Simon Read: Are all challenger savings brands doomed?

 

So financial firm ING Direct has been bought by Barclays bank. That's a decent deal for the bank – it will add an extra million and a half or so savers to its book, plus several thousand mortgage borrowers.

How will it be for ING customers? Logically Barclays will – eventually –end up merging all their customers to offer them the same deals. After all, it would be a bit of a nonsense to have different classes.

The risk would be that some would end up as second-class customers, getting worse rates than others. Of course, that already happens with the many different deals that all financial institutions offer.

But people end up in worse deals because they don't know that there may be better ones available.

But the idea that a bank could deliberately treat whole sections of its customers as second-class citizens is just not likely (although it's perfectly easy to believe that banks treat all their customers as second-class citizens).

So whatever attracted the more than a million people to ING Direct will disappear. Most likely it was the endless advertising promising market-leading rates and great deals. Whoever bought into that will soon find that they've ended up at Barclays with market- desultory rates and ordinary deals.

But, then, we've seen this happen time and time again with new entrants into the financial marketplace in recent years. A big and expensive splash and fine words about "challenging" traditional brands promotes a sudden massive market presence with millions rushing to sign up.

A few years down the line and the new challenger brand is gone, often sold off when its owners realise how expensive and profitless it is offering market-leading rates. Or the owners get into financial difficulties and are forced to flog the business.

"It seems that too often these competitive brands get swallowed up by the banks," says Charlotte Nelson of Moneyfacts, which monitors the interest rates charged and paid by financial firms.

Do you remember Egg? That was launched with a massive ad campaign by the Prudential at the end of the 1990s as the future of online banking.

It had a market-leading credit card deal and great savings rates, as well as interesting mortgage deals. But the bank was sold to Citibank in 2007 and the US giant hoped it would give it a major foothold in the UK. The time was, sadly, off as the credit crunch soon followed and Citibank put Egg up for sale.

The credit card operation was sold to Barclaycard in early 2011 and the savings and mortgage customers to the Yorkshire building society later in the same year. Do those customers who brought into the seemingly exciting Egg concept really feel happy being part of a building society?

Meanwhile, who remembers Standard Life Bank? That was another brand set to shake up the market place. It was bought by Barclays back in 2010 and since then, frankly, the only thing I've heard from Standard Life Bank customers is complaints about lost money or poor rates.

Off the top of my head, I can't think of any new challenger brands that have actually achieved what they claimed to set out to do, to shake up the market. All of them seem to simply build up a reasonably large customer base – and then flog it on to a rival.

Will that happen with some of the newer banks hoping to make a mark this decade? Apart from the supermarket banks – which have a much greater hope of success with the backing of the retail chains – I can't say that I'm feeling positive about any.

Like ING, Egg and all the others the pomp and PR at launch will end with a quiet sale a few years later. The only real losers will be the customers.

We've been waiting for the announcement of British Gas's next price hikes for months since bosses intimated there would be an autumn rise at the beginning of summer.

But the timing this week of news of a 6 per cent increase could not be worse for those already worrying about how to afford their heating as the weather turns bitter.

Ever since its Big Six rival SSE revealed that it would increase prices by 9 per cent for its 5m customers from Monday 15 October, it's only been a question of time before the others would follow. Indeed, after British Gas's announcement yesterday, Npower quickly followed with its own hike of around 9 per cent.

But British Gas remains the UK energy giant, with about 12m homes using the firm, so its price hike will affect the most people.

The fact that the price increase was signalled by the firm before summer, won't reduce hardship for the millions who are already facing a winter of distress. A 6 per cent rise will add around £80 to the average dual-fuel bill. That would push average bills up to £1,318.

The higher prices rise, the more people turn down their heating because they can't afford it. More that turn down heating, means more risk illness or worse. Five years ago, when bills cost less than half what they are today, less than half as many pensioners died from hypothermia.

Last winter, Age UK reckoned that two million older people were so cold that they took to their beds in an attempt to keep energy bills down. Two-fifths admitted turning their heating down because of the high cost despite the fact they were feeling cold.

It's estimated that the number of unnecessary winter deaths this year could soar higher than 3,000.

So while many will moan at higher prices, the problem is fatal for some. But the blame for that cannot just be laid at the door of profiteering energy firms. The current coalition government's cutbacks – particularly on benefits and reducing the Winter Fuel Alliance from £300 to £200 – have had an equally disastrous effect.

But while vulnerable people are forced to choose between heating and eating – often with fatal consequences – wringing your hands about rising prices is simply not enough.

It's time for the energy firms – in partnership with Government and local authorities – to take responsibility for ensuring everyone can afford adequate heating.

s.read@independent.co.uk

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