It is such a thing with business gifts. “No one has anything to give,” Grandma always used to say, so be careful when someone gives you something for free; you’re probably paying for it somewhere else, somewhere you might not even notice it. There are a number of proverbs which have this wisdom as their content. “Only death is free and it costs life”, they say in Germany. “There is no free lunch,” say the Americans.
Nevertheless, gifts are still very common in businesses, especially in Germany, and there are still many consumers who do not realize that they are paying for them elsewhere. They behave like rabbits that are stretched out with one hand with a carrot to attract them and that the fur is pulled over their ears with the other hand.
For a long time, the biggest hutch was the banking industry. Whether savings banks, private banks or Volks- and Raiffeisenbanken, almost all offered their most important service, the current account, free of charge. Not so long ago, individual banks even paid a premium of 50 or 100 euros when customers opened a checking account with them. Free culture flourished and the Germans got used to it over the decades.
Banking has long been a huge cross-subsidy operation
Many did not realize that they were paying dearly for the gift elsewhere. The free checking account was the bait used by banks and savings banks to build relationships with customers. The checking account is also ideal as the basis of the business relationship as it is usually based on the monthly salary and it gives an overview of the client’s financial situation. It is the ideal platform 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 loans and installment loans with excessive interest. For many decades, the banking industry in Germany was a huge cross-subsidy business with a strong tendency towards a lack of transparency.
In this regard, it’s not bad news that more and more banks are phasing out the free checking account. The upward trend in fees has continued for several years as banks attempt to offset declining income due to low interest rates. In recent 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 to them. Now the banks are getting that approval – and lots of increases. The latest case to date is the direct bank ING, which will now bill 99 centimes per month for the Girocard, which amounts to abolishing the free current account.
At first glance, this looks like a drawback for customers, but it can be a great opportunity: moving away from free culture is also moving away from the culture of lure offerings. Keeping a checking account is a service that costs a bank money. It’s perfectly normal that she asks for money for that. This makes the economic model more transparent. It is also an educational task for financial institutions to convey this to their customers. Because deep down, they are correcting an unwanted development that has been going on for decades. Responsible and informed customers will understand this and be willing to pay a fee for them, as long as it is not too expensive.
But this is also part of the second step: the banks must make cheaper the services with which they have previously subsidized the free current account. You need to reduce commissions, fees and interest on sales of insurance, fund products and loans. It would also make them more competitive. If you price each service correctly and fairly, you no longer have to entice your customers on the one hand and pull the fur on their ears on the other.