All change for retail banking in the UK

The Parliamentary Commission on Banking Standards has been a hive of activity recently, gathering evidence from the chief executives of UK banks as well as key thinkers such as Sir John Vickers, who chaired the Independent Commission on Banking, and Andy Haldane from the Bank of England.

The Commission is composed of a formidable array of talent from both houses of parliament, including the Lord Bishop of Durham (who has just won a rapid promotion to be the next Archbishop of Canterbury), Lord Lawson, Andrew Tyrie MP, Baroness Kramer and Mark Garnier MP.

The Commission is working hard to deliver its findings by mid-December to guide the debate on the Banking Reform Bill, which is set to transform the banking sector in the UK.  The stakes are high on both sides and the sessions have been closely watched across the industry.

We were fortunate to have Mark Garnier MP speaking at one of our Payment Dinners recently to give us an insight into the workings of the commission and his personal views on how the industry needs to change.  This was not an exercise in banker bashing; he made it clear that banks perform a socially useful service.  He said that if money is the oil in the engine of the economy then banks are the pump pushing that oil to where it is needed, adding that they are the most efficient distributor of money from where it has accumulated to where it is needed.

Mark discussed the relative merits of different approaches to ring fencing proposed by Vickers, Volker, Kay and Liikanen.  I can’t do the discussion justice in a short blog, but it was neatly encapsulated by the question: do we put a fence around the deer park (Vickers), or do we cage the tigers (Liikanen)?  There is no simple answer but all agree that the current status quo can’t be maintained.

The discussion naturally turned towards competition, in particular the low level of current account switching; it’s about 2% a year.  Mark explained that he had recently moved bank accounts and it had been “six weeks of hell and confusion”.  His view is that account portability is vital not just to introduce competition to the market but also to aid resolution of failing banks. 

I have to declare an interest here – we are developing the central infrastructure for the enhanced current account switching service on behalf of the Payments Council.    This will deliver a greatly improved switching service in September 2013, and there is enormous focus across the industry to land  this programme on time. 

Mark’s view that we should just jump straight to account portability is one that I’ve heard from several senior figures and I think it reflects frustration with the current low levels of customer movement.  The countervailing view is that most of the benefits of portability will be delivered by the new switching service, and so the incremental benefits of portability will be dwarfed by the potential costs.

So at the moment there is no agreed way forward on ring fencing or portability, but one thing is certain – retail banking in the UK is heading into a period of unprecedented change.