Is The Banking System Broken?
Updated: 12:36pm UK, Friday 17 January 2014
By Joel Hills, Business Presenter
Folklore at Tesco has it that any internal business pitch to the former boss Sir Terry Leahy which didn't include the word "customer" in the first sentence was bound to end in failure and, on occasion, humiliation.
Sir Terry's time at Tesco is in the process of being reassessed, but there's surely no doubting that the supermarket's spectacular growth in the late 90s was down, in great part, to Tesco's obsession with delivering what customers wanted (no quips about horse burgers, please).
The reason banks are so unpopular, of course, is that they have demonstrably failed to put their customers at the heart of what they do.
In fact they have, on the whole, treated us appallingly.
As Bill Michael of KPMG put it to a group of bank bosses at their annual conference in 2012, far from treating their customers like kings, banks had behaved as if we were "captive geese that can be force-fed, or sold more product to - whether appropriate or not".
Here's the remarkable thing though: the litany of recent scandals and abuses (Payment Protection Insurance, interest rate swaps, Libor-fixing, money laundering, tax avoidance) doesn't seem to have cost the big banks any customers.
Take Barclays. Broadly speaking, the bank has the same number of personal accounts and business accounts today that it did before the financial crisis.
Now the likes of Barclays, Lloyds, RBS and HSBC will tell you that's because ultimately we are all satisfied with the service we are getting from them. Ed Miliband believes it indicates there is something seriously wrong.
The Labour leader's view - that the market isn't functioning properly - is one some of the bosses of smaller banks share.
Last October, a month after the new seven-day switch guarantee was introduced, I chaired a session at the British Bankers' Association's 2013 conference.
Jayne-Anne Gadhia, the chief executive of Virgin Money, complained that the playing field was still horribly skewed in favour of her rivals.
Paul Lynam, the chief executive of Secure Trust bank, also thinks he's kicking a ball uphill and struggles to steal business from his much bigger rivals as a result.
Interestingly, while both of them share Ed Miliband's diagnosis of the problem, they both also think his prescription of forced branch sales and market share caps are wrong-headed.
Mr Lynam's grumble is that bigger banks can lend more freely than he can because they can borrow more cheaply (they're still too big to fail and therefore continue to enjoy an implicit taxpayer guarantee) and they are not obliged to retain as much capital to protect themselves against losses as he is (Basel rules – don't worry, I'm not going there).
He also believes that the Payments System is deeply flawed.
Now stay with me, please, because his last point is important. Think of the Payments System like the National Grid, but instead of moving gas and electricity around the country the Payments System moves money.
If Mr Lynam wants to send a payment on behalf of one of his customers to a customer at another bank he has to use the Payments System. Here's the rub: the Payments System is effectively owned by the big banks and they charge Mr Lynam up to 40 pence to "clear" each transaction. He says the real cost is closer to 1p.
The whole issue of competition in banking is nuanced and fiercely contested, but it is also desperately important that it's resolved.
It is imperative that we all have faith that the banking system is working well and in our interests.
Perhaps Mr Miliband's suggestion of a full, independent competition inquiry, however long, isn't such a bad idea.
After all, the Competition Commission investigation into the supermarket sector in 2008 went some way to sorting fact from myth and, I would argue, helped to restore some public trust in the likes of Tesco. And public trust in our banks has surely never been so low.
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