The big banks are ripping off their customers by more than £80m a year by luring them away from branches and on to the internet.
According to new research, the major banks are saving millions by paying tiny rates of interest to their internet customers even though they cost them a fraction of those using branches.
On average the "big four" - HSBC, Lloyds TSB, NatWest and Barclays - are paying 0.1% rates on current account balances while specialist online banks are offering up to 40 times higher rates of interest.
The big four have an 80% share of the current account market and, according to new research, are cashing in on customer inertia. While statistics show current account customers are more likely to divorce than move to a new bank, they do appear to be increasingly prepared to move to their existing bank's internet site.
However, the Halifax believes this inertia is costing the 2.5m online current account customers of the big four interest payments of £85m a year. And, as the number of internet customers grows, the banks will benefit even more.
The situation has already attracted government attention and in the coming days the Department of Trade and Industry is expected to publish the findings of a survey as to why bank customers are so reluctant to take their business elsewhere.
The banks have been instructed to make it easier for customers to move their accounts by sharing direct debit details, and banks which have traditionally been bigger players in the mortgage market, such as Halifax, Abbey National and Alliance & Leicester, are aiming to benefit by offering more attractive products than the big four.
As yet, despite the pledge to make it easier for customers to move accounts, there is little evidence that customers are moving their current accounts from the big four.
Last week, though, the Nationwide building society, usually more associated with mortgages and savings, claimed to be taking a 5% share of all new current accounts, many of which were for its internet banking.
This appears to be an isolated case. Most of the movement in savings is away from the established accounts of the big four and towards their internet offshoots. Privately, bankers admit this is to their advantage as these accounts are cheaper for them to run. This is backed by consultants Booz, Allen & Hamilton. They calculate that online transactions cost less than 1% of those in branches. Barclays have closed more than 160 of its branches this year alone.
Big push
Barclays is one of the banks which is making a big push for internet customers. It now claims to be the country's biggest internet bank with more than 1.5m customers and is advertising its online business in a campaign fronted by Scottish comedian Robbie Coltrane, who boasts customers can now be their own bank managers by using the net.
Yet, according to the Halifax, customers miss out as a result. David Walkden, general manager of Halifax Online, said: "Millions of people are becoming their own bank managers on the phone and on the net but are not getting anything extra for doing so.".
Halifax, which has only 2m current accounts in comparison with Barclays' 8m, intends to pay 4% interest on current accounts from next year so long as £1,000 is paid in each month. It plans to pay it to online, phone and branch customers and has pledged to set a "crack switching team" on changing customers' direct debits.
It is too soon to know whether Halifax's attempt to win customers by paying interest rates will bear fruit as it it will not start paying the rate until next year. However, if customers can be enticed to open new current accounts, Halifax calculates that the 2.5m online customers of the big four could receive a combined interest payment of £85m a year by taking up its 4% offer.
The "big four" argued yesterday that they do not offer their online customers better rates because they are still able to use branches and the telephone.
A spokesman for NatWest, which is now owned by Royal Bank of Scotland, said: "Our philosophy is to have one current account and for customers to choose how to access us".
New brand
This was view echoed by the other high street banks. Lloyds TSB said: "Remember, no one is being forced to use the internet".
Lloyds TSB said, however, that it would be offering more attractive rates through its new internet bank, to be known as evolve.com, after it is launched later this year.
This route, of setting up a separate brand for the internet, has also been chosen by other banks. For instance, the 0.5m online customers of Abbey National are paid very little interest while the 45,000 customers of its new Cahoot internet bank can expect payments of up to 7.1%.
Yet, even Halifax is setting up a telephone and online operation under a new brand which will offer better rates to customers. The Intelligent Finance unit, advertised to the tunes of Fatboy Slim and currently dogged by technical difficulties, will pay 5% on current accounts, even more than a Halifax-branded account.
Called to account
Barclays
Online customers 1.5m
Traditional current accounts 8m+
Rate 0.1% pa
Lloyds TSB
Online 500,000+
Traditional 7m (approx)
Rate 0.1% pa
NatWest
Online 400,000
Traditional 6.5m
Rate 0.1% pa
HSBC
Online 500,000
Traditional 7m (approx)
Rate 0.1%
First Direct (HSBC)
Customer numbers not available
Rate 5% for firstdirect.com
Cahoot (Abbey National)
Customers 45,000
Rate up to 7.1%
Smile (Cooperative Bank)
Online 200,000
Rate 4.85%
