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Monday, 20 March, 2000, 08:55 GMT
Backlash against UK banks
Don Cruickshank
Mr Cruickshank has worked on the report for 16 months
Have banks ever been more unpopular?

The perception of fat cat banks laughing at their customers has never been stronger.

News in recent weeks of a possible 2.50 charge on cash withdrawals from banks provoked headlines condemning them for their greed.
Barclays cash machine
Barclays sparked a row on cash machine charges
But they could be about to get their come-uppance following the publication of the government's report on competition in banking.

The 16-month review has been led by Don Cruickshank, who believes it should be easier for new competitors to enter the market, especially in business lending.

He wants banks to make it easier for customers to switch current accounts and to make charges clearer so they know when they are getting a bad deal.

And he is calling for a Competition Commission investigation into the small business market.

Banks under pressure

The irony is that the government is getting tough on banks at a time when the market is at its most competitive.

A decade ago, First Direct introduced telephone banking, sparking a revolution in the way people in the UK bank.

Many customers now bank online, with Prudential's launch of its Egg savings account proving to be one of the most successful.
Prudential HQ
Prudential led the way with Egg internet bank
Increasingly banks have sought to get customers in the door by offering free current accounts and then make money by selling them life insurance and pensions.

The High Street banks are engaged in a never-ending battle to raise revenues and cut costs.

Indeed, "High Street" may soon be a misnomer, as more of them close branches to cut costs.

Even large profits do not guarantee that jobs are secure or that branches will stay open.

Last month, Lloyds TSB revealed record profits of 3.62bn and plans to cut 3,000 jobs.

The banks' defence to the charge of excessive profits is that their business is cyclical. When times are good they make large profits. In the 1980s recession, some banks, such as NatWest, were actually posting losses.

High charges and poor service

What prompted the government to commission the report was the repeated allegations of high charges and poor service.

Since then, the charge of rip-off Britain has gained political momentum.

The four main High Street banks - Lloyds TSB, Barclays, HSBC and National Westminster/Royal Bank of Scotland - have come under particular attack.

Between them, they are estimated to have between 70% to 80% of current account and small business lending.

With more and more current account providers setting up in the UK, banks can certainly argue that the market is competitive.

But while there may be a choice of current accounts, it is still hard for customers to close down one account and open another. Often it is unclear which deals offer better value.

There has been concern expressed about the transparency of bank charges, financial deals and interest rates.

Unwanted customers

Banks have already come into conflict with the government in the area of financial exclusion, which Mr Cruickshank highlights.

About one in five households does not have a current account with either a bank or building society.

While these customers may not offer the banks much profit, it would make the government's life easier if they had bank accounts, allowing for ease of payment of, for example, social security cheques.

And the cost of using cash machines is an issue that has been well-aired.

Mr Cruickshank still maintains charges should be set between 15p and 30p, rather than the 1 banks have been talking about.

'Socially exclusive'

In a leaked excerpt from his report, he described the Link network of cash machines as "inefficient, anti-competitive and socially exclusive".

He said: "There is a strong case for government intervention to remedy these failures.

"The recommendations in my report, if implemented, would open up to greater competition the markets for cash distribution and current accounts.

"This would bring ATMs into new locations, enable a wider range of services to be delivered through ATMs to customers and allow new suppliers to compete on a level playing field."

See also:

15 Mar 00 | Business
07 Feb 00 | The Company File
28 Sep 99 | The Company File
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15 Feb 00 | Business
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