Competition and choice in retail banking - Treasury Contents

Written evidence submitted by the Campaign for Community Banking Services (CCBS)


Branch dependent individuals and small businesses in over 1000 urban and rural communities effectively have no choice of banking provider and as the banks and building societies continue to close branches this number is expected to increase because of the post crisis pressure on profits and further consolidation within the industry. New entrants face a big challenge in not having access to a national, neutral branch network.

Against a historic background of active resistance by the industry, the committee is urged to recommend the re-launch of an improved and re-priced inter bank agency service, a trial of neutral shared branching, recognition by the competition authorities of local markets as well as a national market for retail banking services and to press for a UK version of the US Community Reinvestment Act, inter alia, to protect delivery of banking services to local communities.


The Campaign for Community Banking Services (CCBS) is a coalition of 22 national charities and membership organisations who share concerns about the decline in local access to, and choice in, banking services, in particular the closure of local bank branches: see attached statistics. We assist local communities in campaigning against closures and promote viable alternatives including neutral shared branching and inter bank agency arrangements.


1.    CCBS' primary concern is with those communities, urban and rural, which lose all their bank branches—nearly 1,000 have done so—and the adverse impact this has on community commercial sustainability.

2.    However, for branch dependent bank customers, the 1,050 communities with only one bank branch effectively have no choice of bank unless they are prepared to lose time and incur cost in banking elsewhere. The 500 communities with only two banks remaining offer limited competitive choice.

3.    According to 2007 research by the Federation of Small Businesses, 60% of small businesses visit their bank branch at least once a week and 10% do so every day.

4.    CCBS has been told by one of the major banks that SMEs account for over 30% of their counter traffic which would seem to reflect the need pattern identified above.

5.    Although small businesses are the primary concern, similar limitations of choice apply to many vulnerable individuals, particularly those without convenient local access to free ATMs, cashback, on-line banking, post office access, etc. In that category would be numbers of the elderly, disabled people, those with mobility problems and full time carers.


1.    The latest available national statistics on bank branch closures is contained in the CCBS annual Branch Network Reduction Report. That for 2010 is attached and is also available on the CCBS website.

2.    The situation is worsening as the dominant retail banks: RBS/NatWest, Barclays, Lloyds TSB and HSBC, who are responsible for 95% of bank presence in communities with only one or two banks, address their post crisis cost base in the light of growing use of technology by some sectors and seek to reduce costs by closing branches and/or reducing hours of communities perceived to have low sales opportunity.

3.    As shown in the attached report, all four major banks have a history of closing branches. Currently the most active is HSBC which has closed 111 branches since 1 January 2009 and continues its attack on communities where it is the last bank or will leave another in that situation. NatWest has closed few recently but has reduced hours of opening (often a prelude to closure) in 80 communities over the same period. Lloyds formally abandoned in 2006 its pledge to remain open where "last bank" and is currently closing the remining 265 Halifax agencies which are often in communities with little or no banking competition.


1.    Britain's banks and building societies had already experienced very considerable consolidation, compared to other countries, even before the recent crisis.

2.    Having lost all its independent local and regional banks prior to 1970, the UK retail banking market is very dependent upon a few, largely multinational, names which make arbitrary decisions on branch closures and take little or no account of community opposition.


The 15,000 population town of Shepshed, Leicestershire has lost its four retail banks, HSBC was the last to close in January 2007, but the local Shepshed Building Society remains, regrettably unable to offer current or small business accounts.

Even this low level of provision, with no competition, is unlikely to be sustained as the smaller building societies are acquired by larger ones as a result of the crisis and experience shows such locations to be vulnerable to closure.


Lloyds closed the only bank branch in Ramsbury, Wiltshire in 2000 leaving only the Ramsbury Building Society, founded 1856, which later was acquired by the Portman Building Society which closed the Ramsbury branch in 2002 before it was itself acquired by Nationwide.

3.    In 2005 the last of Britain's regional banks, Yorkshire and Clydesdale, owned by National Australia Bank, closed 100 branches, 22% of its network.

4.    Post crisis these trends are likely to continue.

5.    The EU Competition Directorate having imposed branch sell-offs on government backed RBS and Lloyds, the prospect of this producing significant new competition looks extremely doubtful. However the acquisition of the 311 branch RBS network outside Scotland has the potential to give Santander sufficient critical mass in the small business market to make a difference but Santander's network, even after incorporation of the RBS branches, will not significantly alter the competitive position in sole and dual bank communites. The c 250 Lloyds TSB branches in England to be sold have yet to be identified but will not comprise a viable network on their own.


1.    New entrants to the full service UK retail banking market face a considerable challenge, not least the still extensive branch networks of the established Big Four and the tradition of "free" banking for personal current accounts.

2.    A physical staffed presence "on the high street" is still important to customers of the established banks and to potential customers of new entrants to the retail banking market. The reasons include:

—  Secure convenience for deposit of cheques and cash, their acknowledgment and instant entry into the banking system.

—  Convenience for withdrawing larger sums of cash in secure surroundings and specifying denominations, including change provision.

—  Convenient human point of contact for resolving problems with existing accounts, opening new ones and producing identity documentation.

—  Convenient and private facility for discussion of financial product needs with the bank's relationship managers and specialist advisers.

—  Reinforcement of confidence in an institution entrusted with one's funds.

3.    That the bank concerned should have, or have access to, a national network of branches is important to individuals and especially to SMEs in a society that is increasingly mobile. A presence convenient to employment and home, moving home or business location, changing job, travel for business or pleasure, adding business sites, acquiring additional or replacement businesses. These and similar events should not, of themselves, necessitate a change from an established banking relationship.

4.    In view of its Bank of Ireland financial services partnership agreement the Post Office is not seen as a neutral network, has question marks over service delivery standards and in any event could not cope logistically with small business agency counter traffic on behalf of the major banks.


Inter Bank Agency Arrangements

Facilitates use of a local bank's counter by small business customers of other banks (established and new entrant), thus preserving competitive choice and helping to sustain existing branches and the communities they serve.

1.    The absence of a convenient branch of the account holding bank, or an easily accessible agency arrangement with another bank on "fair, reasonable and non-discriminatory terms" (Competition Commission 14 March 2002), significantly reduces the SME opportunity for a new entrant bank or smaller bank seeking to expand. For branch dependent customers in communities with only one or two banks it also militates against customers switching accounts and relationships between the established Big Four.

2.    An improved and promoted IBAA service could help in both the above circumstances. The banks' failure to meet their commitment to improve the awareness and operation of IBAAs (14 March 2003) was confirmed by OFT research in 2007 which found only 25% awareness amongst those who might benefit. See attached chronology.

Neutral Shared Branching

Basic counter and related services, to agreed operating standards, delivered by a third party provider(s) on behalf of participating banks through a variety of delivery channels - retail/social enterprise franchises, mobile vehicles, community banks and banking centres - as appropriate to each community and locality. The model, which uses existing common technology, can replace existing branches and make it cost-effective to establish an "open to all" banking presence in new communities.

3.    A step further would be the introduction of neutral shared branching in secondary and tertiary locations, although it could be argued that transactional activity and cash handling has become a commodity service in the eyes of the banks in which case the CCBS model has the capability to be extended. Regrettably the banks continue to oppose any proposals for experimentation of this model which has been academically validated in the UK as "operationally feasible and financially viable" and is successfully operated in a retail banking context in 45 US States. Full details in "Bank Closure Problems—One Solution Fits All" available in the REPORTS section of the CCBS website

4.    To aid competition further the UK should consider following the example of other European countries and recognise the existence of local markets for banking competition. As recently as 21 December 2007 the Competition Commission confirmed its view that in the UK retail banking is a national market.


In 2006 the merger of Banca Intesa with SaoPaoloIMI in northern Italy resulted in the Italian competition authorities enforcing the sale of 193 Intesa branches (plus two savings bank subsidiaries) to preserve local competiton. The branches were acquired by Credit Agricole of France to enlarge its presence in Italy.130 branches of Banca Monte dei Paschi di Siena are currently being negotiated for sale to a foreign bank to satisfy anti trust concerns arising from its purchase of another northern bank, Antonveneta.

5.    In the USA the Community Reinvestment Act imposes, inter alia, service obligations on licenced banks which lead to the retention of local bank branches; a poor CRA record can block bank mergers and acquisitions requiring State/Federal approval. The UK possesses no legislative teeth to ensure banks continue to service communities adequately.

6.    It is of concern that Cabinet Office Minister Nick Hurd MP is reported (Regeneration & Renewal interview 12 July 2010) as having no plans to introduce CRA type legislation and CCBS urges government to reconsider this urgently as legislation of this type would provide a suitable vehicle to impose social obligations on banks.

August 2010

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Prepared 2 April 2011