Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80 - 98)



  80. What about the limit of £1 million turnover on the businesses that the Code applies to? There are an awful lot of small businesses whose turnover is less than £1 million. They are particularly vulnerable to being badly dealt with by banks, are they not?
  (Mr Alambritis) The BBA has published a bank comparator account which is very helpful on the website and you can compare your bank charges. You key in your bank charges and then you compare it with any other bank, and that is a very useful tool introduced by the BBA. It is very confusing because all the banks have a different definition of small businesses and what they say qualifies for their free banking services. Certainly, having a definition of under £1 million is quite high. The vast majority of small businesses have a turnover of well below £100,000.

  81. As I understood it, the Banking Code does not apply to businesses with a turnover of less than £1 million?
  (Mr Alambritis) The Banking Code, as far as I understand it, with regard to the complaints procedure, if you have a complaint with the Ombudsman, it does not apply to businesses with a turnover above £1 million. That is my understanding.

  82. So you are quite happy in that respect, that the threshold has no limitation on -
  (Mr Alambritis) On the complaints procedure, that is fine with regard to the Ombudsman.

  Mr Beard: Thank you.

Mr Fallon

  83. Can I come to the central recommendation of the Competition Commission which should effectively be price controls, and the reaction from what I think you call third or fourth division banks, not perhaps the right label, but outside the big four, their immediate reaction was that this would deter them from entering the market. You reject that view in your submission; why?
  (Mr Alambritis) What we saw was the Abbey National and HBOS coming in with interest on current accounts. What the Competition Commission has suggested is a very minor introduction of interest on current accounts which is base rate minus 2.5 per cent, which would give an interest of 1.5 per cent. It is then for the players to give a better or more attractive rate. That is where the competition will come in.

  84. But if you are one of those banks and you have been really gearing up to enter the small business sector, and suddenly you see price controls being put on it with the obvious implication those price controls could be made more complex, more strengthened in later years, surely that is a deterrent to you to entering the market?
  (Mr Alambritis) The 1.5 per cent on current accounts is a very modest amount. We do not think that would be a deterrent, we think that is a fair starting point. If you bring in portable credit references, if you bring in switchability, if you bring all these issues in, there is enough to allow small businesses to try and choose around the major players.

  85. I see there is choice for small businesses, but is there sufficient choice if you are a bank that has not traditionally been in small business? Is there going to be sufficient profitability in market share in a sector that is now going to be effectively price regulated?
  (Mr Alambritis) I think there is, if we also look at the fact that some of the key things that small businesses are looking for is a personal relationship, is a close relationship, is more information, more transparency, and it may be that the bank that provides these can outweigh the price control element. The price control element is very very tiny, and we would not see that as being hiked up or tweaked in any future years. Base rate minus 2.5 gives 1.5 per cent. That is very tiny; we do not see that as a major price control.

  86. So you do not think that in itself will produce any kind of seismic change in the market share outside the big four?
  (Mr Alambritis) No, we think that will give opportunities for the minor banks to see whether they can provide more attractive rates. Our understanding is that the Abbey National provides 3 per cent on current account which is better than 1.5 per cent which is what the price control is.

  87. What is the current share?
  (Mr Alambritis) 86 per cent of all small businesses are locked into the four major clearers.

  88. Has that changed over the last two years since Cruickshank?
  (Mr Alambritis) No, it has not changed over the last ten years. It has been between 80-86 per cent very closely linked into the four clearers. The biggest player is Nat West with about 1 million small business accounts.

  89. 80-86?
  (Mr Alambritis) Yes.

  90. If Cruickshank alone, if the new Competition Commission Report alone was implemented without the changes you want, how would that share change?
  (Mr Alambritis) We do not know yet. We would be surveying our members to see that, in view of the new changes, would they be seeking to bank elsewhere. We ask our members regular questions and we will be doing that following the changes. We would need to ask them the question.

  91. What I am trying to get at is do you expect that percentage to shift without the changes that you yourself recommend?
  (Mr Alambritis) We expect a modest shift, and if our recommendations for allowing the foreign banks in, our recommendations on portable reference, our recommendations on switching made much quicker, we expect a modest shift. It will be slow but gradual.

Dr Palmer

  92. We were given a note from the Competition Commission Report which gave a figure of 73 per cent of supply of banking services to SMEs, share of value of balances. Where your figure is by number of small businesses at 86 per cent, so what that is showing is that the larger small businesses, not quite so small businesses are perhaps more diverse, which perhaps reflects the tendency of very small businesses to just go to their nearest branch?
  (Mr Alambritis) Yes, certainly. I think if you are a sole trader, sole proprietor, a lot of small business operating from home, they will go to their nearest branch, and as they grow, they will get the courage and the wherewithal to negotiate firmly but fairly with their bank manager and if they do not get what they want, they may want to move on.


  93. Lastly, the Competition Commission made two comments: first is a lack of transparency in bank charges and the rates of interest. That is something that could be addressed in the short and medium term, and I would like to hear your views on that. Further to your answers to Mr Fallon, the Competition Commission has acknowledged that the big four have maintained over 80 per cent market share for the past ten years and you have confirmed that, that the small businesses have locked into that. It seems a bit remote, that you are talking about foreign banks and others coming in, and you are going to shift that figure in the medium term. We are talking about the long term here, and I would like to know what you think the long term is. Is it 20 years?
  (Mr Alambritis) It is long term. We got an approach four years ago from Wells Fargo Bank in America. They were keen to come into the UK. It did not work out for them. It would be a long term approach. Our clearing system, our regulation of businesses would require a special business licence to be offered to the foreign banks. We have the highest concentration of foreign banks in London, over 400 foreign banks. That would be very very long term, to get new entrance in terms of foreign banks competing for small business accounts.

  94. So you could imagine the big four only having 70 per cent of the market share in 20 years?
  (Mr Alambritis) It would be very slow. I would not say that that was way out.

  95. It is a generational problem we have here.
  (Mr Alambritis) You tend to stick to the bank you started with as well.

  96. But as a figure for us to question the banks: if I say to them that you are talking about 20 years' time you could be talking about 70 per cent market share, is that unfair?
  (Mr Alambritis) Yes, they would still be horrified. Obviously they want their market share maintained.
  (Mr Walker) I think it is also fair to say, Chairman, due to the number of small businesses and self employed people going up every year, the actual market is getting larger, so okay, the 80 per cent may stay the same, but that may represent a larger number of customers.

  97. So we could still be talking about 80 per cent in 25 years' time?
  (Mr Walker) It could still be.

  98. But be gratified with the fact that it is a bigger number of people?
  (Mr Walker) Yes.

  Chairman: Can we thank you very much for your Memorandum and also for the comprehensive answers to our questions. It will be very helpful when we have the four banks in front of us.

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