Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 280 - 282)



  280. Mr Ellwood, how will you respond?
  (Mr Ellwood) We are also looking at whether we should have free money transmission or pay interest. We will take all these things into account and come to a view with the OFT.
  (Mr Goodwin) Likewise.
  (Mr Dalton) Likewise.
  (Mr Barrett) Unless the Competition Commission has a sudden catharsis and realises they were unfair.


  281. Those answers give us the feel that there is real competition out there: likewise, likewise, likewise and likewise. Assuming the Competition Commission's recommendations are fully implemented, how do you expect the banking industry to have changed in five years' time as regards personal customers and SMEs?
  (Mr Barrett) That is a tough question. Arising from the Competition Commission or in general?

  282. Arising from the Competition Commission's recommendations.
  (Mr Barrett) It will depend. I am not ducking you but it is a tough question to answer. It depends on the market dynamics which take place, it depends on the profitability or otherwise of the sector, my guess is that it will lead to micro segmentation, where there will be increasing attention to the profitability of different accounts. Instead of drawing a drift net through the community and accepting whatever comes in, you will have more targeted, focused marketing. You will get price discrimination, there will be an unbundling of services and prices. They are called unintended consequences for a reason: because it is hard to know how the market will play out, who will decide to enter the market, what new propositions will come out. I think the Competition Commission's intervention is unhelpful to the development of the business and ironically will have a restraining influence because the business is tough enough to get into already and it will make it potentially less attractive for new entrants. But I cannot be sure, to be honest. I cannot be sure.
  (Mr Ellwood) The next five years will continue a trend that we have seen. Customers do actually get a wider choice now than they ever have before. I go back to the statistics: 30 suppliers of current accounts, 130 suppliers of mortgages and 65 suppliers of credit cards. I do think we will see more competitors attacking the market share of the main banks. Customers will see and get an increasingly good offer in terms of product offer and will get increasingly good levels of service. They will also see a wider range of offers. One of the reasons why we have sold over three million of our added-value accounts, is not simply because of the financial benefits but because of the non-financial benefits, car breakdown, travel insurance and so on. I think we shall see a slightly wider offering and the end result will be in five years' time that customers who we believe get a good deal today, will get an even better deal in five years' time.
  (Mr Goodwin) The process we have seen will continue with probably greater innovation of product, focusing around some other aspects of people's lifestyle—many people are short of time—and greater convenience around some of the things around their home, around their motor vehicles and so on. We shall see more competition, more established competitors in SME banking. It will not be a huge number more. It is not going to be 30, but it will be a larger number than it is today. That was in the process of happening in any event. On the personal side I do not think that the number of competitors will change, but over that time some will come and some will go.
  (Mr Dalton) I think that the competitive market which exists in the provision of SME banking services will continue to move ahead in terms of better service, better products, better things for our customers. I do not think the regulatory legislation, the price legislation will increase entry into the market, I think it will restrict entry into the market. It will reduce innovation; people will say they will pay the same price so why would you try to change things. The forces which exist in the market will continue to drive things. A couple of the things the Commission recommended, namely the price control recommendations, will not act in that way.

  Chairman: May I thank you for your appearance this morning. It has been a fascinating session, maybe from our point of view characterised by not an inch from you in terms of your excess profits and whatever else. We have had everything this morning: dud methodology, dud surveys, long-suffering consumers, happy consumers, new concept of digging your head in the sand and social obligations. One of my colleagues whispered sotto voce "Socialist" obligations, but take no notice of that. I look forward, as do my colleagues, to your negotiations with the Competition Commission and the OFT and we look forward to seeing what these recommendations are and to engaging with you on that. Thank you for your appearance this morning.

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