Competition in banking for consumers
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Economic Secretary to the Treasury, Andrea Leadsom on banking competition in the UK.
Good afternoon, and thank you Anthony Browne for that kind introduction.
It’s a great pleasure to come and speak at the BBA (British Banker’s Association) today as Economic Secretary.
As some of you may know, I came into this post with a long history of interest in your sector.
I’ve spent the last four years on the Treasury Select Committee.
And the previous 25 – prior to becoming an MP – working in the financial sector.
Where my last role was Head of Corporate Governance and Senior Investment Officer at Invesco Perpetual.
In fact, I was in that position back in 2007 when we saw the near collapse of the global – and UK – financial system.
And despite seven years having past since.
So significant were those events.
And the resulting fallout, which is still echoing now.
That it’s still almost impossible to talk about our financial sector without talking about the financial crisis -
But today, I’m going to give it a go.
Because whilst we cannot – and must not – forget about the past.
And while we need to be aware that there is still more to be done to repair the damage left.
Today, I want to focus on the future.
And it’s a future that we should be excited about.
As a country, where our economic measures are taking hold and growth is returning.
But also as a global centre for financial services.
Where the UK is delivering exciting new technologies and products to benefit people and businesses.
The way that banks are talked about today is often based around the subject of social responsibility.
Their responsibility to support UK businesses.
To give people a fair deal.
Certainly to make up for the damage done by the financial crisis.
Which is – of course – absolutely right.
But as we all know, banks themselves are – like other industries – commercial, private sector businesses that need to make money.
And there’s nothing wrong with that.
In fact, making profit is key for economic growth.
And in securing a strong future for our children and grandchildren.
So you will always hear me speaking up for profitable businesses!
But as with all business, it’s essential to remember that most fundamental principle of commerce:
That the customer is king!
When that principle is forgotten, that’s when things go wrong.
As Adam Smith said so long ago in The Wealth of Nations;
Free enterprise makes us all wealthier.
But free enterprise requires ‘free entry’ and ‘free exit’ of market players.
And that’s why over the last few years we’ve focussed huge effort on enabling ‘free exit’.
By addressing too big to fail in the banking system.
But we are also putting a great focus on ‘free entry’ of new players.
And that means making it much easier to set up a bank.
And much easier to gain market share.
In short – much more competition!
So the reforms this government is making to financial services.
Are as much about competition as they are about safety, and stability.
While a safe financial sector is absolutely essential.
It isn’t enough –
We need real competition between banking service providers.
Where customers can be won and lost.
And where firms have to offer the best services and products to be successful.
Creating the right foundation for this – as you’ll know – has required some pretty fundamental changes by government.
We’ve created a new Payments Systems Regulator to look at longstanding competition issues -
You can’t be a bank without payments.
And you can’t compete with banks without payments.
So access to these systems needs to be fair.
We’ve given both of the new financial services regulators formal competition objectives to make sure competition is ingrained into regulation.
And there have already been some big pro-competition changes on this front.
Like the steps that have been taken by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to lower the regulatory barriers that prevent new banks getting started.
These do look to be having a big impact.
The FCA and PRA are currently talking to around 25 potential new banks.
And we have newer banks already offering more choice on the high street.
- TSB has re-launched as a new bank
- Tesco Bank have just entered the current account market
- Virgin Money has said they will be offering current account products this year
- Metro Bank seem to be opening new branches by the day
On top of that we’ve got alternative lenders, like Platform Black, and Funding Circle.
And payments providers like TransferWise.
All of which is great news for consumers.
Because it means more choice and more competition both now and in the future.
There are also the ongoing industry inventions that are giving customers a better experience.
Like the new seven-day current account switching service.
Which the industry delivered in an ambitious two years.
And it’s a credit to all of you that it went live on time and to spec.
That switching service has made a huge difference to the ease with which customers can move their account.
Which is – of course – great news for competition.
Now it’s no secret that I’m a strong a supporter of account number portability.
I think such a system could bring significant additional benefits for bank customers.
Perhaps you don’t agree?
But the good news – for me anyway – is that the Financial Conduct Authority (FCA) are going to be looking at this issue in detail, starting in a few months time.
So we will hopefully get some real answers on some of the uncertainties that surround this subject.
Like how much it would cost.
And the benefits beyond just switching.
Then there is the new mobile banking payments service Paym –
Which lets people pay each other using their mobile phone number.
That’s a great convenience, and I hope all banks will offer the service.
Paying your share of the taxi ride home when your friend is the only one with cash will certainly be a lot less hassle.
Although I have to say.
As a user of Barclays excellent new app Pingit.
I did say to Anthony Jenkins the other day that.
Since he kindly introduced me to the app.
I will be sending him the bill.
Because my teenage son seems to text me at least once a day asking me to ping him money for something!
Soon too, the government will also be legislating for cheque imaging.
Which will see customers paying in their cheques using their smart phones.
Yet another thing that people will be able to do on their phones on top of reading emails, playing Flappy Bird, and chatting on WhatsApp!
That’s the benefit of my two younger children keeping me in touch with the latest trends!
The need for competition and innovation is, of course, vital for businesses as well.
And the government has been working hard to ensure that smaller businesses.
Are getting the finance they need to grow and create jobs.
The good news is that this is another area where there is a lot of innovation taking place in the UK.
With new forms of finance – and high-tech solutions– being developed all the time.
So the government is making sure we do what we can to support financial technology companies.
And our growing crowd-funding and peer-2-peer lending industries.
We’re legislating to ensure alternative lenders can access important credit data on smaller businesses.
Which will help level the playing field by making it easier for smaller businesses to get a loan from lenders other than their bank;
We’re also looking at proposals to help smaller businesses that get rejected for finance, be linked up with other lenders.
And it is great to the see work the industry has been doing with Professor Russel Griggs and his team.
To ensure the right processes and information are in place for businesses to appeal when they are rejected for borrowing.
The latest report on his work came out just recently.
And showed that it has already led to over £40 million in additional lending over the past three years.
The new Business Banking Insight Survey.
That allows businesses to see how lenders have been ranked on the products and services they provide.
Is also a welcome development.
And these measures build on big interventions that have been made to support business lending.
Such as the Funding for Lending Scheme.
And the creation of a new British Business Bank.
Now, I want to make one important announcement today.
At Budget this year, the six largest current account providers made a commitment.
To give their customers portable current account information in an industry standard format that can be plugged into comparison tools.
Right now, it’s far too hard for people to compare the deal they get with personal current accounts.
Because the way these products work are so dependent on the way we use them.
So this new commitment to create a system called Midata has the potential to put more control into the hands of customers.
By helping people get a much better understanding – for the first time – of how they are spending their money.
And which is the best product for them.
I‘m delighted to confirm today that the format has now been agreed.
And that the service will be available to customers by the end of the financial year.
Account holders will be able to download a year’s worth of transactions in a single file.
And comparison tool providers are already looking to create online tools that use the information.
This is an excellent innovation, and one that I hope will truly transform the current account market.
So it is right that we look to the future.
And it is right that we are optimistic.
The changes and the innovations that you are making as an industry –
Demonstrate – I believe – that banking services are moving in the right direction.
Towards a greater focus on the customer experience and on offering a more transparent and competitive service.
And I hope that as an industry, you will continue to commit to what is needed.
To create a better financial services sector for businesses and for people.
Let me assure you that this government will continue to do all it can in pursuit of that worthy ambition.