This is what it is with gifts in business. “Nobody has anything to give,” Grandma always said, so be careful when someone offers you something for free; you’ll probably pay for it elsewhere, in a place where you might not even notice it. There are many proverbs that contain this wisdom. “The only thing that is free is death, and that costs life,” they say in Germany. “There is no free lunch,” say the Americans.
Nevertheless, gifts in business life are still common, especially in Germany, and there are still many consumers who don’t realize they are paying for them elsewhere. They act like rabbits, to which you pull a carrot with one hand to lure it, and with the other you pull the fur over your ears.
The banking industry has long been the largest rabbit cage. Be it savings banks, private banks or Volks- und Raiffeisenbanken – almost all of them offered their most important service, the checking account, for free. Not so long ago, individual banks even paid a bonus of 50 or 100 euros when customers opened a current account with them. A culture of freedom flourished to which Germany had grown accustomed over the decades.
Banking has long been an extensive cross-subsidization operation
Many were unaware that they paid dearly for a gift elsewhere. The free checking account was a decoy that banks and savings banks used to build relationships with their customers. A checking account is also ideal as the basis of a business relationship, as it is usually based on a monthly salary and provides an overview of the client’s financial situation. It is an ideal platform to sell him other services, which are no longer free, but on the contrary, discounted: policies with exorbitant premiums, fund shares with exorbitant commissions, construction and installment loans with exorbitant interest rates. For many decades, banking in Germany has been a massive cross-subsidization operation with a strong tendency towards opacity.
In this respect, it is not bad news that more and more banks are getting rid of the free checking account. The trend for higher fees has existed for many years as banks try to compensate for the drop in income caused by low interest rates. This trend has intensified in recent months following the ruling of the Federal Court of Justice. Later, many of the past toll increases have been unsuccessful as customers have not actively consented. Now the banks get that approval – and then many raises. The most recent case is ING’s direct bank, which in the future will charge 99 cents a month for Girocard, which is tantamount to canceling a free checking account.
At first glance, this looks like a downside to customers, but it can be a great opportunity: moving away from free culture is also getting away from teaser culture. Maintaining a checking account is a service that costs the bank’s money. It’s quite okay that he is asking for money for this. This makes the business model more transparent. Handing this over to clients is also an educational task for financial institutions. They basically correct undesirable development that has been going on for decades. Eligible and enlightened clients will understand this and will be willing to pay fees for it, as long as they are not overstated.
But on the other hand, it is also part of the second step: banks need to cut down on the costs of the services they previously subsidized with a free checking account. They need to lower commissions, fees and interest on the sale of insurance, fund products, and loans. It would also increase their competitiveness. If they price each service correctly and honestly, they will no longer have to lure their customers on the one hand and stretch the skin over their ears on the other.