The title may suggest I’m talking about the gambling proclivities of investment banks, but actually I’m talking about the way the high street banks treat their customers.
Many years ago I got fascinated by the fact that my mother seemed to be able to spend many hours playing blackjack in casinos, and not lose anything. I calculated the expected returns on a blackjack hand played with optimal strategy (but without counting cards). It turned out that the expected returns on a $100 blackjack hand are something like -$0.04. That means that if you play 1000 hands, your chances of coming out ahead are about 49.4%. Ridiculously close. Furthermore, that is the result of all kinds of extra options that are given to the player, like splitting cards, which each allow the player to move the odds ever so slightly in their favour — but obviously, they’ve been precisely calculated to make sure the odds of winning don’t go over 50%, since that’s a tipping point for the casino. But it’s so close to even that she could play 1000 hands at $10 each, and lose only $4 on average, much less than the value of the free meals and other inducements offered by the casinos.
So why do they do it? Why do they give the players all these extra tools, like splitting cards, to shave fractions of a percent off the house advantage? I realised that it’s a matter of giving players enough rope to hang themselves with. Most of these extras are almost never beneficial to the player. Most players will use them incorrectly, thus increasing their losses while simultaneously acquiring a satisfying sense of control over their fate.
Banks play the same con game. I have a chequing account and a savings account, the latter to hold the money that I don’t need immediately — but maybe very soon — to earn a bit of interest. Nothing very exotic. But the bank will pay 1 or 2% interest for a year, and then drop it down to something like 0.1%, until you come in and sign up for their new Hyper-advantage Super-Saver, or whatever they call their latest product. They seem committed to making their customers feel constantly taken advantage of if they don’t spend all their time monitoring the latest changes in the structure of their accounts. But the amount of money involved — we’re talking about a couple of pounds a month — doesn’t really repay the effort that would be required.
So I went in the other day to my bank (Lloyds), and said I wanted an account that would pay some interest on the money I didn’t need immediately.
“A savings account?” the women asked.
I said I wouldn’t presume to know whether it’s a savings account under the present dispensation or some newly structured current account. And indeed, it turned out that current version is a modified version of the chequing account, which they call (I’m not kidding) “Club Lloyds”. If you sign up, you get 4% interest (divided by 12) in any month where the balance stays over £4000, but only on the amount up to £5000. Otherwise you get 2% interest (if the balance is above £2000) or 1% if it falls below. It’s a game, of course. They don’t expect to be paying 4% interest. Either you’ll go over £5000, and thus have a portion earning no interest; or you’ll drop below £4000 and lose most of the interest. If a few people actually spend their time watching to steer their account into that narrow interval, they can afford it.
To make it all the more ridiculous, they offer a choice from 3 “lifestyle benefits”: A free magazine subscription, 6 free cinema tickets per year (for a cinema chain that has only 70 cinemas in the whole country), or some restaurant discounts. And before you sign up they make you watch a 5-minute information video.
Actually, before I went in today, I decided to stop by another bank, one that had a sign in the window advertising how simple they would make it to switch your account from another bank. Sounds like they’re really interested in attracting new customers, and differentiating themselves from the competition.
Well, the lady at the information desk didn’t get the memo. I told her that I was interested in switching from another bank, because my current bank made their accounts far too complicated, and were constantly forcing us to switch to some new kind of account or get dropped to almost zero interest.
“No,” she said. “I think all banks are pretty much the same.”