ICB report spells good news for consumers

At last, there could be some good news for bank customers.

The big lines that emerged from the Independent Commission on Banking’s report concerned the ringfencing of the banks’ retail operations, and the call for extra funds they would need to hold as a buffer in case of a future financial crisis.

But there were also a number of other ideas put forward that should help improve our overall high-street banking experience.

One of these is the ICB’s desire to open up the market to greater competition.

The likes of NBNK have been looking to get a piece of the action for some time, and the commission’s report has confirmed its view that Lloyds Banking Group should sell more of more of its branches than the 632 it is already planning to dispose of.

The ICB wants a new player on the high street to have a market share of at least 6pc of the current-account market, taking the number of major retail banks to six.

On the face of it, having six major players instead of five might not seem like a huge leap forward. But banks are often regarded as being much of a muchness, and a new entrant is likely to want to shake things up by offering something different from its more established rivals.

That’s what happened at Metro Bank, which recently launched in London. Metro tried to distinguish itself from the other banks through initiatives such as opening its London branches (or “shops”, as it calls them) seven days a week, early until late.

Any other new player in the market is also going to have to offer something new – whether in terms of service, convenience or products – if they want to snatch market share from elsewhere and grow beyond the 6pc starting point.

Another key recommendation from the ICB concerns the introduction of a better switching process. It’s often pointed out that you are more likely to get divorced than switch bank accounts, and although switching has become easier in recent years, it’s still perceived as a laborious process that goes wrong on too many occasions.

According to the ICB proposal, a new industry-wide switching process would be “seamless” for customers, and would remain in place for 13 months after any account move to ensure that any payments in or out of the new account did not find their way to the old one in error.

This might seem like good-natured tinkering rather than anything more substantive, but making the switching process easier will increase the number of customers voting with their feet and turning their backs on banks that offer poor products or below-par service.

Meanwhile, you can ignore the claims about these changes leading to the end of “free” banking. There’s no such thing.

The banks aren’t charities and they already make some very nice profits out of us. Just because most of us don’t pay annual fees for the privilege of running our accounts doesn’t make banking free – too often, we are paid paltry rates of interest on our credit balances while we pay over the odds for our borrowing.

The aftermath of the financial crisis – caused in large part by these banks – has already cost us all. A recession, massive unemployment, the high cost of finance and inflation eating into our savings has caused pain for tens of millions of people.

Banking stopped being free a long time ago.

posted on 13 September 2011 15:32 byMM24 Adam