It’s such a thing with business gifts. “Nobody has anything to give away,” Grandma always said, so you should be careful when someone offers you something for free; you probably pay for it elsewhere, in a place where you may not even notice it. There are a number of proverbs that have this wisdom as their content. “Only death is free, and it costs your life,” they say in Germany. “There is no free lunch,” say the Americans.
Nevertheless, gifts are still widespread in business, especially in Germany, and there are still many consumers who do not notice that they are paying for them elsewhere. They behave like rabbits who are held out with a carrot with one hand to attract them and the fur is pulled over their ears with the other hand.
For a long time, the largest rabbit hutch was the banking industry. Regardless of whether savings banks, private banks or Volks- and Raiffeisenbanken – almost all of them offered their most important service, the current account, for free. It wasn’t that long ago that individual banks even paid a premium of 50 or 100 euros when customers opened a checking account with them. The free culture flourished, and Germans got used to it over decades.
The banking business has long been a huge cross-subsidy operation
Many did not realize that they were paying dearly for the gift elsewhere. The free current account was the lure banks and savings banks used to build relationships with customers. The current account is also ideal as the basis for the business relationship because it is usually based on the monthly salary and it provides an overview of the customer’s financial situation. It is the ideal ramp to sell him other services, which are then no longer free, but on the contrary overpriced: insurance with excessive premiums, fund shares with excessive commissions, construction and installment loans with excessive interest. For many decades, the banking business in Germany was a huge cross-subsidy company with a strong tendency towards lack of transparency.
In this respect, it is not bad news that more and more banks are abolishing the free checking account. The trend towards higher fees has been going on for a number of years because banks are trying to compensate for dwindling income due to low interest rates. In the past few months, this trend has accelerated due to a ruling by the Federal Court of Justice. After that, many fee increases in the past were ineffective because customers did not actively consent. Now the banks are getting this approval – and so many increases. The latest case is the direct bank ING, which will in future charge 99 cents per month for the Girocard, which amounts to abolishing the free current account.
At first glance, this looks like a disadvantage for customers, but it can be a great opportunity: The departure from the free culture is also a departure from the culture of lure offers. Maintaining a checking account is a service that costs a bank money. It’s perfectly fine for her to ask for money for this. This makes the business model more transparent. It is also an educational task for the financial institutions to convey this to their customers. Because basically they correct an undesirable development that has lasted for decades. Responsible and informed customers will understand this and be willing to pay fees for them, provided they are not overpriced.
But then it is also part of taking the second step: The banks must make those services cheaper with which they have previously cross-subsidized the free current account. You need to lower the commissions, fees, and interest on sales of insurance, fund products, and loans. That would also make them more competitive. If you price every service correctly and fairly, you no longer have to lure your customers on the one hand and pull the fur over their ears on the other.