Memorandum submitted by the British Retail
COMPETITION COMMISSION REPORT INTO THE SUPPLY
OF BANKING SERVICES BY CLEARING BANKS TO SMALL AND MEDIUM SIZED
The British Retail Consortium (BRC) represents
the whole range of retailers, from the large multiples and department
stores through to independents, selling a wide selection of products
through centre of town, out of town, rural and virtual stores.
The BRC serves small and medium sized retailers
through its retail trade association members, who often represent
a particular sector of the retail spectrum. A list of BRC trade
association members who represent the SME retail community is
given in Appendix 1.
BRC submitted a detailed response to the Competition
Commission commenting on its suggested hypothetical remedies to
counteract the complex monopoly situation which it had found the
major clearing banks exerted over the SME community. This is published
in the Competition Commission Report (volume 3, pages 49 to 51,
chapters 8.321 to 8.336).
The BRC is delighted that the majority of its
suggestions were contained in the Competition Commission's recommendations.
In particular we would highlight the following
as being important to SME retailers:
Greater transparency of cost structure,
interest rate tariffs and "plain English" contracts.
Unbundling of services, with clearly
stated tariffs for each service.
The raft of measures to make it easier
for SME retailers to switch banks more easily.
That current accounts with a positive
balance should earn interest at a rate linked to the base rate
as recommended by the Competition Commission.
That the Director General of Fair
Trading should review the provision of banking services to SME's
after three years to ensure the measures adopted had resulted
in the market becoming more competitive.
The BRC would like to draw the Treasury Committee's
attention to three aspects of banking services to SME's that are
of particular significance to the retail community.
As highlighted in the Cruickshank Report all
retailers pay excessive charges for the acceptance of bank payment
cards. However this is particularly true for SME retailers who
can pay up to 4.5 per cent of turnover to accept credit cards.
Although the Competition Commission remit for its investigation
included all aspects of money transmission charges, there was
no specific mention of payment cards.
The Cruickshank Report recommended the setting
up of an independent Payments Regulator to oversee the UK money
transmission market to establish and maintain a competitive regime.
Although the Treasury has completed a thorough consultation exercise
on the structure, scope and operation of a future Payments Regulator,
no legislation has been brought before Parliament. The BRC has
participated fully in this consultation process and understands
work has been undertaken to draft legislation to set up a Payments
Regulator, however pressure on Parliamentary time has not allowed
a Bill to be presented.
The BRC supports the recommendation of the Cruickshank
Report to set up a Payments Regulator and considers that for SME
retailers who accept a high proportion of credit cards, a fairer
money transmission regime would lower their costs significantly.
The BRC continues to press for the legislation to be presented
to Parliament at the earliest opportunity and requests that the
Treasury Committee supports this aim.
The BRC welcomes the proposal by the Competition
Commission that the major clearing banks should investigate the
feasibility, costs and associated benefits of a national scheme
in which the main clearing groups would be required to enter into
arrangements with those without a branch presence in a particular
area, for use of branches on fair, reasonable and non-discriminatory
SME retailers depend heavily on the local bank
branch network for obtaining change and depositing cash and cheques.
SME retailers would continue to be seriously disadvantaged if
there is only one major clearing bank offering branch services
locally with no national branch sharing scheme. They would have
virtually no opportunity to switch banks for a more cost effective
current account service, because they would be tied to the major
clearing bank offering the only local branch. This is particularly
relevant in rural areas.
Branch sharing is a vital component of greater
competition for the SME retail community and as such the BRC urges
the Director General of Fair Trading to ensure the main clearing
banks do deliver a fair scheme within the timescale specified
(one year of the publication of the report) and that the Treasury
Committee includes this important aspect in its report.
The BRC notes that the Competition Commission
has used the European Union definition of an SME as having a sales
revenue of up to 40 million ecus (ie £25 million)
The retail community considers that the banking
industry definition of an SME as having sales revenues up to £1
million is nothing more than a cynical exercise to reduce the
scope of SME companies that will be subject to the new recommendations.
The Office of National Statistics data for VAT
based enterprises in 2001 shows there are over 10,000 separate
retail companies with a turnover above £1 million but below
£25 million. These enterprises would not benefit from the
Competition Commission's recommendations should the restricted
banking industry definition of an SME be taken.
If the Treasury Committee is minded to seek
a UK definition of an SME, rather than a European Union definition,
the BRC would point to section 248 of the Companies Act of 1985
which defines a medium company as having a turnover of not more
than £11.2 million. Clearly this ceiling will have to be
increased in light of inflation since 1985. The BRC estimates
this would raise from £11.2 million to £20.5 million.
However the BRC urges the Treasury Committee
to stand by the Competition Commission's definition of an SME
of having a turnover up to £25 million.
The British Retail Consortium on behalf of its
SME retail members supports the major recommendations of the Competition
Commission on the supply of banking services by clearing banks
If a Payments Regulator were to be legislated
in Parliament, a national branch sharing network be in operation
and the Competition Commission's definition of an SME to be adopted,
the BRC considers SME retailers would receive even better service
from major clearing banks.