By Daniel Hunter

Consumer Focus’s report, Best of British Banking, shows that the basic bank account has been a great unsung success story, yet its achievements are under threat as more banks are reducing what these accounts offer.

Royal Bank of Scotland Group (including RBS, NatWest and Ulster Bank) has joined Lloyds Banking Group in withdrawing access for basic bank account holders to the LINK ATM network.

More recently, the Co-operative Bank stopped offering bank accounts to undischarged bankrupts, leaving Barclays as the only provider to this customer group.

"Basic bank accounts are a notable example of how the financial services industry can get it right. Designed to tackle financial exclusion they have brought the benefits of a bank account to millions," Mike O’Connor, Chief Executive at Consumer Focus said.

"A bank account is an essential product in the modern world. The last thing these consumers need is a race to the bottom between banks which keep chipping away at the features these accounts offer. Without intervention these accounts could become less useful or more expensive for low income consumers.

"We are calling on banks to work with Government and regulators to produce minimum standards for basic bank accounts. They will never be the most profitable of financial services for banks. Voluntary agreement between the banks on a minimum specification for the basic bank account would be the most effective way of securing this product for the future and ensuring a level playing field between providers."

Consumer Focus is calling for all banks to commit to providing products which meet the needs of consumers in vulnerable positions. The banking industry needs to agree minimum standards to ensure the functionality of basic bank accounts is protected and provide a level playing field.

The findings of the report are echoed by the Co-operative Bank, which is also calling for action on basic banking. These bank accounts can help reduce the poverty premium, estimated at around £1,300 per year, whereby poor people pay more for basic services.

For 20 per cent of the UK’s adult population basic bank accounts are their only or main account. There are currently 8.4 million of these accounts in the UK — a figure that grows by more than 500,000 every year.

New Consumer Focus research shows that basic bank accounts currently meet the needs of the majority of customers. But there are some changes needed to encourage existing basic bank account holders to make more use of their account and to attract people outside mainstream banking to open an account. Key findings include:

- For a fifth of basic bank account holders the main reason they opened that account is because their employer wanted to be able to pay their salary into a bank account. A further 13 per cent stated the main reason was that they started work and 11 per cent that they needed to open the account to be able to get benefits paid in.

- Once opened, basic bank account holders most commonly say that the most important things about having an account are having wages or benefits paid in and the fact that there is no overdraft facility (and related charges)

- Access to cash and balance information is incredibly important to basic account holders: getting cash from a cash machine is what 75 per cent use their account most often for. Half say that what they most often do with their account is check their balance.

Consumer Focus believes that minimum standards for basic bank accounts should include:

- Ensuring all basic bank accounts do not place large fees on unpaid item charges
- Full link ATM access and Post Office access
- Free electronic payments and debit card functionality
- Buffer zones to cover small overdrafts

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