Challenger banks 'offer nothing new'
Transparency the key to more banking competition, says Tesco’s Higgins
The former RBS and HBOS executive says that allowing customers to see more clearly what they are paying and making the process of switching easier is the key to improving the service.
Commenting on the Competition & Markets Authority investigation into the sector he notes that some of the so-called “challenger” banks that have entered the market are treating customers no differently to the bigger banks.
In a blog on the Tesco website, Mr Higgins welcomes the current review but he says customer apathy is a big factor in deterring customers from switching their bank.
He says that Tesco’s efforts to build a bank have shown how tough and demanding it is and how the regulatory environment makes it so. But he argues that it is appropriate for the barriers to entry to remain high in order to retain and build trust.
“Having recently completed the task of launching a current account we are well aware of how hard it is to enter the current account market,” he says, noting the investment needed in IT, meeting capital targets, and so on.
“However, these so-called barriers to entry are necessary. Above all else, customers must be able to trust their bank to be safe and secure and so we would not support regulatory intervention to significantly lower barriers to entry.
“But it would be a mistake to conclude that the introduction of new banks will automatically bring about more competition and better outcomes for customers. There are many examples of sectors that are highly competitive with relatively few competitors. The UK supermarket sector being just one good example. And there are also examples of so called “challenger” banks that have entered the market in recent years that treat their customers in exactly the same way as the larger, established banks. This only exacerbates the problem and reinforces the perception that all banks are the same.
“Apathy is a key issue. Customers do not see a big enough difference between what the banks are offering and so they have no real incentive to switch.
He says overall customer satisfaction figures are low and that despite the introduction of the new switching service the numbers doing so are also low.
“Mechanisms to improve switching can’t and won’t remove the other considerable obstacles to effective competition, in particular ensuring there is complete transparency in what customers pay to their bank, and what they receive in return. That is the key issue to ensuring effective competition,” he says.
Mr Higgins highlights the supermarket sector as a model to be followed by the banking sector in the way in which it provides transparency to customers wanting to make comparisons.
“Supermarkets operate in a market where comparability and transparency are the norm,” he says. ” A customer can easily compare the cost of their grocery shopping and make a choice on where they shop based upon this. The same cannot be said of the current account market where charges are often hidden, products complex and the communications to customers are all too often opaque and confusing.”
Asking what can be done about it, he says: “Some have suggested the introduction of mandatory account fees would remove the so-called ‘myth’ of free banking and encourage customers to shop around. We don’t think that would be right for customers as, in the absence of increased transparency, it would not drive a better deal for them and would only cost customers more.
“For this market to work, the industry’s collective energy and effort should be directed on ensuring that customers can quickly and easily understand the value and the cost of a current account to them in simple and clear terms.”
If these measures were introduced he says more customers “would vote with their feet – forcing all the banks to work far harder for their customers.”
He says: “The CMA has a golden opportunity to take action that will increase competition in the personal current account market. I hope that it is one that will be seized upon as it will ultimately be to the benefit of the customer.”