Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 306 - 319)




  306. Cruickshank made a number of recommendations; do you think that there have been any changes in the banking scheme as a consequence of those recommendations? Who would like to answer?

  (Mr Williams) We have seen certain moves in the area of financial inclusion and all the banks have taken initiatives and Cruickshank had certainly passed comment there. Some of the matters still need to be worked through. Of course, the Competition Commission is in full flow, looking at small business banking, and Cruickshank's other major recommendation on PayCom has not been adopted and we wait to see the OFT take up its position.
  (Mr Head) From our point of view, he has increased awareness in the market which is good. I think that customer inertia is the biggest problem rather than lack of competition.

  307. Can you explain what you mean by customer inertia.
  (Mr Head) What I mean by that is that, on the supply side of the market, you have the four clearers, you have the building societies, the converted societies, you have the banks that are provided by the supermarkets, you have the new entrants. There are a huge number of players competing in that space. I think customers have viewed the market as being pretty homogenous—what is the point in switching?—and that the Cruickshank report has increased public awareness about there being a choice, so I think that it has had a good effect from that point of view.
  (Mr Goodwin) I agree that there have been a number of effects, most of which have been described there. If we look at financial inclusion, for example, I think that was rolling before Cruickshank. I think there may have been an element to which there was a catalytic effect in Cruickshank but I think a number of initiatives in relation to financial inclusion have their genesis before then. A number of changes in the marketplace in the form of new competitors have their genesis before Cruickshank but Cruickshank may have had a catalytic effect and I think perhaps covered PayCom in the Competition Commission.
  (Mr Crosby) We are still awaiting the results of the competition inquiry into small business lending but, more than anything else, I think there is a much greater awareness right across the industry and industry observers regarding the need to improve the competition in the money transmissions systems.

Mr Fallon

  308. Mr Goodwin, the Consumers' Association told us that there are plenty of providers for banking services but that the better ones are not finding their way through to the retail market; why is that?
  (Mr Goodwin) I am not sure that I can really accept the premise unless you know who the better ones are that have not found their way through to the market.

  309. At the moment, the Big Four have 70 per cent of the market a year after Cruickshank reported. Nothing has changed, has it?
  (Mr Goodwin) Some new entrants have come in to various parts of the market and market shares have moved amongst the Big Four. NatWest, for example, is regaining market share which it had been losing steadily through the 1990s. So, if you are perhaps taking the Big Four as a total—and I have not seen any up to date information on the Big Four to confirm the 70 per cent figure—I think that changes tend to happen reasonably slowly. Cruickshank has been around for a little time now but, in terms of the overall evolution of those market shares, it has not been around a long time. I am also not sure about the premise which says that the Big Four are not amongst the best at providing money transmission which was implied by the question. I am not sure who the people are who have not been able to break through yet, so I do find it slightly difficult to respond to the question. I do not know if you have any of the details of the ones who are not able to break through because then I would be better able to answer.

  310. You are trying to break through, are you not?
  (Mr Goodwin) In NatWest we are. We are trying to regain market share. I do not know if you would call that break through or not. We would regard it as a break through to have arrested declining market share.

  311. Presumably you are trying to protect your position against new entrants as well.
  (Mr Goodwin) We are trying to compete in the marketplace against everyone that is there. We need to grow our customer numbers, whether it be at the expense of our competitors in general as opposed to just the new entrants.

  312. Are you in favour of encouraging more competition between the banks?
  (Mr Goodwin) I think there is quite an intensive competition amongst the banks, particularly in the personal arena. One of Cruickshank's own conclusions was that there is plenty of competition amongst the banks in the personal arena.

  313. Do you think there is sufficient competition at the moment?
  (Mr Goodwin) There is plenty of it. I do not know that much more would be very sensible in terms of competition but there are new entrants coming into the market. I do not know what measures of competition you would be applying to think about what more might look like. There seem to me to be plenty of providers and plenty of competitors in the marketplace just now.

  314. If the Big Four had 70 per cent a year ago and the Big Four still have around 70 per cent today, then competition has not increased.
  (Mr Goodwin) I do not think that is how you would measure competition. The existence of competition and the existence of a group of players who have quite a large market share are not mutually exclusive.

  315. I understand that, but you are confident that the present system is sufficiently competitive?
  (Mr Goodwin) I think it is highly competitive.

  316. Let us turn to you, Mr Crosby, at the Halifax. You said in your submission to us that the return on equity for the clearers is almost double that for the mortgage loans and you describe this as a tempting margin opportunity. Does that mean that you want to make the same return on equity?
  (Mr Crosby) No, I do not think it does. I think what we are saying is that you can see a very different approach. We have lived, over the last five years, with the development of very intense competition in our core mortgage and savings markets, something that was endorsed in the Cruickshank review. I would say that our strategy is about trying to create some of that same competitive intensity in some of the core banking products and we do that by offering really good value products and competing head on, and illustrations of that would be some of our personal loan products but most obviously the 4 per cent current account that we are offering, by far and away the highest paying current account on the High Street. So, while we will make returns to our shareholders, I can assure you that that is not aiming to generate anything like the same sort of returns as a clearing bank will do in their core retail banking businesses at the moment.

  317. Then it is not a tempting margin opportunity?
  (Mr Crosby) Yes, it is. It is an opportunity to make sensible returns and achieve the right sort of trade-off between our customer and our shareholder interests. That is not the same as necessarily making the sorts of returns that the retail banks are making at the moment.

  318. So, if you think it can be done better, presumably you do not think the present state of competition in the banking market is satisfactory.
  (Mr Crosby) We pay, on average on all savings accounts—we are the largest savings franchise in the UK—in excess of 5 per cent, on balance on average. Nowadays savings accounts have cards and all sorts of facilities and there is not as great a difference between them and current accounts as there once was. We think that the gap between five-and-a-bit and 0.1 per cent is unsustainably large and we look to the future of automated clearing systems to break down customer perceptions of inertia, of the difficulty that people perceive in moving accounts. We look to that to be the catalyst for breaking down inertia and building more competition into the retail banking market.

  319. I am quoting from your evidence, that the Big Four control about 70 per cent of the market and typically pay a standard rate of 0.1 per cent gross. You do not regard that as satisfactory, do you?
  (Mr Crosby) I do not regard that as an accurate representation of competition, no. I think we can compete more effectively and still make money.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 13 March 2001