First Direct: Playing with Fire?

This morning's news that First Direct is to "end free banking" has quite understandably, caused a bit of a stir.






The bank, which operates primarily by phone and online, is to start levying a charge of £10 per month to current account holders, unless they can deposit £1,500 per month or take out further products, such as loans or insurance.

First Direct claim that the move will eliminate some 40,000 dormant accounts as well as around 250,000 accounts that see less that ten transactions a month and at the same time, allow the bank to "focus its efforts" on their "most important customers."

And that's the crux of the issue.

Banks are businesses like any other. They are in the industry to make money, not to fulfill some social responsibility that so many people think businesses should aspire to.
With the current slump in consumer spending as well as rising operating costs, many businesses have had to make a choice; do they want 'more' customers or do they want 'better' customers. It's not merely a case of following many people's simplistic view of more customers = more profit.
Such a decision is made in various industries, particularly n retail and product offerings and prices are decided to suit.

First Direct have clearly decided that they want 'better' customers. The customers that bring in more revenue and require them, as a business to spend less. As a result, they can maintain a reputation for customer service by better looking after the customers that remain.

Some people will claim that First Direct have shot themselves in the foot with this morning's announcement and a raft of account closures might initially show that the defectors are right.
But on the flip side, they'll be keeping the customers they want whilst lowering their costs significantly.

Expect First Direct's announced profits to be as high as ever.