It is possible for a bank to be ‘fair’ as one only has to look at the Co-operative Bank to discover this. However many banks would also lose revenue in the structural reform and it would cost a lot of money to instigate the reform. The costs invariably will put the banks of from reform that would make them ‘fair’.
So, how does one make the banks ‘fairer’ whilst also increasing revenue? This topic has bugged me for some time, after watching ‘Yes Man’ it has highlighted a possibility to achieve the aim. This possibility is small loans between £200 and £1000. People will be more inclined, and able, to pay back small loans at reasonable rates of interest ie no more than 25% p.a.
This function can be used as a normal loan facility, especially used by those with low credit ratings – undercutting legal loan sharks etc – and those that don’t need large loans, or it can be used in place of an overdraft charge zone.
The vast majority of people that exceed their overdraft limits are not ‘bad’ ‘irresponsible’ people, but those that have had a change of circumstances, unexpected expense or another reason. To use the small loan facility in place of a £30 charge will boost revenue for the bank over a longer-period of time and will stop the demonisation of the user. However, in order to be fair, there would have to be a fair usage policy so as to discourage prolific use of the facility. For consumers, this facility would enable them the little boost to manage their debt – by punishing people with charges, all a bank does is reduce the users ability to manage their debt and narrow the range of potential borrowers.
So, a small loan to those that exceed their overdraft facility will be fairer to the consumer, enabling them to manage their debt, and, in the long-run, yield more for the bank than an immediate £30 punishment. The small loan, in a traditional loan facility, will also boost revenue for banks as the range of customers is extended and the rate of default and risk will be limited due to the small amount of the loan.
How do you make banks ‘fairer’ whilst increasing revenue? Small loans