| |
Dealing with the issue of multi-bank
branch access to improve competitive choice locally for small businesses,
the outcome of the Competition Commission Inquiry which began 3
years ago must be seen as disappointing. However, an important marker
has been put down with regard to Inter Bank Agency Agreements (IBAAs)
which could aid the survival of some local branches, for the benefit
of personal as well as small business users, and prepare the way
for neutral multi-bank outlets to take over when “last bank
in town” closes. IBAAs enable customers of other banks to
use the counter facilities of a more convenient competing bank.
The OFT’s consultants, GBRW Ltd, have recommended improvements
similar to those put forward by CCBS but the process to secure them
is weak. The OFT seems content to have made the banks, and Ministers,
aware of what is needed and the fact that in due course the OFT
is still expected to become the regulatory authority for banking
payments (PayCom) and will, therefore, have an ongoing monitoring
role.
The Banks’ Report
Just by producing a report dismissing the need for a national branch
access scheme to assist “new entrants” to SME banking
the banks have, apparently, met their obligation to the Commission
and Government.
CCBS, realistically, never wanted nor expected
such a scheme to happen but welcomed the CC/OFT process to the extent
that its outcome could benefit branch dependent small businesses
in single bank, and limited choice, communities.
IBAAs
The banks’ own report (by IBM) recognizes a need to increase
the transparency of IBAAs, the existence of which the report acknowledges
is not widely known by those who could benefit. Each of the Big
4 banks has only “several hundred to a thousand” such
arrangements, including those for customers of small and foreign
banks; numbers have been declining and there have been “only
a handful of requests in the last 5 years”.
| The banks’ report commits to some very modest
measures: |
|
|
communication on bank and (possibly) BBA websites |
|
|
review of anti money laundering obstacles |
and proposes some much more
worthwhile improvements to the service proposition, the process
(currently entirely manual), and staff awareness but
leaves implementation of these, and pricing, to the discretion
of individual banks. |
Demand For IBAAs
As part of the process of reviewing the banks’ report, CCBS
identified two major flaws in the assumptions about demand levels
and those were communicated to the OFT.
IBM used data from one bank only to draw the invalid
conclusion that as there are only c 240 sole bank communities (and
a similar number of dual bank) “a relatively small proportion
of SMEs would seem to benefit from the increased convenience of
third party branch access”. It has now been acknowledged that
these figures should be greatly increased, possibly by a factor
of 4, and research to substantiate this is current.
In the concurrent BBA shared banking pilot scheme
in 10 very small one bank communities, where the pool of ‘branch
dependent’ customers of the other banks is untypically modest,
325 small businesses, having been advised of IBAAs at a non-discriminatory
price, registered to use them. 258 made use of them during 2002,
all expressing themselves as satisfied, 67% as “very satisfied”.
If 10 small branches can produce usage on average of 26 per branch,
the current national branch average of <0.4 per branch must reflect
acute lack of awareness of the service and its potential value.
What The OFT’s Advisers Are Saying
The OFT commissioned consultants GBRW Ltd to independently review
the Banks/IBM report and advise the OFT. This review has been made
available to the banks and to CCBS by the OFT.
The OFT’s advisers “disagree with the
conclusion that pricing should be discretionary and recommends a
commitment to pricing (and response times) for IBAAs within a Voluntary
Code of Practice”. IBAAs are currently individually priced
at an average c 30% higher than own bank activity charges.
The advisers call on the OFT to seek confirmation
from the banks when the very limited IBAA improvements committed
to by them have been carried out BUT more importantly they recommend
that the OFT should:
| |
ask the banks to provide
further information on the pricing of IBAAs, (GBRW “does
not believe the issue of fair, reasonable and non-discriminatory
terms has been fully addressed as required by the Competition
Commission”), and |
| |
consider requiring the banks
jointly to commit to the further improvements identified in
the Banks/IBM report, namely: |
| |
|
specific response times |
| |
|
communication of pricing |
| |
|
update the scope e.g. ‘drop-off
facilities’ (CCBS suggests same day crediting of cash
should be considered under this heading) |
| |
|
streamline the process |
| |
|
awareness training for staff |
| |
because the measures already
committed to by the banks “will probably not (of themselves)
make a material difference to the demand for IBAAs” |
| |
consider the merit of the
banks committing themselves to “fair, reasonable and
non-discriminatory terms” (as mandated in the Competition
Commission report) for IBAAs in a widely publicized Voluntary
Code of Conduct to include also other aspects of the service. |
| What CCBS Is
Saying |
| |
In its response 17 March 2003 to the
Banks/IBM Report CCBS said with regard to IBAAs: Pricing,
process improvement and automation all need attention but
posting availability information on bank and banking industry
websites is not focused enough for potential small business
beneficiaries who have little time to ‘surf the web’:
the message of customer convenience needs to be pro actively
included in the promotional literature, staff training and
branches of the account holding banks. CCBS fully accepts,
however, that for money laundering and capacity reasons there
has to be an application and approval process for business
users: transaction levels and volumes could be capped in relation
to the cost-effectiveness of alternatives such as security
company collections and deliveries.
The OFT’s advisers have, independently, come to similar
conclusions. |
| |
The point was also made by GBRW that
exposing customers to the competitive marketing environment
of another bank is an issue; this aspect is, of course, fully
covered in CCBS’s proposals for neutral multi-bank outlets
in appropriate locations. |
| |
GBRW also agree with CCBS that the Post
Office cannot be regarded as a panacea solution; there are
issues and concerns to be addressed and a further review in
one year and two years is recommended. |
Next Stage
CCBS has written to the OFT urging more definitive action based
on the GBRW advice (small business organizations may wish to endorse
and supplement this) and plans to raise the issue of IBAAs with
the BBA and individual banks in forthcoming meetings.
|
