Examination of Witnesses (Questions 300
TUESDAY 16 JANUARY 2001
300. The Committee happens to have this very
recent evidence from Abbey National. Abbey National are of course
a player, no doubt they have their own reasons for doing these
surveys and for providing this information to the Committee, but
at last, above the surface, we have some large-scale, systematic
information which is very recent. What it shows is a very poor
performance on behalf of two of the major clearers. Do you not
think that is cause for concern? Does it not cause you, even from
the British Bankers' Association, to have some doubts about whether
all this wonderful rhetoric of transparency will be very easily
translated into things we can all see and know?
(Mr Sweeney) It depends entirely what you mean by
301. You used the term.
(Mr Sweeney) Yes, I did. I said earlier that I did
not want to see a close link directly between the costs of providing
the service and the final price because I just do not believe
that is the way markets actually work. What you do need is sufficient
transparency, which is what I mean by transparency, for the customer
to be able to assess whether they are getting good value and to
shop around in a market which then works effectively in precisely
the way we were just having described for us in the credit card
market. You will find that prices are then driven down because
there is more choice in the marketplace. That is the most effective
way of doing it. I have no idea, because I am not privy to the
relationship which Abbey has with other banks, of the strength
of that information, what it means, how it was assessed, what
its significance is. In one sense I welcome it because it is part
of the market working effectively and the industry saying to itself
in terms of best practice that they are doing X but others are
doing Y and that is less good than us. I have no problem with
it; it is part of the market working.
302. Mr Hawkins' point is, in the case of credit
cards, which is the particular area he is concerned about, that
if we are assiduous enough and if we are careful enough and if
we keep the right paperwork we can all discover the prices we
are being charged for access to credit card services by all the
different providers. Your point is a very important one which
is that costs and prices are not related at all in this particular
market. You are right. So we are still no further towards discovering
where this 98.7 per cent of costs actually is, are we?
(Mr Sweeney) I did not actually say that. What I said
was that I would be sad if there were always a ritualistic relationship
between cost and pricing. I would submit that it is not a great
deal different. At the moment I am trying to buy a car. I have
absolutely no idea what it costs to produce a car, so I have absolutely
no idea whether I am getting a better product by buying car A
as opposed to car B. Actually getting behind pricing mechanisms
is extremely difficult in all markets. What you have to do is
make sure that there is sufficient transparency for people to
judge value for money for them and then the market will bear on
the players by driving down prices to the lowest common denominator.
That is the way markets work throughout the world and work very
effectively. It should be no different in the banking world.
303. So this is your position: we are in possession
of all the information, we have designed a structure in which
most of the costs are actually contained within the banking organisations.
The bit we can see, which we can identify, which is the transmission
cost between the banks, is infinitesimal, it is 1.3 per cent of
the costs. Ninety-eight per cent of the costs are hidden within
the banks and your attitude is that it is down to us as consumers;
we have to do the work, we have to do the comparisons which drive
those costs down.
(Mr Sweeney) No, with respect, I did not say that.
304. Every time I play back to you a proposition
you have advanced yourself, you deny liability. Very interesting.
(Mr Sweeney) No, every time you play back a proposition
I have advanced it is actually slightly different from the proposition
I did advance.
305. Very typical of banks.
(Mr Sweeney) I would submit that is not accurate either.
Let us leave that. The point I am making is that a slavish adherence
to the cost of a product in setting a price or determining whether
that price is fair is a blind alley. Certainly I do not expect
consumers to thrash around trying to work out what the individual
cost structures of banks are, any more than I expect to have to
thrash about trying to decide what the individual cost of a Ford
is or this suit. I have absolutely no idea what it costs to produce
this suit. A suit of this quality is produced by a variety of
different manufacturers and what I need to be able to know is
what the price of each of those suits is and be sure that they
are of the same quality so that I can determine which one I can
buy. That is the industry obligation. That is what the FSA is
working on. That is what I am personally committed to. That is
what the BBA is committed to; transparency in that sense. It is
for people like Cruickshank and the Competition Commission and
others to look then at the broad structure and see whether that
transparency produces a price for the customer which is fair in
relation to cost. That seems to me perfectly proper. Cruickshank
has given one answer. I do not share all of it. The Competition
Commission is looking at it in another part of the marketplace
and that is absolutely fine. That is not of concern to the individual
consumer, nor should it be of concern, but it is also not the
be-all and end-all of an effective competitive marketplace. That
is my point.
Chairman: Thank you very much for your
answers and thank you very much for coming.