In the early 2010’s, Karolina Morys was working as a banker at a large bank in London. The deeper she got into the world of finance, though, the more she noticed a disturbing trend; most banks weren’t out for their customers’ best interests, but for their own.
Together with fellow bankers Stephen Hogg and Paul Riseborough, Morys decided to take action. The three got together and wrote Naked Banking (2017), a scathing indictment of big-banking institutions that calls out their hidden fees, deliberately confusing and misleading paperwork, and poor customer service. The book serves as a guide for customers about the sneaky ways their banks may be mistreating them, as well as offering some guidance about where to turn for better money management.
We talked to Morys about what Naked Banking is and what we can learn from it.
Seed: What made you decide to write this book? Karolina Morys: We had all been in banking for many years, and we’d seen that banks didn’t really offer interest anymore. Plus, we wrote it from a U.K. perspective, and there had just been a number of scandals. Tons of IP outages that impacted customers, for instance. As product managers, you see the fees and charges that are built to punish customers when they’ve slipped in their behavior. In the end, those will end up costing you more than you ever imagined.
We wondered, why do banks seem to be structurally formed in a way that they don’t seem to be in the interest of consumers? It’s a consumer book; we wanted to educate the public.
Was there anything that surprised you during your research? I don’t think there was anything that surprised me. As a product manager in banks, a lot of the things we were doing were taking advantage of things we know customers do. For instance, we know people really suffer from spending today rather than saving for tomorrow. People are really bad at estimating their risks in life; that they could lose their job, or have an unexpected medical expense. Product managers structure products to take advantage of that.
So that stuff wasn’t surprising to us, but it was great to see it backed up in research papers and by academics. There’s lots of evidence to support those customer biases, and lots of studies to show that banks really do take advantage.
At Seed, we initially charged our customers an upfront $9-per-month flat fee, but we’ve since dropped it. Can you talk about hidden fees and charges that other, bigger banks impose on their customers without telling them? First, I think it’s brilliant that you guys are doing that. I think it’s much fairer to be up front about what you are charging customers. You are giving power to the customer to make the decisions.
Many big banks say they don’t charge you, or that they charge a small fee, but it’s often one that has loads of conditions against it. Like, you won’t be charged, but only if you hold this much money in your account, for instance. It’s a bait-and-hook approach. With those banks, the punitive charges are very real. For instance, they’ll charge you a really disparate fee for a certain amount of lending, or as a late-payment charge on a credit card. There are tons of fees that come in on the back end, and no one reads the terms and conditions.
Do you see any change among big banks, or is it business as usual? We do think that fintechs had a really great role to play, and that they were critical in moving the industry forward. They have largely been built with the customer in mind, saying, “What does the customer actually want, and let me build a process for that,” whereas banks are always going the other way. Fintech is doing tons to increase consumer choice and force the banks to improve their process in order to compete. That makes me really optimistic about the future. It is a very, very tough market and it tends towards having a few large players, because to make banking work, generally scale is an advantage. It’s complex, you need good regulatory teams, and it’s just big, big costs.
But I do think we are changing things. We’re taking slow steps towards more information, and we’ve seen a really great increase in good advice in the U.S. market and the U.K. market.
What advice do you have for customers? It’s about understanding, understanding, understanding. So go back through your last three months and see what your behavior was, what you spent, whether you borrowed, and know what you’re paying in fees. Then, know what you want to accomplish; as I said, people are really bad at estimating what they’re going to need in the future, so try to be aware of that. Really understand your behavior; be brutal with yourself, and be realistic about how you are going to behave in the future, and find a bank that suits all that.
Banks have a role to play here too. I want to push banks so that with every bill customers get, they know how much they’ve been charged. We know how much we’re charged by water companies, power companies, internet providers — why do we not know how much we are getting charged from our banks?