Retail Banking Team Competition and Markets Authority Victoria House 37 Southampton Row London WC1B 4AD 27 August 2015

Transcription

1 Retail Banking Team Competition and Markets Authority Victoria House 37 Southampton Row London WC1B 4AD 27 August 2015 FSB comments on the CMA retail banking market investigation consultation working paper on barriers to entry and expansion: branches The Federation of Small Businesses (FSB) welcomes the opportunity to respond to the above named consultation working paper. This submission sets out our comments on the assessment of branches as a barrier to entry and expansion within the retail banking market. The FSB is the UK s leading business organisation. It exists to protect and promote the interests of the self-employed and all those who run their own small business. The FSB is nonparty political, and with around 200,000 members, it is also the largest organisation representing businesses in the UK. The FSB is also one of the main contributors behind CCBS and has been working with the other members on this issued for a very long time. In submitting our response, we attach a copy of the CCBS submission (annex 1) which we endorse but equally, there are observations we would like to highlight, as follows: Shared smart ATMs are a technological innovation that could provide alternative access to banking where facilities are reduced, including Post Office franchises with limited capacity or capability. The shared nature of these ATMs would enable challenger banks to develop a market presence alongside, and on an equal footing with established high street banks. The government wants smart ATMs to be in place so customers can deposit as well as withdraw cash from intelligent cash machines. 1 However, previous governments did not adopt CCBS proposals and intransigence on the use of smart ATMs, and shared branches, has continued. It remains unclear what is being done, in particular to progress the required rule changes to the LINK Scheme to enable the use of smart ATMs. The sharing of resources such as smart ATMs could raise challenges for banks. However, we understand that banks can manage anti-money laundering by setting their own individual limits (as the card issuer) on a shared smart ATM. This could include, for example, how much can be deposited, what pattern of deposits will flag a potential issue, and when to request further information from the depositor. Also, the 2016 digital imaging of cheques will enable electronic payment and reduce the costs of handling cheque deposits via an ATM. 2 The bank branch closure protocol was agreed early this year and is due to be reviewed in early The outcome of the review should be provided to the CMA to inform this retail banking market investigation. 1 Budget unlike deposited cash, cheques cannot be recycled to the next customer as a withdrawal 1 of 5

2 On a broader but critical point, small businesses who do not have access to bank branches need reliable broadband connections. These are necessary to properly support online banking. We trust that you will find our comments helpful and that they will be taken into consideration. If you would like to discuss this or receive further information, please contact my colleague Erin Flood, Senior Policy Advisor in the first instance at Erin.Flood@fsb.org.uk. Yours sincerely Mike Cherry AIMMM FRSA Policy Director Federation of Small Businesses 2 of 5

3 Annex 1 COMPETITION & MARKETS AUTHORITY Retail Banking Investigation Observations of CCBS on Working Paper 13 August re Branches The findings of the CMA paper have been read with interest and most confirm our experience gained over 17 years of objectively monitoring the industry. The comments of CCBS (Campaign for Community Banking Services) on this CMA working paper are restricted to the numbers below where there is an element of divergence or clarification or where CCBS considers its comments add value to the findings and maybe to the summary. Recent trends 20 Reconciling the numbers is not easy but we would counsel against drawing attention to an apparent difference in the trend rate of decline of branch numbers in Scotland compared to England & Wales based on one year only which includes a one-off rationalisation of Dunfermline into Nationwide, when Nationwide is not regarded as a bank by many as it does not offer current accounts to businesses and third sector sector and legally is not a bank. Our experience of branch closures over the years is that comparisons between banks, and therefore countries, on other than 5 year or even 10 year trends, can be very misleading as they are subject to many variables in between. What is relevant is that the branch density per million of population today is much lower in England at 145 than Wales at 181 or Scotland at 196 and all of the UK is significantly lower, by factors of 2 or 3, than continental European countries. 22 It is our understanding that separate Business Centres (Some have separate ones for mid-sized businesses and, covering much larger areas, for really large corporates) of all the banks do not provide counter, ie cash and cheque handling services, for business customers but are merely bases for relationship managers to operate from and to conduct business customer interviews. In fact these centres are not unlike those of Handelsbanken UK whose cash and cheque handling is undertaken by HSBC branches whereas in the case of the traditional banks this element is undertaken by their own retail branches. 25 CCBS does not differ from the CACI estimate of 800 branches (further reducing to 600) per brand to cover the UK (please re-visit the savings page of Banking Centres Main Advantages for Banks at but strongly contends that neutral transaction handling outlets (improved post offices and/or shared use branches) will still be required in many other centres to supplement the remaining branches of the traditional banks and offset the much smaller, and geographically imbalanced, network footprints of challengers like TSB and Williams & Glyn and new players which might emerge from future mergers. 26(b) Capability at many post office outlets needs to be substantially improved if its network is to be regarded as an acceptable bank substitute by business customers of traditional and new banks. 26(d) The acceptability of mobile bank vans as a substitute for a bricks and mortar presence differs substantially between Scotland, where the minimal service operates largely in very remote areas, and England where it its limited re-introduction by NatWest is considered unsustainable as a single brand service. The full CCBS reports on mobile banking experience, and September 2011 are available together at and nothing material has changed since. 27 The ambition of HSBC to change branches from transactional hubs to delivering customer conversations is not unique to HSBC but there is a real danger that without the ability to transact, if needed, 3 of 5

4 customers will not visit the branch to explore financial product purchases only but rely on the internet and the personal financial pages to compare a range of providers which may or may not include their current account provider. Importance of branches to consumers 30 A state which was predictable and is why the incumbent industry should have been pursuing the neutral shared use branch model much earlier but maybe they foresaw the opportunities this could provide to smaller challengers and decided to do nothing although from the consumer and small business side organisations have been providing to the industry detail and experience of the technology in use elsewhere for many years. 34 Without the coverage afforded by a national branch network, the numbers of potential customers/potential customers of smaller banks who can enjoy their own preferred local branch convenience is diminished. 49. Accords with CCBS s experience that the younger, more mobile customer, expects to be able to transact or deal with day-to-day account management matters at any branch of his bank where he is when the need arises and a paucity of branch coverage is an unwelcome challenge which could result in a change of bank. The experience of younger TSB customers who no longer have access to the much larger and better distributed Lloyds Bank network could be instructive. CCBS also agrees that older customers see the closure of the branch on which they rely as devastating. 53 The importance of a network of branches generally comes later than the start up phase and depends on the nature of the business. A single retail establishment is unlikely to need more than the most local branch, which influences choice initially, but should additional shops be opened, or the business is in the nature of an itinerant tradesman, a need for convenient access to banking elsewhere becomes more apparent. 57 Presence of resident business managers able to deal with customers having turnover between ¼m - 2m in retail branches seems limited to larger branches in much larger towns, not throughout the networks. Importance of branches to banks Fig15 The outperformance of Santander, Lloyds (both Lloyds and Halifax brands separately), Nationwide and TSB in terms of net PCA gains irrespective of branch coverage, is down largely to the exceptional, and probably unsustainable, generosity of those banks current PCA offerings in relation to competitors. Metro s activity is exceptional branch service centred coupled with the fact that this is the first completely new bank on the high street albeit in very few locations so national market share will remain largely irrelevant. Fig17 Seems to be based on numbers of retail branches the banks concerned claim to have a resident business manager. The net BCA gains performance are not surprising given that Santander is putting in resources to build a presence in the business market from an inherited low market share base and its failure to acquire the RBS England business, Metro having a new service based image but with minimal market share impact nationally and Handelsbanken offering a tailored service to the business market which is not replicable on any scale hence its low overall market share. 82 Use of improved IBAAs, and post offices if and when improved, would be a big step towards improving competition between established banks in no choice communities but availability of neutral shared use branches in an increasing number of locations could do more to create an equal playing field in terms both of transaction capability and brand recognition between established and challenger banks as the former diminish their own branded networks, by over 500 in 2015, and the latter increase/re-position theirs. 93 Long overdue improvements to the operation, awareness and fair, reasonable and non-discriminatory pricing of IBAAs for small businesses would benefit many businesses in the approximately 900 communities which offer no choice of banking provider to branch dependent business and personal customers. The composition of this category is changing, and the size and importance of communities concerned gets bigger as previously multi-banked communities move into the space as a result of closures and existing smaller ones become bankless. CCBS understands that analysis by CACI provides a very similar number of sole bank communities. 4 of 5

5 94 There are serious doubts about the post office network s ability to be a substitute for bank branches, both in terms of the absence of national agreements for small business and third sector between individual banks and Post Office Limited, and local outlets capacity to handle business and third sector transactional activity for the banks. Treasury and BIS Ministers have written, reported in the FT , to the BBA expressing concern that promises of alternatives to branches made at the time of the Access of Banking Protocol in March have still not been achieved. This applies to improvements at post offices and work on shared services alternatives other than the post office (which CCBS interprets as neutral shared use branches and IBAAS) which government instructed the BBA to report on by February 2015 and which it has not done to date. CCBS 24 August of 5