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The real way to competition

The real way to competition. Anthony Browne Chief Executive . The UK has one of the least concentrated banking sectors in the EU and G7. UK. Source: ECB (2012). Source: World Bank (2013). 2. Banking is made up of multiple product markets, each with its own characteristics.

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The real way to competition

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  1. The real way to competition Anthony Browne Chief Executive

  2. The UK has one of the least concentrated banking sectors in the EU and G7 UK Source: ECB (2012) Source: World Bank (2013) 2

  3. Banking is made up of multiple product markets, each with its own characteristics • Customers can choose from over: • 30 credit cards issuers • 50current account providers • 60mortgage providers • 100 • personal loan providers Source: Independent Commission on Banking (2010) 3

  4. UK banking products are cheap • 4% AER on current account credit balances • 4.9% APR personal loan • Interest free credit card for 2½ years • Mortgage at 3.7% But research suggests customers care more about internet banking, savings rates and customer service than price. 4

  5. Market shares are useful and the BBA supports competition……but caps are not the answer 5

  6. Back in 2010, the Vickers report expressed caution about limiting market share to promote competition On introducing two additional challengers:“There is no evidence to challenge the view that (additional divestiture of LBG/RBS over EC state aid conditions) would be more disruptive and less cost effective than other options which should deliver comparable benefits.” On using a market share cap to limit the size of any one bank: “Measures such as capping market share, or balance sheet size… did not receive much support from respondents, nor has significant new evidence been provided on them. The Commission's view therefore remains that these measures would not be beneficial for competition in UK retail banking.” 6

  7. Banks and consumers care about choice and reducing barriers to entry “Breaking up an institution doesn’t necessarily create a more competitive structure. You need to look at the entire business model.” Mark Carney, Governor of the Bank of England “We believe it is important to give customers choice and that means market forces should dictate who gets what market share, provided that there is a level playing field.” Jayne-Anne Gadhia, CEO of Virgin Money “The real priority for the regulators is to use their new powers to make it easier for new challenger banks to give people a genuine choice, make sure the payments system is fit for purpose and make banks release data to help consumers find the right bank for them.” Richard Lloyd, Executive Director of Which? 7

  8. “Branches are the wrong focus. It would be like forcing BT to reintroduce telephone boxes to the high street.” Anthony Thomson, Former Chairman of Metro Bank 8

  9. What drives competition in banking? • Removing barriers to entry • Reducing barriers to growth • Making it easier to switch • Transparent information 9

  10. Actually, wide reaching regulatory reforms are already promoting competition across the UK’s banking industry 10

  11. The industry has implemented the main recommendations set out by Vickers... • A strong and effective challenger has resulted from the LBG divestiture; • Ease of switching has been transformed by the early establishment of a robust and risk-free redirection service; • A strong pro-competition FCA has been established and is demonstrating progress to improve transparency and reduce barriers to enter and growth by rivals to incumbent banks. 11

  12. It has never been so easy for customers to switch their current account provider 12

  13. More transparent bank fee structures are helping customers make informed decisions Better information has led to a two-thirds fall in unpaid item charges since 2007 – a saving of nearly £1bn Source: OFT (2012) 13

  14. New regulators have a duty to promote competition across all banking markets 14

  15. And the BBA continues to push for changes that remove barriers to entry for challenger banks • Lower capital requirements • Simpler authorisation • Access to Funding for Lending • Local Authority deposit holdings • A ‘challenger bank advisory panel’ 15

  16. All the while, revitalised brands, new players and expanding challengers are entering the market and competing for customers 16

  17. But the real game changer for competition in banking is technology… …which is transforming the way consumers interact with banking products and the dynamics of banking markets 17

  18. Disruptive technologies are allowing non-bank providers to compete for a range of customers without having to rely on a high-street presence 19

  19. From April, we will be able to make payments to mobile phone numbers 60 % of banking transactions will be carried out on a mobile device by 2017 European Financial Marketing Association 18

  20. The real way to competition – engage with the future “It is important that regulators do not unduly constrain competition by taking the business model of incumbents and traditional banks as the starting point for the design of new rules in ways that could disadvantage new technologies and innovative providers.” John Fingleton, former CEO of the OFT 20

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