Analysis from online price comparison service uSwitch.com has revealed that UK banks netted an additional GBP624 million in revenue in 2006 driven by increased overdraft rates and credit card purchase APRs. This figure is expected to continue growing, following news that high street giants Lloyds TSB and The Royal Bank of Scotland are to further increase their authorized overdraft rate in January 2007.
<p>Last year saw the average authorized overdraft rate rise from 13.8% to 15.08%, following the anticipated reduction in current account default charges from an average of GBP30 to GBP4.50.<br /><br />April 2006 also saw the credit card industry hit with a ruling from the UK Office of Fair Trading to limit penalty fees on credit cards to GBP12, which resulted in credit card providers seeking alternative routes to recover lost profits. As a result, the industry increased purchase APRs by an average of 1.18%, generating an estimated GBP5.6 billion. Other changes included removing the cap from balance transfer fees and increasing cash interest rates. <br /><br />2006 was a tough year for consumers who have had to be savvy to stay one step ahead of the banks and not get caught out by additional charges and higher rates of interest, commented Nick White, director of financial services at uSwitch.com. It is clear that the traditional model for UK banking will be forced to change over the next few years as the threat of lower retail banking profit margins become a reality. In turn, we would expect banks to place an increased focus on products that offer higher returns and greater cross-sell opportunities, such as packaged accounts.</p>