Consumer confidence in financial institutions is already at a low but add to the mix growing competition from trusted, big brand retailers, such as Tesco and Boots, and customers could finally have a reason to switch banking providers. Add the benefit of zero toxic debts and these retailers have the advantage of offering more favourable rates, which according to a recent survey by Callataÿ & Wouters, was the number one demand from respondents (46%) seeking improved services from banks. However, the lack of liquidity within the banking sector is currently preventing financial institutions from offering better rates.
The answer to this dilemma could be online banking, which appears to be gaining momentum in the current climate. The direct savings banking model in particular allows customers to be self-directed, meaning banks can minimise overheads during these tough times whilst passing on considerable incentives to customers, such as more competitive rates. Crucially, competitive rates also attract further funds through interbank lending. However, banks can only offer these rates if they have smaller margins, which is made possible through a cost efficient model.