Examination of Witnesses (Questions 80
WEDNESDAY 1 MAY 2002
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.
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;
(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
(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.
(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
(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.
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
(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
(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.