Banking the bankrupt – Contis

Question: Where in financial services are you likely to hear the following: ‘Unfortunately it has now come to the stage where our disproportionate market share has continued to grow significantly, and regretfully, we now need to take steps to address this.’

Answer: When a bank, the Co-operative in this case, becomes a refuge for those in financial difficulty.

While the news that the Co-operative has closed its doors to newly bankrupted individuals won’t surprise the banking community, the media seems to have missed the point. Some stories bemoaned the fact that Barclays is now the ‘only option’ for those yet to be discharged from insolvency agreements. Others revelled in a good smear, hammering home the fact that the announcement came from ‘the Co-op, which prides itself on an ethical stance’.

The hard reality for all involved is that the Co-operative, like all other banks with the exception of Barclays, can no longer make a business case to support the continuing provision of free banking services for those recovering from bankruptcy. It is easy to see why: the banks have administrative costs to cover, but very little chance of recovering those costs let alone turn a profit from the customer relationship.

As the banks continue to pull back, prepaid card providers will play a crucial support role to those whose options are narrowing. What’s more, the prepaid sector can provide more appropriate and beneficial money management facilities to this segment than a bank can through a traditional current account.

Independent reloadable prepaid cards, for example, enable users to only ‘spend what they load’. This simple fact dispenses with the deeply unpleasant raft of bank charges that can cripple low income customers who struggle to manage their day to day balance. Some products, like credEcardplus, also supply the user with an online account facility complete with an account number and sort code.

This enables users to check their balance and set up standing orders to manage benefit payments and other regular transfers, without requiring a visit to a branch or unwelcome (and often pointless) credit checks – proof of identity and address details are all that is needed. When obtained via a Credit Union, some even offer incentive reward and loyalty schemes linked to high street merchants, enabling customers to gain cashback on the money they spend.

In the short term the news that banks are withdrawing from this market may set alarm bells ringing but, in the end, it may not turn out to be such bad news. Clearly neither bank nor customer is gaining from the relationship and with more compelling prepaid solutions available, users could stand to benefit more by looking beyond their banks for facilities to help them manage their money.

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