Treasury wary as banks reward ?best? customers

HSBC is piloting a scheme which could reduce loan rates for customers depending on how many products they have bought from the bank.

The bank joins rivals Barclays and Abbey National?s internet bank Cahoot in trying to reward customers with good track records and penalising those with bad ones.

The Treasury made it clear yesterday that it was ?closely monitoring? all the new products coming on the market.

The comment from the Treasury came as a pilot scheme to be started by Barclays in September, whereby customers with a poor payments record will be kept on higher interest rates, faced criticism. Critics said its plan, which might be extended to include mortgages, would exacerbate financial exclusion.

Barclays, which has also been criticised for branch closures at the same time as running an advertising campaign emphasising its size, was said by Andrew Simms of the New Economics Foundation to be widening the gap between the rich and the poor.

?My heart sinks whenever I hear something like this. It seems that the bank that likes to be big only wants big customers,? Mr Simms said.

However, Barclays yesterday insisted that the move to lower the average repayment rate on its Barclayloan products was designed to reward existing customers rather than exclude sectors of society.

?Barclays will ensure that assessment criteria and discounts given to customers will be fully transparent. This does not affect the loan application criteria for customers,? the bank said.

HSBC, which refused to confirm that it was already piloting its reward scheme, is understood to be looking at offering better mortgage rates to those customers who have a number of its products.

One banking expert noted that the moves represented attempts by the banks to tackle the statistic in banking folklore that 20% of a bank?s customers generate 80% of its profit.

While HSBC?s plan does not appear to depend on the credit standards of customers, Abbey National is making a virtue of the ?individual pricing? being offered by its internet bank, Cahoot.com.

Cahoot, currently offering a 0% interest rate on its credit card, will determine the rate to which the repayments will rise on the creditworthiness of customers when the offer ends next year.

The rate would be set at between 7% and 11% and an Abbey spokesman said last night that at least it would have a year?s knowledge of its customers before setting the rate.

Some sources argued that the move to differential pricing might actually improve people?s financial management.