Examination of Witnesses (Questions 280
TUESDAY 14 MAY 2002
280. Mr Ellwood, how will you respond?
(Mr Ellwood) We are also looking at whether we should
have free money transmission or pay interest. We will take all
these things into account and come to a view with the OFT.
(Mr Goodwin) Likewise.
(Mr Dalton) Likewise.
(Mr Barrett) Unless the Competition Commission has
a sudden catharsis and realises they were unfair.
281. Those answers give us the feel that there
is real competition out there: likewise, likewise, likewise and
likewise. Assuming the Competition Commission's recommendations
are fully implemented, how do you expect the banking industry
to have changed in five years' time as regards personal customers
(Mr Barrett) That is a tough question. Arising from
the Competition Commission or in general?
282. Arising from the Competition Commission's
(Mr Barrett) It will depend. I am not ducking you
but it is a tough question to answer. It depends on the market
dynamics which take place, it depends on the profitability or
otherwise of the sector, my guess is that it will lead to micro
segmentation, where there will be increasing attention to the
profitability of different accounts. Instead of drawing a drift
net through the community and accepting whatever comes in, you
will have more targeted, focused marketing. You will get price
discrimination, there will be an unbundling of services and prices.
They are called unintended consequences for a reason: because
it is hard to know how the market will play out, who will decide
to enter the market, what new propositions will come out. I think
the Competition Commission's intervention is unhelpful to the
development of the business and ironically will have a restraining
influence because the business is tough enough to get into already
and it will make it potentially less attractive for new entrants.
But I cannot be sure, to be honest. I cannot be sure.
(Mr Ellwood) The next five years will continue a trend
that we have seen. Customers do actually get a wider choice now
than they ever have before. I go back to the statistics: 30 suppliers
of current accounts, 130 suppliers of mortgages and 65 suppliers
of credit cards. I do think we will see more competitors attacking
the market share of the main banks. Customers will see and get
an increasingly good offer in terms of product offer and will
get increasingly good levels of service. They will also see a
wider range of offers. One of the reasons why we have sold over
three million of our added-value accounts, is not simply because
of the financial benefits but because of the non-financial benefits,
car breakdown, travel insurance and so on. I think we shall see
a slightly wider offering and the end result will be in five years'
time that customers who we believe get a good deal today, will
get an even better deal in five years' time.
(Mr Goodwin) The process we have seen will continue
with probably greater innovation of product, focusing around some
other aspects of people's lifestylemany people are short
of timeand greater convenience around some of the things
around their home, around their motor vehicles and so on. We shall
see more competition, more established competitors in SME banking.
It will not be a huge number more. It is not going to be 30, but
it will be a larger number than it is today. That was in the process
of happening in any event. On the personal side I do not think
that the number of competitors will change, but over that time
some will come and some will go.
(Mr Dalton) I think that the competitive market which
exists in the provision of SME banking services will continue
to move ahead in terms of better service, better products, better
things for our customers. I do not think the regulatory legislation,
the price legislation will increase entry into the market, I think
it will restrict entry into the market. It will reduce innovation;
people will say they will pay the same price so why would you
try to change things. The forces which exist in the market will
continue to drive things. A couple of the things the Commission
recommended, namely the price control recommendations, will not
act in that way.
Chairman: May I thank you for your appearance
this morning. It has been a fascinating session, maybe from our
point of view characterised by not an inch from you in terms of
your excess profits and whatever else. We have had everything
this morning: dud methodology, dud surveys, long-suffering consumers,
happy consumers, new concept of digging your head in the sand
and social obligations. One of my colleagues whispered sotto
voce "Socialist" obligations, but take no notice
of that. I look forward, as do my colleagues, to your negotiations
with the Competition Commission and the OFT and we look forward
to seeing what these recommendations are and to engaging with
you on that. Thank you for your appearance this morning.