Select Committee on Treasury Minutes of Evidence

Memorandum from Halifax Group plc


  1.1  The Halifax is pleased to be appearing before the Treasury Select Committee. We monitor the Committee's work and value the contribution of its members to the development of the Banking sector.

  1.2  In recent years competition across the financial services sector has grown significantly, especially in the Halifax's core areas of mortgages and savings. Elsewhere, however, in the sector competitive pressures are less pronounced.

  1.3  In this submission, we cover the aims and objectives of Halifax's current strategy and the initiatives Halifax and its subsidiary companies, notably Intelligent Finance, are taking to deliver more competitive banking products and services.


  2.1  The Halifax aims to grow its business by maintaining its leading position in mortgages and savings and increasing its market share in the personal banking market—current accounts, personal loans and credit cards. This strategy is designed to deliver real benefits for our shareholders and customers alike.

  2.2  Our committment to growing our business is expressed in a number of ways:

    —  An emphasis on value for money products. Our current account (see 3.3) and personal loan products are deliberately priced to be amongst the most competitive in the marketplace. Our base rate tracker mortgage is one of the most competitive in the market, keenly priced at a rate of 5.55 per cent.[1] Intelligent Finance offers customers the opportunity to minimise the cost of their borrowings or maximise the value of their savings through the daily operation of its automated netting system.

    —  A focus on retention. Halifax is alone amongst lenders in contacting its mortgage customers on a pro-active basis to see if they can get a better deal. Over a million customers have been written to by the Halifax in this way in less than a year.

    —  A commitment to straightforward, government sponsored products. Unlike many in the fund management industry, for example, the Halifax supported the ISA from its introduction. The Group is now the largest player in the cash ISA market.

  2.3  In developing new business, it is the Group's intention to double its share of the current account market (currently around 6 per cent) over the next few years. We are convinced that now is the right time to make this move too. City analysts suggest that the Return on Equity for clearing banks on their retail banking operations is almost double that of so called mortgage banks such as the Halifax. This is a tempting margin opportunity, difficult for the Halifax and its peers to resist.


  3.1  All of the available research[2] suggests that the current account market has the greatest level of concentration within the banking sector. Despite the fact that the current account is also the most widely held financial services product, it also appears to be the most uncompetitive. The Big Four clearing banks,[3] for example, control around 70 per cent of the market and typically pay a standard rate of 0.1 per cent gross pa on balances up to £100,000.

  3.2  This lack of competitiveness presents an opportunity for the Halifax Group to present current account customers with a better deal—and make a decent return for our shareholders. Ours is a two-pronged approach. We are attracting new current account customers through both the Halifax brand and Intelligent Finance, a telenet banking operation ie telephone and Internet banking services.

  3.3  Halifax launched earlier this month a current account that pays 4 per cent gross pa (4.07 per cent AER) interest on credit balances—over 40 times the rate paid on balances by the Big Four clearers. This account, deliberately constructed as a mass market proposition, is designed to appeal to the majority of customers who like to, in the main, use our High Street branches while also having the option to bank over the telephone or Internet.

High Street Provider
Credit Interest
Authorised Overdraft Rate

4.00% gross pa
10.00% EAR
0.10% gross pa
18.80% EAR
0.10% gross pa
16.90% EAR
Lloyds TSB
0.10% gross pa
18.90% EAR
0.10% gross pa
18.38% EAR

(The Halifax rate applies to accounts funded with £1,000+ per month. The other banks' rates refer to their standard current accounts where the balance is up to £100,000.
Source: Moneyfacts. Correct as at December 2000

  3.4  Separately, Intelligent Finance's telenet banking proposition was launched last autumn and offers all of the main banking products at highly competitive rates. For example, Intelligent Finance's customers receive a basic rate of 5 per cent gross pa on their current account credit balances, but through its unique balance netting system, they also have the option of obtaining savings rates on these balances and potentially up to 10.5 per cent AER if they elect to use the system.

  3.5   The Group's focus on current accounts is driven by the conviction that the dynamics of this marketplace are changing rapidly. Our own research, drawn from work we commissioned from NOP,[4] suggests that more and more customers are looking for change. In particular, they are demanding better value for money from their current account providers.

  3.6  This quest for better value may also be driven by the perception that the main players in the current account market seem to be enjoying significant returns from this sector. Halifax research, for example, suggests that the Big Four's 27 million current account customers could potentially be losing in excess of £1 billion a year by not moving to our new current account or the products of some of our peers. This research, some of it sourced to NOP and some of it drawn from the Cruickshank report, draws together the potential profits the clearing banks make from both sides of the currrent account balance sheet—credit balances and overdraft rates.

  3.7  A comparison with the mortgage market may be instructive here. Ten years ago competition in this sector was relatively muted and remortgaging was rare. This is no longer the case. Yet the move to a much more competitive mortgage market has taken place without any significant evidence of switching barriers even though transferring a mortgage can sometimes be a complicated process.


  4.1  There are obstacles which dissuade consumers from switching accounts to an alternative provider offering a more competitive product. They are: firstly, the perceived "hassle factor" involved in switching accounts; secondly, the actual hassle factor involved in doing so.

  4.2  Things are changing though, especially with the advent of more competitive products and the development and automation of the current account switching system. The jury is out on the new system though for some time yet—at the very least until all the main players are in the system and it is working smoothly. That will not happen until some time early in 2002.

  4.3  Three years ago Halifax introduced a new paper-based switching system in its own branches. In autumn of last year Halifax piloted an automated system for direct debit transfers which was then launched right across our retail network earlier this month to coincide with the introduction of our new current account. Halifax is the first High Street bank to offer this service.

  4.4  The Halifax's Current Account Transfer Service (CATS) employs a dedicated team of around 100 people using new hardware and upgraded software to ensure that:

    —  Once customers have signed an authorisation form, the Halifax will change their direct debits, standing orders and other regular payments.

    —  Up until now, customers have had to do most of the work themselves and typically had to contact their previous bank, electricity and telephone providers, for example, in order to complete the necessary paperwork. The CATS team now does all this for the customer.

  4.4  The Halifax system has now been adopted as a model by the BACS (Bankers' Automated Clearing Service) for the industry service. Agreement has been reached by all BACS members to provide account information within 10 working days and automated direct debit transfer systems by the end of 2001. Further automation is planned by BACS members to improve the transfer process. All of the banks say they are committed to joining the system.

  4.5  Recent research from Intelligent Finance, who also provides a dedicated current account switching service, shows that a great deal more needs to be done to improve the speed with which some banks hand over the information required for switching accounts. There clearly are delays and the majority can be attributed to the Big Four although, to be fair, they do account for the lion's share of the market.

  4.6  This situation should improve over time—but the Halifax believes that the system should be actively kept under review by the Government to ensure progress. A failure to introduce a true level playing field in current accounts would be a significant blow for those who want the same level of competition that exists in the mortgage sector to apply elsewhere in the personal banking arena.


  5.1  The mortgages and savings sectors are clearly very competitive and customers have been reaping the benefits of this increased level of congestion. Value driven strategies are less apparent, however, in other areas of the banking sector.

  5.2  The winners in the market will be those who realise that customers are becoming more value-driven and that inertia is no longer a reliable means of retention.

  5.3  Current account customers deserve a better deal. Collectively the Big Four's 27 million current account holders are potentially losing out on both sides of the balance sheet by up to £1 billion per year.

  5.4  One of the major obstacles to current account holders' switching supplier is the perceived length of time it takes and the actual "hassle" factors involved.

  5.5  The BACS Phase 1 and 2 pilots to provide account information within 10 working days and to provide automated switching services by the end of 2001 should be kept under close review by Government to ensure that sufficient progress is being made by all parties.

  5.6  The same levels of competition that exist in the mortgage sector need to apply in banking services in order to ensure that all those in the market provide a fair deal for consumers.

25 January 2001

1   Based on 75 per cent of valuation at a 0.45 per cent discount off base rate. Back

2   Mentioned in Cruickshank, D, "Competition in UK Banking-A Report to the Chancellor of the Exchequer", March 2000. Back

3   "The Big Four": HSBC, Lloyds TSB, Barclays, RBS/NatWest. Back

4   Halifax commissioned NOP research in which NOP interviewed a nationally representative sample of 1,000 adults in the UK between 29 September and 1 October 2000. Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 13 March 2001