The C word in Banking, it's Competition we need
We now have the long awaited plans for reforming the UK banking sector in particular safeguards to try to make it harder for the government to end up on the hook for a big bank and all its risky investment business going down bust.
Unfortunately, once again, increasing competition which businesses in North Wales tell me is the real issue feels like a footnote to the real action on banking reform. But it shouldn't be. A lack of options both on the High Street and beyond is a major supply side factor holding back the flow of lending to the real economy and in particular the small business sector.
Only one in the past sixteen quarters has seen net lending to UK businesses positive whilst the four main business banks hold 85% of business current accounts in the UK. Our own survey results show one third of manufacturers saying viable investments are going unfunded because they have difficulty accessing the credit they need. Organic change is going to take decades to have an overall impact, even if these smaller banks were adding a branch a week.
There have been multiple reviews of the state of competition in banking in the UK over the past 15 years - but definitive action still seems to be lacking. Indeed with respect to business current accounts, market concentration appears to have increased marginally in the last ten years. We think full account number portability should be the aim. Customers are understandably cautious - perhaps moreso than in other sectors - about switching when essential payments depend on systems that have failed too often in the past.
Some in the financial sector might say that account number portability is too hard or that it's not done anywhere else. That seems a strange attitude indeed for a sector that has gone to extraordinary lengths to contort itself in increasingly byzantine financial innovation in search of new customers. Surely, with the right motivation, full account number portability could be cracked by the City.
There may also be a case for considering now whether at least the business current account market should be referred to the Competition Commission. We're not saying definitively that a referral should be made - but rather that the government should consider whether the sum of all its actions is going to add to meaningful enough change or whether a referral is needed.