Bank of Ireland UK plans current-account market push

Bank of Ireland UK is planning a big push into the current-account market before the end of the year in a move to challenge Britain's biggest high street lenders.

The bank is aiming to launch current accounts across 11,500 branches through its joint venture with the Post Office before December, according to industry sources.

The partnership allows the bank to distribute services and products through the largest branch network in Britain, under the Post Office brand. The UK-based lender, a wholly-owned subsidiary of the Bank of Ireland, is trialling a few types of account across 300 branches.

These include a basic account for people with money concerns that does not offer an overdraft and costs £5 a month, and a standard account providing free in-credit banking. Customers can also access packaged accounts on request.

Closing branches

The move comes at a time when other banks are closing branches. Of the 477 bank branches that closed last year, 124 were the "the last bank in town", according to figures from the Campaign for Community Banking Services, a pressure group.

But the UK is the only major country in Europe to offer free-in-credit banking, a model that is coming under regulatory scrutiny. The competition watchdog launched a review last year that could put an end to free current accounts.

A report by analysts at Deutsche Bank said that current accounts are a "revenue producer", with fees and overdraft charges worth about £4 billion for the sector. Current accounts also serve as a "gateway" to other products, and help with credit underwriting and risk monitoring.

But a wholesale move away from free banking is unlikely, the report said, because there is little incentive to force customers to pay for “a utility product”. “We note however, very significant success of products such as Santander’s 1-2-3 product suite in attracting the little churn there is,” it added.

Warren Mead, a partner at accountancy firm KPMG, said: "The real problem is not that current accounts are free, but it's that certain customers are much more profitable than others." Overdraft customers tend to be more profitable than those in credit, he said.

– Copyright The Financial Times Limited 2015