The UK's largest retail banks have called on the government to compel smaller, challenger banks to share the cost of financial inclusion by also offering loss-leading fee-free banking accounts.
Executives from Barclays and Co-Op were speaking to a House of Lords committee hearing on financial inclusion and a proposal to force banks to offer fee-free basic bank services to the financially vulnerable.
So far nine banks and lenders in the UK have voluntarily agreed with the Treasury to provide such accounts. But rather than limiting the initiative to the major banks, the likes of Barclays and Co-Op would prefer to see the newer, digital upstarts and fledgling challenger banks to face the same obligations and the associated cost.
"The basic bank account is a loss-making product but part of our investment in society," said Catherine McGrath, Barlcays managing director. Meanwhile, Co-Op Bank's director of products Matthew Carter accused smaller rivals of cherry-picking the most lucrative customers such as the urban affluent.
One of the main advantages for the smaller challenger banks is that they incur much smaller operating costs than their larger rivals due to a lack of legacy technology, a focus on digital-only services and a less onerous set of regulatory requirements. However the UK government, while keen to promote more competition, is also looking to introduce more oversight into new areas such as P2P lending.