Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 300 - 319)



  300. Careful, the Chancellor will be watching.
  (Mr Crosby) In the financial services marketplace, I do not think it does, because the conclusion of the Competition Commission came at the end of a substantial review by Cruickshank of competition in the banking markets and the Competition Commission was addressing the one area where Cruickshank's conclusion was that things would not move fast enough. In the universe that I am qualified to comment on, it does not raise precedents.

  301. Could you just clarify why you disagree with the Chancellor imposing price control?
  (Mr Crosby) In the specific proposal here, what you will see in the scale of the investment that we are making as an organisation this year to enter the small business market is that we are hiring 1,500 people this year and we shall not in the first year achieve revenues to offset those costs. It is a big investment but we shall get it back in due course; we would not be doing it otherwise. The fact of the matter is that paying interest on business accounts was a source of marketing differentiation for us, a way of highlighting with customers, "Come to us because we are really different, we are fair minded, you can trust us in this area". We have lots of other things but it is unhelpful in that respect because it does restrict that particular point of difference.

  302. What do you think of Mr Harley's suggestion—I am inferring what you said, Mr Harley—that you could have price controls for three years and then you revisit it? Is that going to work? Unpicking price controls.
  (Mr Crosby) It does not help me because I am not talking 20 years; I am keen to make an impact here within five years and certainly five to ten. Three years is an awfully long time in terms of our ambitions.

  303. I have heard around Whitehall that this does in fact set a dangerous precedent in relation to SMEs because it might be extended to personal bank current accounts, in other words the Government and the authorities might seek to impose price controls on personal current account business. Surely that must worry you?
  (Mr Crosby) For us it would be unhelpful as one of the leading players offering interest on personal current accounts. I should be very surprised if they did, given the 20 to 25 per cent market share of new accounts which we took last year. The fact that we really are having an impact on the Big Four is not just the number of accounts that we took, it is the nature of the accounts. In the current account market, we were taking persistently the higher balance customers from which they draw their revenues to the greatest extent. From our point of view, in just one year, our balances on our current account business grew by 80 per cent. So that market is moving and I am sure you have similar experience and statistics. That market is moving really quickly, so it would be really odd for the Competition Commission to step in and make any recommendation there.

  304. May I ask Mr Harley and Mr Targett? You do not think the Competition Commission, inspired by the Government, would seek to intervene with price controls in areas outside SME banking, that is personal banking. You do not think that is a runner at all. You are absolutely relaxed about that, are you?
  (Mr Targett) Having only been here for a couple of months, I am not sure I can give you an answer to that, as to whether they would or they would not. I think sometimes price controls can be unhelpful in terms of deterring entrants to the market and it does not help competition. If you look at a lot of small businesses, price is number seven out of eight in terms of their key priorities. There are many things which drive choice rather than price and price can sometimes just be the one instrument that people talk about, but it is not the key determinant. Things like access and relationship management and helping people.

  305. I was really asking about how you interpret future Government action.
  (Mr Targett) I do not know.
  (Mr Harley) I certainly see no sign that the Government is intent on intervening in the way you describe and I do not think it is necessary either in the current market. In the business market, it seems to me like a short-term remedy as opposed to a long-term solution. A long-term solution involves competition.

  Chairman: You can be reassured that we do not know what is in the Government's mind as well. We are sticking to our inquiry.

Mr Beard

  306. What are the chief obstacles people have experienced in transferring their accounts from one of the Big Four into your separate banks?
  (Mr Harley) On the business side?

  307. Yes.
  (Mr Harley) The issue primarily is this lack of portability of their credit records which leaves them feeling rather nervous. If they leave behind a supplier of ten or 20 years' standing, they have no track record to take to a new supplier. That is the biggest issue.

  308. That is the biggest one. Is that true all round?
  (Mr Targett) Yes.
  (Mr Crosby) Yes.

  309. What is your experience of them actually getting within the five weeks of the banking code for the transfer?
  (Mr Harley) Mixed. It varies from bank to bank and from week to week almost. It is certainly not a standard which is being delivered consistently.

  310. It is not being delivered consistently.
  (Mr Harley) No.

  311. What has been your experience?
  (Mr Crosby) By comparison to the performance on personal accounts, where we have the automated switching system now, there is a very, very big difference. It is not obvious to us. We have an automated switching system for personal accounts which includes all the Big Four. It is not obvious why that cannot be extended at this stage to small businesses. It is not as important as the credit referencing element, credit transfer and credit referencing, but it is still a key element.
  (Mr Targett) We do not see that as a problem. The standard is not met 100 per cent of the time, but from our side, when we are switching an account to a competitor, we make it a standard that we do.

  312. Do you feel that there is a policy amongst the Big Four of putting up a rearguard action to dissuade people from transferring their accounts?
  (Mr Crosby) I do not think I would be being critical in suggesting—and I would not intend it as a criticism—that if any customer came to us saying that they wanted to move we would help and accommodate that, but we would also ask them whether there was anything we could do or make good that would encourage them to stay with us. I would expect them to do something similar. The key thing is not trying to keep customers, it is being helpful to customers who have made their mind up.

  313. That is normal competitive practice. I am talking about prolonging the period it takes, not transferring standing orders or whatever.
  (Mr Crosby) I think the fact of the matter is that three years ago in personal current accounts the standards of help and assistance in making these transfers happen were dramatically lower than they are today in personal current accounts. My point is that there is real scope for improving it in the business area.

  314. Mr Harley, what are your experiences?
  (Mr Harley) I do not see any signs of there being any policy. It is simply patchy execution which is the issue.


  315. So it is all sweetness and light between the different banks. There is no problem. You all get on famously.
  (Mr Crosby) I would not want to give that impression. I am not trying to.

  316. That is fine. We are coming near reality now. On the personal banking side, what progress has been made since our predecessor's report in making it easier for customers to transfer current accounts between banks? What proportion of your personal and business customers typically switch to another banking service provider each year? What attracts new customers to you, in the light of your remarks about the different situation now from three years ago. Can you give us an insight into that?
  (Mr Crosby) What you have now is the automated switching system and all of us are delivering the requisite support and data as part of that switching system within the five days to a very high percentage—in the high 90s or 100 per cent in every case. Therefore the issue in terms of transferring current accounts centres now much more around the direct debit providers, the utilities who are now more responsible for the delays. The delays are not enormous but they damage the perception the customers have that it is easy to move. That is the thing which is really important. It has come a long way.

  317. What proportion of your customers typically switch now?
  (Mr Crosby) In terms of leaving us or coming to us?

  318. Both.
  (Mr Crosby) I will have to turn to a colleague for the leaving statistic and I will get it for you. In terms of customers joining us, I would say about half the 600,000 we took last year were transfers from other banks.
  (Mr Targett) We typically lose about 5 per cent of our customers and we are seeing similar statistics on the way in terms of new customers. We clearly want to be competitive on price, but it is not the only determinant. In terms of attracting new customers, we very much look at relationship management and lots of software which can help people manage their business and tailor their products to their needs as being as important as price. We try to differentiate that way because otherwise we cannot compete.
  (Mr Harley) Inbound switching is about 25 per cent of the new customers. Outbound low single figures of percentage.

  319. What rates do each of you offer on the current accounts for personal customers? Are there any strings attached?
  (Mr Harley) We offer a choice to our customers depending on their behaviour.

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