identikit banks: the UK’s big four – customer centric or simply self serving?

By in banking, management, products, strategy, uncategorized on Friday, 7 October 2011

Here’s a question for you. Imagine all four banks merging. What would we lose?
OK – so they wouldn’t share one trough – and no one makes one that big.
four brands - yet nothing to choose between any of them. Are we being served?

If our high street merged, what would you take from each to form one super bank?
I’ll leave you for a minute to have a think about that one.

For all banking’s “talent” and money, why so little to choose between each one? Why can’t we find a killer product or even one differentiator?

How can this be – in other sectors key differences exist. Why not in banking?

No competition – no value

The one fixed, ever-present attribute of any free market is that of competitive value. Competition always drives differentiation and an effort to do more to gain share. Yet in banking we could remove three and not miss their contribution at all.

Banks tell us the market they operate in is so competitive, they need to pay footballer-level salaries and provide sky-high bonuses to simply retain their talent. OK, cards on the table. Talent that does what exactly?

Bank systems measure market trends and react to change at the speed of light. They’ve more global market intelligence at their disposal than any other business. Yet they can’t think of one single thing to do differently from each other.

So that then begs the question, why pay for all this talent to effectively do nothing?

What do you call a market without a differentiator?

Imagine a small-town market, each stall selling the same things at the same price. What would you be thinking as you walked past each identical stall?

You’d probably be thinking collusion – a conspiracy designed to rip off the buyers. You’d be thinking that they were all working together. You’d be thinking cartel.

The lack of difference between banks can’t be co-incidence, it must be by design. When a market shows no competitive difference it must be collusion.

This isn’t just anti-competitive, it acts as a barrier to the growth of their customers – you and me. It take away our right to choose, to find what works for us.

So what should be done about it?

Learning a lesson from the past

In the US, one company, Bell Telephone grew so big that it stifled competition. Prices rose and its dominance acted as a barrier to any other entering the market. Sounds familiar, doesn’t it?

When did you see any new bank and I’m not talking about the cardboard cut-out banks like Tesco and Sainsburys?

The American solution was to split the company in half, destroying its monopoly. That facilitated the creation of two spin-off companies, the so-called Baby-Bells. Why not do the same here?

Its our money – why not our banks?

We should take the banks and break up each one, 50-50. Offer new licences to totally new management with an enforced disconnection from each former bank.

Offer the customers a 50% stake in each new bank, up to a 10% maximum share. Let each bank exist on a probationary licence for five years.

The existence of a 50% private holding would prevent any new cartel appearing. The creation of smaller banks would remove the possibility of a seismic market reaction to any bank failure – the so-called “too big to fail” scenario.

The new banks would evolve organically, the market finding its own natural level. Only if this happens will we see the breakdown of our identikit banking culture.

And that can’t come a moment to soon, but it can come a second too late.

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