Treasury Select Committee, said the committee was satisfied with the responses from Visa and cited the detriment to customers as evidence of the growing reliance on card payment systems.

Clydesdale and Yorkshire Banks to merge with Virgin Money

Two major banking brands are set to disappear from the High Street following a Virgin Money takeover of Clydesdale and Yorkshire banks, according to the Guardian.

The £1.7bn acquisition is expected to lead to the loss of 1,500 jobs in the sector. Clydesdale and Yorkshire Banking Group (CYBG) will merge with Virgin Money to form the sixth-largest bank in the UK with a total of more than 6m personal and small business customers and a lending book of £70bn.

The merger is led by CYBG but the resulting entity will carry Virgin Money branding, marking the end of the road for two Victorian banking brands. Clydesdale Bank dates back to a first branch in Glasgow in 1838, while Yorkshire Bank was founded in Halifax in 1859. There are currently 70 Clydesdale Bank branches and 97 Yorkshire Bank branches.

Clydesdale Bank is unusual in that it issues its own banknotes, leading some to question whether the currency could be amended to feature Virgin founder Richard Branson’s visage. However it has been confirmed that the notes will continue to feature the traditional Clydesdale imagery.

The enlarged Virgin Money will seek to challenge the ‘Big Five’ UK banks (HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander). The next largest challenger bank, TSB, is half the size that Virgin Money will be following the merger.

Jim Pettigrew, the CYBG chairman, said: “It is clear to us that the combined group can transform the UK banking landscape and offer real benefits to customers and communities throughout the UK.”