Customers yet to feel effects of new era in banking

Yorkshireman John Kirkbright, an adviser to major European banks and a regular speaker at banking conferences across the continent, warned that costly economics could lead to at least one major bank exiting the personal current account market in the next few years.

“It has been said in the past that customers are more likely to switch their spouses than they are their bank accounts but the difficulty of moving has stopped them,” he told the Yorkshire Post.

“The new rules make that a lot easier and most banks expect switching to double from around 5 per cent a year to 10 per cent.”

Mr Kirkbright said the major beneficiaries of switching are Santander and Halifax, which are using incentives to gain current account business, but he added that no one bank would be able to dominate the market.

“The reason is that banks are finding it increasingly costly to operate these accounts and are not able to make the profits they would like,” he said. “It is not as easy to cross-sell other products from these accounts as it was in the past.”

Mr Kirkbright said the amount of switching to date has been insignificant, in spite of widespread public dislike of banks.

He added: “The main problem has been the downturn in the economy and lack of demand for mortgage and personal loans coupled with the banks need to raise additional capital and restrict what they are actually able to lend.

“As the economy improves this will change and bank profits will improve.”

Mr Kirkbright, who is senior retail banking adviser to European trade group Efma, said customers will not see much difference from the re-creation of TSB, which is being spun-off by parent Lloyds as a condition of receiving state aid during the financial crisis. “Lloyds will try and position it as a slightly different brand as they have done with the Halifax brand but do not expect to see any significant innovation or new products of note from this bank,” he said.

“The same thing may well happen with Royal Bank of Scotland and Williams & Glyn’s.”

RBS must sell 316 branches, also as a condition of state aid rules, and is reportedly planning to revive the brand last seen in the 1980s.

Mr Kirkbright said the biggest disappointment in the five years since the financial crisis of September 2008 has been the failure to reform the wider UK banking market.

He added: “The Government was very keen to use the banking crisis to allow a number of new entrants to bring more choice and better offerings to the sector.

“It has not happened in the way planned because the regulator has made it too difficult for either new banks to set up or launch new products.

“It has taken banks like Tesco a lot longer than was expected to launch new products – we are still waiting for their current account.”

He said the Co-operative Bank’s ill-fated bid to buy 630 branches from Lloyds illustrates how difficult it is to create major challengers to the main banks in the personal retail banking mar- ket.

However, Mr Kirkbright highlighted the success that controversial new lenders like Wonga are having.

“They are making substantial profits and indeed currently are more profitable than traditional retail banks – I think we will see the development of more niche providers that spot opportunities in particular sectors and segments and take business away from traditional players,” he said.

“The large banks have on the whole been very slow to react to the major implications of the crisis and have not learnt the lessons to create the type of personal banking our market now needs.

“Having said that we can expect to see further significant development in online and mobile banking product and service de- livery.

“Banks recognise that they need to provide more convenient and easier ways of dealing with them than just visiting a branch.”