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BANKING SERVICES FOR PERSONAL RETAIL CONSUMERS

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					4            BANKING            SERVICES FOR PERSONAL
             R E TA I L C O N S U M E R S




    I N T RO D U C T I O N

    4.1      The analysis in chapter 2 focused on the public policy issues affecting the
    provision of banking services. The recommendations set out there will serve to establish
    the new policy framework that will encourage the development of more competitive
    markets. In particular, mergers will be prevented between firms where this would create
    undue concentration in the supply of current accounts. In addition, chapter 3 discusses
    the need to transform UK payment systems, and the impact this will have on the supply of
    current accounts. These should enable consumers to switch current accounts more easily,
    and should guard against excessive pricing of money transmission services. This chapter
    considers whether, taken together, these changes will be sufficient to ensure a brisk
    transition to competitive markets for UK personal customers, or whether further
    intervention may be required in consumers’ interests.


    MARKET DEFINITION

    4.2      Individual banking products sold to personal consumers are comprised of at
    least one of three economic services: money transmission, holding deposits, and issuing
    credit. There is clearly no substitution between these economic functions. But consumer
    products do not map exactly on to these functions:
            • the main purpose of a current account is to provide access to money
              transmission. The current account also acts as a savings vehicle, and may be
              used to get credit, through an overdraft. The money transmission services of a
              current account have no effective substitutes, the other two functions do;

            • both credit cards and personal loans are sources of unsecured credit. The
              credit card also provides a limited means of money transmission, effectively
              restricted to retail transactions;

            • mortgages are the most common form of secured lending. In some cases, a
              mortgage can be used as a substitute for unsecured lending; the reverse is not,
              in general, the case. The price of unsecured lending means it would be an
              uneconomic way of buying property, or of making major investment in a
              home;

            • there are a number of substitutes for savings accounts, but all of these are
              investment products, which are outside the scope of the Review.

    4.3     This suggests that there are four relevant economic markets for the supply of
    banking services to personal customers: money transmission, unsecured lending,
    secured lending, and savings. The Review concluded, however, that it would be more
    illuminating to analyse these markets by reference to the products available, because of

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         the lack of clear correspondence between products and markets. It is also the case that
         even where products with the same broad function are substitutes in theory - eg credit
         cards and overdrafts - consumers do not generally use them in this way.


         G e og r a p h i c a l s c o p e

         4.4      The analysis focuses on market shares for Great Britain as a whole, even though
         consumer behaviour exhibits some local characteristics. For example, the Review found
         that the most common reason consumers gave for choosing their bank was its location
         near their home or place of work. Despite this, it is likely that competitive pressures do not
         differ materially in different local areas. Charges for personal consumer banking services
         are, by and large, set nationally. Moreover, the Review has found no evidence that prices of
         personal banking services vary materially in different regions of the country.

         4.5       The picture is similar in Northern Ireland, where banking services are dominated by
         four financial firms: Ulster Bank, Bank of Ireland, First Trust and Northern Bank. All are
         subsidiaries of larger organisations. Although the data were not available to include Northern
         Ireland in the market share figures given here, the analysis applies equally to that region as well.

         4.6      The Review also considered whether the geographic market might be wider than
         the UK. It concluded that in spite of moves to a single EU market in financial services, and
         the beginnings of cross border marketing, these trends as yet exert no material
         competitive pressure on the prices charged by UK suppliers. This may change, especially
         if the UK joins the single currency, but the Review has concluded that the markets for the
         provision of personal consumer banking services are national, and will remain so for the
         foreseeable future.


         A P P ROA C H TO A N A LYS I S

         4.7     This section sets out the Review’s approach to the analysis of competition for
         each product, covering market share, concentration, prices, price trends and profitability.


         M a r ke t s h a re s

         4.8      The firms from which the Review collected data consider that information
         relating to individual providers is confidential. Market shares for products are therefore
         presented for categories of financial firms. The categories used in the analysis are:
                    Big four - Lloyds/TSB, NatWest, Barclays, HSBC including all subsidiaries.
                    Building societies - Mutuals.
                    Converted building societies - Firms which have transferred their status from
                    mutuals to banks in the last ten years.
                    Other banks - Banks which have been established for more than ten years
                    (excluding converted building societies).
                    New entrants - Financial firms which have entered the product segment in the
                    last ten years.

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                  Others - eg credit unions.

       4.9      While the Review was being conducted, the Royal Bank of Scotland made a
       successful takeover bid for NatWest. The analysis in this chapter nevertheless treats them
       as two separate firms. The merger will certainly have some impact on concentration and
       competition, but this should not be material in markets such as these with a national
       geographic scope.



       Prices

       4.10      In a competitive market, significant price differentials between similar products
       distributed in similar ways are not sustainable. If they did exist, consumers would switch
       to the cheaper product, and the more expensive would lose sales. The Review looked at the
       price dispersion for each product group, comparing prices for a typical commonly held
       product, using publicly available data from Moneyfacts. A straightforward comparison is
       not sufficient, as prices take time to adjust even in a competitive market. A high priced
       product could exist for some time, but it would be expected that it would have only a low
       level of sales. To allow for this, the Review compared the volume of sales for each product,
       and compared this with price. To maintain confidentiality, some data points have been
       deleted from the volume/price charts so that they cannot be compared with those
       showing price alone.

       4.11     There may also be systematic differences in the risk profiles of different firms’
       customers, which would be reflected in the prices charged on credit related products. For
       example, one of the big four banks pointed out that its acceptance rate for loans was far
       higher than for may other providers, which could account for price differences.

       4.12    The Review also looked at price movements over time, by defining standardised
       products and tracking their prices. The analysis followed two approaches:

                  • ‘Spread’ analysis, using the difference between the rate of interest charged or
                    paid to consumers and the rate at which banks borrow money from each
                    other, the London Inter-Bank Offered Rate (LIBOR). Analysing the spread
                    rather than the rate of interest directly means that the analysis is able to net
                    out the main cost factor affecting interest rates over time. The impact of a
                    movement in spreads varies according to whether the analysis concerns
                    savings products or loan products. A falling spread reduces the price paid by
                    consumers for loan products, and raises the interest rate they are paid on
                    savings products.

                  • Econometric analysis. This looks at whether movements in prices over time
                    can be explained in terms of LIBOR, the number of similar products on the
                    market and other factors. The extent to which prices track producers’ costs
                    (ie LIBOR) indicates the degree of competition. All other things being equal,
                    the number of products on the market is an indicator of industry
                    concentration. But this is only partial as, in some cases, individual suppliers
                    market a number of different products.

       Both studies used monthly data from Moneyfacts for the period 1993 to 1999.

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         C o n s u m e r b e h av i o u r
         4.13     The Review also made use of a regular omnibus survey of 2,000 people, posing
         questions which were of particular relevance to the analysis of competition. The survey
         sample represents the population of Great Britain in terms of age, region, sex and social
         status. The same survey is used by many financial firms and its findings generally accord
         with their own information. The analysis also draws on information collected by the
         Review directly from the financial firms.

         A N A LYS I S B Y P RO D U C T G RO U P
         C u r re n t A c c o u n t s
         Concentration
         4.14    Chart 4.1 below plots the shares of current accounts among the different
         categories of financial firms. The measure of concentration used is the Herfindahl
         Hirschman Index (HHI) defined as the sum of the squares of the market shares of the
         suppliers. For current accounts the HHI is 1,330, indicating a relatively high degree of
         concentration.



                                              Chart 4.1. Share of current accounts 1998
                                                       (by number of accounts)


                              Converted Building      Building Societies Others
                                  Societies                     4%         1%
                                     14%

                                                                                          Big Four
                                                                                            68%
         Other Established
              Banks
                13%




         Source: Banking Review




         Prices
         4.15      Most of the money transmission elements of a current account are supplied free at
         the point of use to retail consumers. Charges are made for a few exceptional money
         transmission functions, including stopping a cheque and making a same day payments.
         Charges are also made for overdrafts, except in some cases for small amounts. Interest is
         charged at a specified rate on the balance of the overdraft. The rate increases considerably
         if the overdraft is unauthorised rather than previously agreed. Some current accounts pay a
         small amount of interest on the amount in the account, while others do not.
         4.16    Hence the debt and savings elements of current accounts cross subsidise money
         transmission services. This is considered in more detail in Chapter 7, in the context of the

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       provision of basic banking services. This cross subsidy makes a total current account price
       comparison difficult. It is also not meaningful to compare interest paid on deposits in
       current accounts, as this is not priced in any conventional sense. The price comparison is
       therefore confined to overdrafts. Using August 1999 prices, a standard product which
       exceeded any free buffer zone was used to for the comparison. This was an authorised
       overdraft of £500 for two weeks in every alternate month.
       4.17     The annual price of their product for different suppliers, using the most
       commonly held account, are shown in Chart 4.2. The costs of providing overdrafts are
       unlikely to vary materially between large suppliers and differing bad debt rates alone
       cannot explain the wide range of prices charged. Hence price dispersion of this order is
       unlikely to result from underlying cost differences.



                                                  Chart 4.2: Range of prices charged for overdraft,
                                                                   August 1999
                                   £180
                                   £160
                 Price per annum




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       4.18      Chart 4.3 illustrates the relationship between size of provider, as measured by
       transaction volumes, and the price of the standard overdraft. This shows that accounts
       with expensive overdrafts were in general more popular than those offering cheaper ones.
       This suggests that the price of an overdraft is not driving the choice of current account. As
       a result, a number of those consumers who make regular use of an overdraft facility are
       being charged higher prices than they could get by shopping around.




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                                         Chart 4.3. Relationship between cost of overdraft and size of provider, May 1999


                 Cost of Overdraft (£)




                                           0
                                                                              Number of Accounts
         Source: Banking Review
         Note: scales on axes have been deleted to preserve firms’ confidentiality.




         Consumer behaviour
         4.19     Chart 4.4 below shows that consumers do not shop around much before
         choosing a current account supplier. The Review found that over 60 per cent of new
         current account holders in the last five years considered no other suppliers than the one
         they ultimately selected. Less than 5 per cent compared the products of more than four
         potential suppliers.



                                         Chart 4.4. Current accounts: how many other suppliers did you actively consider
                                                            before deciding on your current provider?

           70%

           60%

           50%

           40%

           30%

           20%

           10%

             0%
                                            None           One                 Two             Three     Four        More than
                                                                                                                        Four
         Source: Banking Review




         4.20     Once a current account has been chosen, the consumer will typically hold it for a
         long period of time, the median in the sample being 11.1 years. Nearly two thirds of people
         surveyed by the Review had held the same current account for over 10 years, while only 5

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       per cent had opened their account within the previous year. Fifty nine per cent of all
       current account holders were still using their first ever current account. This is illustrated
       in chart 4.5.



                                          Chart 4.5. Distribution of current account by duration
             70%


             60%


             50%


             40%


             30%


             20%


             10%


               0%
                                Up to 6          6 months to 1       1 to 5 years    5 to 10 years        More than 10
                                months              year                                                    years

       Source: Banking Review




       C re d i t c a rd s

       Concentration

       4.21     Chart 4.6 sets out the market shares of credit cards held by category of financial
       firm. Although a large number of credit card products is available, the HHI is 1,090,
       indicating a fairly highly concentrated market. This reflects a strong position held by



                                 Chart 4.6. Share of credit cards, 1998 (by number of cards issued)

                                                  New Entrants
                                                     13%             Others
                            Building Societies                        2%
                                    1%


               Converted Building
                   Societies
                      6%

                 Other Established                                                                   Big Four
                      Banks                                                                            61%
                       17%

       Source: Banking Review




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         the traditional banks, which account for about three quarters of this product group in
         total. These figures should however be treated with some caution as they do not
         necessarily reflect transaction volumes, which would be a more accurate measure of
         market share. Consumers often hold more than one card: it may be that the card issued by
         their main bank is effectively dormant, particularly if credit is more expensive on that card.


         Prices

         4.22      Traditionally, the pricing structure of credit cards reflected their dual role and
         there used generally to be a fixed annual charge levied on all card holders. In addition,
         interest was charged on unpaid balances. The burden of pricing has now moved away
         from the annual charge and on to interest payments: only a few credit cards now include
         an annual charge. Cards also increasingly offer a range of benefits in kind, usually
         associated with high levels of use. These include cash bonuses, air miles, and travel
         insurance. The choice of card will thus depend on a range of factors, for example how
         often it will be used and whether the balance will be paid in full each month.

         4.23     Interest charges on different credit cards are calculated in a variety of ways. The
         majority of cards grant an interest-free period from the date of the transaction until full
         payment is due. For most issuers, this period is 25 days after the statement containing the
         transaction, although some give less time. If full payment is received within this period,
         then usually no interest charge is levied although cash advances may still attract charges.

         4.24      If only partial payment is received, then interest is charged at a daily rate from the
         date of the transaction until the date at which payment is received. Partial payments of
         credit card bills are applied against different elements of the account according to a
         predetermined order. In a typical account, payments will be applied against the account
         in the following order:

                    • interest and handling charges;

                    • cash advances;

                    • purchases on previous statements;

                    • purchases on current statement;

                    • cash advances received, but not yet on the statement;

                    • purchases received, but not yet on the statement.

         4.25     Interest is calculated daily using the period between the date of the transaction
         and the date at which payment is received.

         4.26     Chart 4.7 shows considerable dispersion between the interest rates (standard
         APR) charged by different providers. For purchases these ranged from 11.9 per cent to 29.8
         per cent. The range was even greater if introductory rates were included. Some banks,
         especially new entrants, offer low rates to new card holders for the first six months. These
         were as low as 5 per cent in August 1999. As with mortgages, prices in this product segment
         move fast: rates below 5 per cent were available a few months after this analysis was
         undertaken.

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                                                             Chart 4.7. Standard interest rate on credit card purchases, July 1999

                        35.00%


                        30.00%


                        25.00%
       Interest Rate




                        20.00%


                        15.00%


                        10.00%


                          5.00%


                          0.00%
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       4.27     Chart 4.8 plots interest rates charged against business volumes, measured by
       number of cards held. This shows that the most popular cards do not have the best interest
       rate terms. To take into account the fact that about half of credit card holders pay off their
       account in full each month, the Review also took into account annual charges. The general
       finding that popular cards do not have the best terms was also true of annual fees: most
       large suppliers charge an annual fee, of around £10, although this is sometimes waived for
       high use. Two former building societies waive the fee for consumers who credit regular
       funds to current accounts held with them.



                             Chart 4.8. Credit cards: relationship between interest rate and size of provider, May 1999

                                                    22

                                                    20
                           Headline Interest Rate




                                                    18
                               (Purchases)




                                                    16

                                                    14


                                                    12

                                                    10
                                                         0         1000000      2000000      3000000      4000000     5000000        6000000
                                                                                    Number of Cards In Issue
       Source: Banking Review
       Note: scales on axes have been deleted to preserve firms’ confidentiality.




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         4.28     Average spreads for credit cards were high compared to the other product
         categories. Over the entire period 1993-1999, spreads for credit cards declined, although
         they increased slightly in 1998 and 1999.

         4.29      The interest rate on credit cards is related to LIBOR, but the rate may not change
         for up to three months after a change in the inter bank rate. The interest rate was also
         found to fall as the number of products on the market increased, indicating that
         competition may be having some effect. The analysis showed a very wide dispersion of
         rates. It also revealed consistent differences in value for money, with the long standing
         banks offering poorer rates throughout the period. Those firms in the sample charging
         high interest rates and annual fees were likely to be selling an uncompetitive product,
         even after allowing for any other benefits.


         Consumer behaviour

         4.30     The Review found that 38 per cent of respondents had held their main credit card
         for more than 10 years; the median time held was 8.1 years (see Chart 4.9). Consumer
         behaviour nonetheless differed from that in other product markets: there was evidence
         that a number of consumers were buying new products on the market, either as additional
         cards or to substitute for an existing card.



                                          Chart 4.9. Credit cards distributed by account duration
                50%

                40%

                30%

                20%

                10%

                  0%
                              Up to six          6months to            1 to 5         5 to 10       More than
                              months               1year              years           years         10 years
         Source: Banking Review




         Pe r s o n a l l o a n s

         Concentration

         4.31     Chart 4.10 shows market shares in the supply of personal loans. The HHI is 710
         indicating that the market is not concentrated. It has the lowest HHI of all the personal
         consumer product groups considered here. Traditional banks have a significant but not
         overwhelming presence; ‘other providers’ account for a relatively high proportion. This
         includes a relatively high number of smaller players, such as credit unions operating in
         specific geographic regions.

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                            Chart 4.10. Share of personal loans, 1998 (by number of loans outstanding)
                                                                  Other Providers
                                                                       19%


                            New Entrants
                                 5%                                                                                 Big Four
                      Building Societies                                                                              46%
                              1%




                      Converted Building
                          Societies
                            16%                                          Other Established
                                                                              Banks
        Source: Banking Review                                                 13%




       Prices

       4.32      The pricing structure for most personal loans is straightforward. The main price
       component is the interest rate. In addition, redemption penalties are sometimes charged
       if the loan is paid off early. Table 4.1 compares the annual APRs charged on personal loans
       of varying sizes by a sample of 46 providers in August 1999. It shows a very wide range of
       loan prices. The most expensive loan was typically almost double the APR of the cheapest
       provider. For a 3 year £5,000 loan, this translates into repayments of an extra £23 per
       month (or over £800 over the 3 year period).


       Table 4.1.             Loan rates (APRs), August 1999

                                                £1,750               £3,750               £5,750   £7,750   £11,750       Repayment*
       Minimum                                   13%                 12.5%                9.3%     8.9%      8.9%              £161.41
       Maximum                                  23.9%                19.9%                19.5%    18.9%    16.9%              £184.60
       Average                                  17.5%                15.2%                13.4%    12.7%    11.4%              £169.77
       Big Four                                  7.9%                16.4%                14.7%    13.4%    12.6%              £170.14
       Other Banks (Branch)                     19.1%                16.2%                 13%     12.5%    11.4%              £170.42
       Other Banks (Direct)                       n/a                14.4%                12.2%    11.9%    11.9%              £165.45
       Building Societies                        7.4%                13.5%                12.4%    12.3%    10.9%              £165.41
       New Providers                            16.2%               13.1% 1               1.7%     11.1%    10.2%              £165.12

       * Monthly repayment on a 3 year £5,000 loan to a new customer, with no insurance

       Source: Moneyfacts




       4.33     Chart 4.11 plots the monthly repayment on the benchmark 3 year £5,000 loan
       against the size of the supplier. This last is measured by the number of loans outstanding,
       as reported to the Review by the banks. The more commonly held loans are by no means
       those with the most competitive prices, although this could be in part a function of the
       riskiness of the borrower. The most competitive prices are likely to be available only to
       those with a high income and low risk of default.

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             Chart 4.11. Personal loans: relationship between size of provider and price of loan, May 1999




                                                           180
                        £5000 loan with no insurance (£)
                         Monthly Repayment on 3 year,


                                                           170
                                                           160
                                                           150




                                                                 0      200000 400000 600000 800000 1000000 1200000 1400000 1600000
                                                                                    Number of loans outstanding
         Source: Banking Review
         Note: scales on axes have been deleted to preserve the firms’ confidentiality.




         4.34     For the analysis of prices over time a representative product was used. This was
         taken as a loan of £5,600, which represents the average personal unsecured loan in 1993-96.
         On average, spreads for personal loans declined steadily throughout the period, although
         they increased in 1999. Interest rates adjusted to movements in LIBOR but only slowly. On
         average, LIBOR accounted for only about 27 per cent of the loan rate. From Table 4.1,
         however, it is apparent that this comparison changes according to the loan size. The
         number of products on the market was not found to have an effect on loan rates, and there
         was a very wide dispersion in rates. While not the worst on the market during this period,
         the products of the large banks were far from the most competitive.




                               Chart 4.12. Personal loans: how many other suppliers did you consider before
                                                     deciding on your current provider?
                     80%

                     70%

                     60%

                     50%

                     40%

                     30%
                                                                                                                             0
                     20%

                     10%

                       0%
                                                                 none           1           2           3           4         more
         Source: Banking Review
                                                                                                                             than 4




114
4   BANKING    S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S



       Consumer behaviour

       4.35     The product segment for personal loans showed the lowest degree of ‘shopping
       around’ on the part of consumers, as can be seen from Chart 4.12. More than 70 per cent of
       consumers approached only one supplier when arranging their loan. However,
       information on loans is readily available so it may be that consumers had looked at the
       rates on offer in one of a number of published sources before approaching a supplier.


       Mortgages

       Concentration

       4.36     Chart 4.13 below shows market shares in the supply of mortgages. As with savings
       accounts, the big four banks have a relatively small share of the mortgage market,
       reflecting the traditional strength of building societies in this product area. However, the
       supply of mortgages is fairly concentrated, with an HHI of 1,100.



                                Chart 4.13. Share of mortgages, 1998 (by number of mortgages)

                                                   Others                                 Big Four
                                                    11%                                     17%
                                                                                                     Other Established
                 Building Societies
                                                                                                          Banks
                        19%
                                                                                                            5%




                                                                               Converted Building
                                                                                   Societies
                                                                                     48%
       Source: Banking Review




       Prices

       4.37     A vast range of different mortgage products is currently available in the UK - over
       1,000 in all. The pricing structure of all these products falls into one of the following broad
       categories:
                    Standard variable rate. The rate of interest over the life of the loan, commonly 25
                    years, generally reflects movements in the money market rates. These mortgage
                    contracts do not require the lender to vary rates according to any pre set criteria.
                    In this sense the lender has discretion over changing the rate paid by the
                    borrower.
                    Fixed rate mortgages. The interest rate is set at a fixed rate for a specified period -
                    typically five years or less. After this period the rate generally reverts to a variable
                    one. During the fixed rate period, a redemption penalty is commonly payable if
                    the borrower wants to change the mortgage to another type or to another lender.

                                                                                                                         115
4     BANKING                    S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S



                                     Sometimes these penalties extend beyond the fixed rate period. These
                                     redemption penalties are often substantial, and expressed in different terms.
                                     Some suppliers express the penalty as a multiple of monthly interest payments,
                                     others charge a percentage of the sum to be repaid or of the original advance.

                                     Capped rate mortgage: The interest rate is variable but capped at a maximum
                                     level. As with fixed rate mortgages, redemption penalties are often payable.

         4.38      Consumer preferences for a particular type of mortgage depend on a number of
         factors. Most important is the consumer’s attitude towards risk. Fixed rate mortgages
         became more common in the early 1990s after many property owners with variable rate
         mortgages had been hit by increasingly high interest rates. A number of people who took
         out fixed rate mortgages at that time have subsequently seen money market interest rates
         fall. They have not been able to benefit from lower monthly repayments without paying
         redemption penalties.

         4.39                        Two products were chosen for comparison:

                                     Standard variable rate mortgage on a loan of between £60,000 and £100,000,
                                     with a maximum loan to value ratio of 95 per cent. Defined as the ratio of the
                                     value of the loan to the value of the property, the ratio reflects the degree to which
                                     the loan is secured.

                                     Fixed rate mortgage available in July 1999 and fixed until late 2004 (giving a fixed
                                     rate period of some 5 years in total).

         4.40     Chart 4.14 shows the range of rates applying to the standard variable rate
         mortgage at August 1999. These ranged from 6.2 per cent to 6.99 per cent. Although the
         price range is not large, it represents a significant proportion of the price and, because of
         the large sums involved, potential savings from switching to a cheaper supplier can be
         substantial. For example, a mortgage holder with a £75,000 loan could have saved as much
         as £37.50 a month on repayments.



                                     Chart 4.14. Interest rates charged on £75,000 mortgage, 95% LTV, August 1999
                             8

                             7

                             6
         Interest rate (%)




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116
4   BANKING               S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S



       4.41     Chart 4.15 relates mortgage rates to the volume of business for individual
       providers. Again, there was no evidence that cheaper providers were able to secure a
       greater volume of business. These price data, however, represent a snapshot in what is a
       fast moving business. Many of the rates changed in the six months following this analysis,
       and a number of cheaper rates were offered.


                                                               Chart 4.15. Mortgages: relationship between interest rate and size of
                                                                           provider (standard variable rate), May 1999
                                                       8

                                                       7
                          Standard Variable Rate (%)




                                                       6

                                                       5

                                                       4

                                                       3

                                                       2

                                                       1

                                                       0
                                                           0       200,000 400,000 600,000 800,000 1,000,00 1,200,00 1,400,00 1,600,00 1,800,00
                                                                                         Number of Accounts
       Source: Banking Review                                                                         0         0        0        0        0
       Note: scales on axes have been deleted to preserve the firms’ confidentiality.




       4.42     Chart 4.16 shows rates charged on mortgages which offer a fixed rate until late
       2004, with the expiry of the fixed rate period between 31 July and 1 November. All
       mortgages in the sample charged redemption penalties for the duration of the fixed rate
       only. These mortgages all offered up to 95 per cent loan to value ratio, with the exception of
       Sainsbury’s which offered 100 per cent.



                                                               Chart 4.16. Interest rates on 5 year fixed rate mortgages, August 1999
                       8.00%

                       7.00%

                       6.00%
       Interest Rate




                       5.00%

                       4.00%

                       3.00%
                       2.00%

                       1.00%

                       0.00%
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       Source: Moneyfacts




                                                                                                                                                  117
4     BANKING      S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S



         4.43      Interest rates ranged from a minimum of 5.95 per cent (Sainsbury) to 6.99 per
         cent (NatWest, Midland, Bristol & West, Mortgage Express). Prices were more evenly
         spread through this range than for variable rate mortgages, where many major suppliers
         fell within a very narrow pricing band. The rate of interest is only one component of the
         price of a fixed-rate mortgage. Redemption penalties are also charged during the fixed-
         rate period and, in some cases, beyond. Redemption penalties are expressed in a number
         of ways and typically not as monetary sums. Table 4.2 sets these out.


         Table 4.2.             Redemption penalties payable on 5 year fixed rate mortgages, August 1999
         Supplier                                       Period of interest                        % of sum      % of original advance
                                                                                                 to be repaid
         Barclays                                                                                  variable           variable
         Bristol & West                                                                              6%
         Mortgage Express                                     3 months
         Natwest                                                                                   variable           variable
         First Direct                                         6/6/6/3/3
         Northern Rock                                                                            5/5/5/4/3
         HMC                                                  6 months
         Alliance & Leicester                                 6 months
         Cheltenham & Gloucester                                                                                      5/4/3/2/1
         Sun Bank                                                                                     5
         Abbey National                                       195 days
         Bradford & Bingley                                                                       4/4/3/2/2
         Yorkshire BS                                                                             5/5/5/4/3
         Britannia 1                                           80 days
         Midland Bank                                         6/6/6/3/3
         Bank of Scotland                                     6 months
         Royal Bank of Scotland                                                                   6/6/5/4/3
         Halifax                                                                                                      5/4/3/2/1
         Sainsbury’s                                          6 months
         HMSL                                                                                                         5/4/3/2/1
         Number of months interest payable if mortgage is redeemed in 1st/2nd/3rd/4th/5th year
         Source: Moneyfacts




         4.44      Mortgage spreads were low compared to those on personal loans. There are two
         reasons for this. First, mortgages carry a lower risk of default than personal loans. Second,
         the sum of money advanced is usually much larger. Spreads for new borrowers were
         slightly lower than those for existing borrowers. In general spreads have declined during
         the period but have recently started to rise.


         4.45     The mortgage rate fell over the period, tracking the broad movement of LIBOR.
         Changes in LIBOR brought some immediate responses and others that lagged behind,
         indicating that firms often left some time between base rate changes and changing prices.
         The relationship was weaker for small community building societies than for the larger
         firms. The relationship with LIBOR was much closer for mortgages than savings rates.
         Rates to new borrowers tracked LIBOR more closely than those to existing borrowers did,
         indicating some price discrimination between ‘front book’ and ‘back book’, and the
         presence of switching costs.

118
4   BANKING     S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S



       Consumer behaviour


       4.46     As with other products, consumers do not shop around to benefit from price
       differences in mortgages. Sixty five per cent of mortgage holders did not compare the
       products of more than one supplier before selecting their mortgage, as is shown in Chart
       4.17.



             Chart 4.17. Mortgages: how many other lenders did you visit or contact in order to get more
                              information when you arranged your current mortgage?

                      70%

                      60%

                      50%

                      40%

                      30%

                      20%

                      10%

                        0%
                                    none            1              2                 3    4        more than
       Source: Banking Review                                                                           4




       4.47    Account durations for mortgages (see Chart 4.18) are much shorter on average
       than those for other products, a median of 7.5 years in the Review’s sample. This is because
       their duration, on average substantially less than the duration of a current or savings
       account, is driven by the length of time between moving properties. Switching between
       lenders without moving property is uncommon. Of those people who had changed their
       mortgage without actually moving, only 10 per cent had changed lenders.



                                 Chart 4.18. How long ago did you arrange your current mortgage?


               40.0%

               35.0%

               30.0%

               25.0%

               20.0%

               15.0%

               10.0%

                 5.0%

                 0.0%
                                  Up to six         6months to              1 to 5       5 to 10            More than
                                  months              1year                 years        years              10 years
        Source: Banking Review




                                                                                                                        119
4     BANKING    S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S



         S av i n g s A c c o u n t s

         Concentration

         4.48      Chart 4.19 sets out the share of savings accounts among the different categories of
         firms. The HHI is 910, just below the level which would give cause for concern. The total
         share of the big four banks is substantially less than that for current accounts, reflecting the
         traditional strength of building societies in this product group.




                                           Chart 4.19. Number of savings accounts, 1998
                                                      (by number of accounts)

                                           New Entrants Others                                  Big Four
                                               1%        6%
                                                                                                  19%
                 Building Societies                                                                        Other Established
                        27%                                                                                     Banks
                                                                                                                  5%




                                                                                      Converted Building
                                                                                          Societies
                                                                                            42%
          Source: Banking Review




         Prices


         4.49      The price of a savings account relates to the rate at which interest is paid. The
         interest rate often increases as the amount of savings increase. Savings accounts also have
         a range of other characteristics which can affect prices. These include:


                      • Terms of access. Savings accounts vary in the degree to which they allow
                        account holders to make withdrawals from their account without financial
                        penalties. These requirements generally take the form of minimum notice
                        periods or limits on the number of withdrawals that can be made.


                      • Distribution outlets. A number of firms offer different types of accounts.
                        Some are ‘branch based’, that is, handled by their high street branches, while
                        others are postal accounts handled by a central distribution centre. The lower
                        overheads of postal accounts means that they generally offer better rates than
                        branch-based accounts.




120
4   BANKING             S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S



       4.50                 The Review analysed two types of savings accounts:

                            • An instant access account with the following features:
                              • access only through a branch;
                              • unlimited withdrawals with no notice period or loss of interest;
                              • free withdrawals from own firm ATMs;
                              • no passbook;
                              • unrestricted additional savings.

                            • A telephone only instant access account with the same features as above,
                              excluding branch access.

       4.51    Chart 4.20 shows that branch based accounts with very similar terms and
       conditions for all values of accounts offer a wide range of interest rates.




                                Chart 4.20. Interest rates on instant access savings accounts, August 1999
                        5.00%

                        4.50%                                                                A & L EasySaver


                                                                                             Halifax Instant Saver
                        4.00%
                                                                                             Woolwich Card Saver
                        3.50%
                                                                                             Lloyds TSB Instant Gold Savings

                        3.00%
        Interest Rate




                                                                                             Northern Bank Saver Plus

                        2.50%                                                                Clydesdale Instant Solution


                        2.00%                                                                Barclays Instant Savings


                                                                                             Abbey Instant Saver 3
                        1.50%
                                                                                             NatWest First Reserve
                        1.00%
                                                                                             Lloyds TSB Flexible Savings
                        0.50%
                                                                                             Bank of Scotland Savings

                        0.00%
                                                                                             Northern Bank Cashmaster
                          £1




                                                                                    00
                                                                          0


                                                                                     0


                                                                                     0
                                             00


                                                      00


                                                               00
                                   00




                                                                        00


                                                                                   00


                                                                                   00


                                                                                  ,0
                                           ,0


                                                    ,5


                                                             ,0
                                 £5




                                                                      0,


                                                                                 5,


                                                                                 0,


                                                                                00
                                         £1


                                                  £2


                                                           £5


                                                                    £1


                                                                               £2


                                                                               £5


                                                                              £1




       Source: Moneyfacts                                     Balance




       4.52      Chart 4.21 plots the interest rate for an account with a balance of £2,501 against
       the size of supplier, as measured by number of accounts. Depending on where the
       account was held, this sum could have earned between 0.2 per cent and 4.5 per cent
       interest.




                                                                                                                               121
4     BANKING                                  S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S




                                                                        Chart 4.21. Saving accounts: relationship between interest rate and
                                                                               size of provider for branch based account, May 1999

                                Interest Rate (%) Paid at £2,501




                                                                                                                 Size of supplier
         Source: Banking Review
         Note: scales on axes have been deleted to preserve the firms’ confidentiality.




         4.53    Chart 4.22 shows the range of interest rates on a sample of telephone only instant
         access accounts. These were similar to the highest levels paid for similar branch based
         accounts.



                                                                              Chart 4.22. Interest rates on telephone based instant access
                                                                                        accounts with ATM facility, August 1999
                                                                    6



                                                                    5


                                                                                                                                              BoS Direct
                                                                    4
                                                                                                                                              Sainsbury's Bank
            Interest Rate (%)




                                                                                                                                              Tesco
                                                                    3                                                                         Egg

                                                                                                                                              Northern Rock

                                                                    2                                                                         First Direct




                                                                    1



                                                                    0
                                                                          0
                                                                   £1




                                                                                                                       00
                                                                                                                        0


                                                                                                                        0


                                                                                                                        0


                                                                                                                        0
                                                                                          00


                                                                                                   00


                                                                                                            00
                                                                                 00
                                                                        £5




                                                                                                                      00


                                                                                                                      00


                                                                                                                      00


                                                                                                                      00


                                                                                                                     ,0
                                                                                        ,0


                                                                                                 ,5


                                                                                                          ,0
                                                                               £5




                                                                                                                    0,


                                                                                                                    0,


                                                                                                                    5,


                                                                                                                    0,


                                                                                                                   00
                                                                                      £1


                                                                                               £2


                                                                                                        £5


                                                                                                                  £1


                                                                                                                  £2


                                                                                                                  £2


                                                                                                                  £5


                                                                                                                 £1




         Source: Moneyfacts                                                                                Balance



         4.54     The analysis of price trends was based on two representative 90-day savings
         accounts derived from the Abstract of Banking Statistics (1998,1999). The first, a high value
         account, ranged from £15,981 in 1993 to £23,053 in 1999. The second was taken to be as 10
         per cent of the higher figure. For both high and low value savings, the analysis showed that

122
4   BANKING    S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S



       average spreads (the difference between the interest paid and LIBOR) increased slightly
       over the period, but fell in the last couple of years.

       4.55     Across the same period, savings rates tracked LIBOR, but not exactly. The analysis
       also indicated that interest rates fell as the number of products on the market increased.
       One possible explanation for this is that consumer confusion increases in line with the
       number of products on the market. The analysis also showed that rates ranged more
       widely for the low value accounts than that for the high value ones.


       Consumer behaviour

       4.56     For savings accounts, the extent of shopping around prior to selecting a supplier
       was again limited, as can be seen from Chart 4.23. Sixty eight per cent of respondents had
       not actively considered any other suppliers when selecting their main savings account.



                                 Chart 4.23. Savings accounts: how many other suppliers did you
                                   actively consider before deciding on your current provider?
                      80.0%

                      70.0%

                      60.0%

                      50.0%

                      40.0%

                      30.0%

                      20.0%

                      10.0%

                        0.0%
                                    none            1              2                3   4   more than
                                                                                                4
        Source: Banking Review




       4.57      Like current accounts, savings accounts are held for a long time, a median of 9.9
       years in the Review’s sample - see Chart 4.24.




                                                                                                        123
4     BANKING     S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S




                                         Chart 4.24. Distribution of main savings account by
                                                                duration
                  60.0%

                  50.0%


                  40.0%

                  30.0%

                  20.0%


                  10.0%

                     0.0%
                                    Up to six         6months to               1 to 5   5 to 10   More than
                                    months              1year                  years    years     10 years

          Source: Banking Review




         ASSESSMENT OF CURRENT LEVEL OF COMPETITION


         P ro f i t a b i l i t y

         4.58     This section brings together the key findings from the analysis of product groups,
         and the profitability analysis from Annex C to draw conclusions about the relevant
         economic markets. It also considers the underlying reasons for the differing levels of
         effectiveness of competition.

         4.59    In banking markets, the business cycle, the nature of the products, and the wide
         scope of business of the firms concerned make it impossible to measure directly the
         existence of excess profits in individual economic markets. (See Annex C for more detail.)
         However, the Review has concluded, that within a very wide margin of error:

                      • at institutional level, the firms principally concerned in personal banking
                        markets have made cumulative returns for their shareholders well in excess of
                        nearly all other sectors of the UK stock market. This finding holds true for a
                        number of periods of time, all including the economic downturn of the early
                        1990s;

                      • over the period of 1987 to 1999 the weighted average internal rate of return
                        (IRR) for shareholders of the big four banks was 5 per cent a year more than an
                        equivalent risk investment in the UK stock market;

                      • at least a proportionate amount of these abnormal returns was earned in UK
                        banking markets. Within UK banking markets, corporate markets display
                        effective competition and a return close to the firm’s cost of capital, leading to
                        the conclusion that UK personal and SME markets are the sources of
                        abnormal returns: the return on risk weighted equity required to support

124
4   BANKING   S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S



                        personal banking services has been materially above the cost of that equity for
                        a sustained period;

                     • notwithstanding the fact that the market for personal banking services shows
                       significant variation in bad debt rates through the business cycle - and thus
                       their profitability for the banks is cyclical - the returns currently being earned
                       on personal customers is excessive on most reasonable predictions of what
                       the bad debt rate is likely to be over the next few years;

                     • however, in the markets for services to these customers there is evidence that
                       price pressure from competition is building up, and that this pressure could
                       bring returns into line with costs in the short to medium term. This varies from
                       market to market, with most price pressure being seen in the secured debt
                       market, and the least in the supply of current accounts.

       4.60     One further observation is relevant. Notwithstanding that current accounts are
       provided ‘free’ to most personal customers, those firms providing these services, on
       average, make a profit out their supply as a result of the access they get to free or low cost
       deposits, and from the provision of those services connected with current accounts that
       are charged for.


       M a r ke t b e h av i o u r

       4.61          Table 4.3 below summarises the key findings from the analysis of product groups.


       Table 4.3.        Review’s assessment of product groups
                                     Concentration         Cost reflective    Extent of    Median time    Effective
                                     (HHI)                 pricing?           shopping     product held   competition?
                                                                              around?      years
       Current a/c                   High                  No                 Low          11.1           No
       Credit cards                  Fairly high           Varies             Low but      8.1            Moving in
                                                                              increasing                  that direction
       Personal Loans                Low                   Probably no        Low          n/a            Not clear
       Mortgages                     Fairly high           Probably yes       Low but      7.5            Moving in that
                                                                              increasing                  direction
       Savings                       Acceptable            n/a                Low          9.9            Some recent
                                                                                                          improvement



       4.62    Translating this analysis across to the four economic markets identified earlier
       indicates that competition is:

                     • low in money transmission;

                     • increasing in unsecured lending, but with some variation across products;

                     • increasing in secured lending;

                     • just beginning to increase in savings.

       4.63     To varying degrees, therefore, competition does not appear to be effective in any
       of these markets. This section examines some of the underlying reasons for the lack of

                                                                                                                           125
4     BANKING   S E R V I C E S F O R P E R S O N A L R E TA I L C O N S U M E R S



         effective competition, in particular the central role the current account plays in
         competition in these markets.


         Joint supply

         4.64      Having an existing relationship with a consumer presently gives a financial firm a
         much better chance of securing further business from that consumer. This is because
         consumers will typically select that firm’s products rather than shop around. Because
         current account provision is concentrated, cross selling from the current account is of
         particular concern. The Review found that the average number of additional services
         taken by traditional banks’ current account holders was one (including products not
         covered by the Review, such as insurance). The figure for former building societies was
         higher at 1.5. This reflects the fact that the consumer will have first shopped with the
         former building society by buying a mortgage or savings product. The current account has
         therefore been cross sold from one of these products. To the extent this has improved
         choice of current account supplier, this is not a cause for concern and may be beneficial.
         Indeed, some of the current account products sold by former building societies - for
         example the Woolwich Open Plan Account - are more innovative than the accounts
         provided by traditional banks. In general, former building societies achieve less cross
         selling than the traditional banks.

         4.65     The extent of joint supply helps explain why banks can sustain relatively high
         prices for products such as personal loans and credit cards, even when there is a large
         number of suppliers for these products. But it does not explain why consumers put up
         with these high prices and do not switch their current account supplier more often, or
         unbundle services to a greater extent. This is considered in the next section.


         B a r r i e r s t o sw i t c h i n g

         4.66       There are two main barriers to switching:

                    • information problems;

                    • costs of switching.


         Information problems

         4.67       To draw meaningful comparisons between products, consumers need to
         understand the terms of the products they hold and to be able to make informed
         comparisons with the products of other providers. The evidence suggests that neither of
         these conditions is met. The Review found that many consumers - about half - found it
         difficult to compare financial products. In each product group, there is clear evidence that
         consumers are not adequately informed about their financial products, although the
         extent of the problem varies between the different product markets.

         4.68     Sixty eight per cent of respondents said that they knew the terms and conditions
         of their current account and 79 per cent said that they usually checked their bank
         statements. Fifty seven per cent said that they would notice if they were overcharged by

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       their bank, compared with 29 per cent who said they would not. However, when asked
       how accurately they felt they knew specific charges, the survey indicated a higher level of
       confusion among consumers. Table 4.4 sets out the findings.


       Table 4.4.           How accurately do you feel you know the charge for services on your account?
                                                        Exactly               Roughly   Not at all   Did not apply
       Cheque bouncing                                  13%                   24%       53%          10%
       A letter from the bank                           15%                   28%       50%          7%
       An international transfer                        5%                    10%       70%          15%
       Overdraft rate                                   18%                   25%       43%          14%
       Bill paying                                      20%                   18%       43%          19%
       Cash machine withdrawals                         29%                   18%       32%          21%
       Source: Banking Review



       4.69      This uncertainty may reflect a lack of experience of some services. Those who had
       encountered a particular service in the previous 12 months were asked whether the
       charges were more than they had expected. Less than 10 per cent were surprised by the
       charges on international transfer, bill paying or cash machine withdrawal. The figure rose
       to a quarter for overdraft interest rates and the cost of a letter from their bank. And nearly
       half of respondents found that the cost of a bouncing cheque was higher than they had
       expected.

       4.70      Similarly, the survey showed that consumers do not generally have an accurate
       idea of the terms and conditions of their savings accounts. The results are set out in Table
       4.5.


       Table 4.5.           How accurately do you feel that you know the following on your savings account?
                                                        Exactly               Roughly   Not at all   Did not apply
       Notice period                                    29%                   14%       23%          34%
       Charge for withdrawals                           28%                   14%       31%          27%
       Interest rate                                    18%                   38%       41%          3%
       Source: Banking Review



       4.71     The survey also indicated that the wide range of credit cards was not necessarily
       giving consumers effective choice. Half of respondents agreed with the statement that
       there were so many credit cards available that they would not be confident in choosing the
       one which suited them best. There is also evidence that many consumers are unaware of
       the terms and conditions attached to their credit card. The Review asked all credit card
       holders in its sample whether, if only part of the bill was paid, the interest would be
       charged on the full amount in the statement or just on the outstanding balance. The
       correct answer is that interest is charged on the full amount on the statement. Less than a
       third got the answer right. Slightly more than a third believed that the interest was
       calculated on the outstanding balance only, while the remainder said they did not know.
       People who generally paid their bill in full were less likely to know the answer than those
       who did not.

       4.72     Sixty nine per cent of mortgage holders said they understood the different types
       of mortgages available, while 22 per cent did not. Despite this, the survey found a
       significant degree of consumer confusion about certain key features of mortgage
       products, specifically:

                     • what is meant by a variable rate mortgage; and

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                    • the value of redemption penalties.

         4.73      Only 25 per cent of mortgage holders understood that variable rate means that
         the interest rate varies at the lender’s discretion (unless the product is specified as a
         ‘tracker’.) Fifty three per cent said it meant that the interest rate automatically changed
         with the base rate. Equally, very few consumers knew the value of their redemption
         penalty with any certainty. Those who had fixed rate mortgages were asked whether they
         had to pay a redemption penalty. Twenty seven per cent said that they did not know, while
         40 per cent said that they had to pay a penalty but did not know how much it was. Only 11
         per cent felt able to give an accurate figure for the redemption penalty that would be due if
         they switched their mortgage. This confusion about redemption penalties reflects the fact
         that they are not typically specified in cash, as shown in Table 4.2 above.


         C o s t s o f sw i t c h i n g

         4.74     It is easier to switch between some products than others. At one end of the scale
         are credit cards. Here, consumers can transfer between providers at no cost to themselves;
         and consumers can hold more than one credit card account simultaneously. At the other
         extreme are:

                    Current accounts. The prospect of transferring standing orders, direct debits and
                    salary payments can deter consumers from switching providers, although in
                    practice the Review found that only 14 per cent of those who had switched their
                    current account actually experienced problems. Some consumers may also
                    believe that staying with the same current account provider will make it easier or
                    cheaper to secure credit when they need it. This is a genuine phenomenon in
                    SME markets, but unlikely to be the case for personal customers, where there are
                    plenty of credit suppliers and credit scoring techniques are well developed.

                    Mortgages and loans. Redemption penalties can deter consumers from
                    switching providers. There can also be considerable up front costs to
                    remortgaging, including property valuation and legal fees. In some cases, some
                    suppliers pay for these.

         4.75     In addition, the Review found some evidence that frequent credit references
         were associated with difficulty in getting bank credit, independently of default risk. This
         could imply that suppliers are discriminating against active switchers, on the grounds
         that they are likely to be more aware of prices and terms.


         R e p re s e n t at i o n a n d re d re s s

         4.76     The nature of financial products means that all elements of the contract between
         supplier and consumer cannot be fully specified in advance. For products like variable
         rate mortgages they are barely specified at all: unless otherwise stated the supplier has
         absolute discretion to vary interest rates. For example, the Review has come across cases
         where missing a single payment can apparently result in a permanent increase in interest
         rates. Because consumers have problems understanding terms and conditions, and
         because products are held for a long time, problems may only come to light some time

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       after the product has been sold. It is therefore important that consumers both have an
       effective voice and access to robust avenues of redress.


       4.77     The FSMB will require the FSA to ‘make and maintain effective arrangements for
       consulting consumers on the extent to which its general policies and practices are
       consistent with its general duties’. This includes establishing a Consumer Panel to
       represent the interests of consumers. The Bill provides for the Authority to appoint the
       chairman, with the Treasury’s approval, and all the panel members. This is in contrast with
       other sectoral regulators where the norm is separate, independent, consumer councils,
       and gives rise to concern that the arrangements will mean that the panel will not be
       sufficiently independent of the Authority.


       4.78   There are two separate, but closely related, schemes which deal with the
       behaviour of banks, and redress for consumers:

                  • the Banking Ombudsman Scheme;

                  • the Banking and Mortgage Codes.

       4.79     The failure of self regulation has been implicitly recognised by the Government
       in its decision to subsume the voluntary Banking Ombudsman Scheme within a new
       statutory Financial Services Ombudsman Scheme (FSOS). While the Ombudsman was
       technically independent, his terms of reference were drawn up by the banking industry.
       These precluded him, among other things, from investigating complaints relating ‘to a
       Bank’s commercial judgement in decisions about lending or security’ or ‘to a Bank’s
       general interest rate polices’. In taking individual decisions he was required to have regard
       to ‘general principles of good banking practice and any relevant codes of practice’1. The
       relevant codes of practice, the Banking and Mortgage Codes, are also drawn up by the
       industry: the British Bankers Association (APACS); the Building Societies Association; and
       the Association for Payment Clearing Services. There is no direct input from consumers or
       consumer groups.

       4.80      Compliance with the Banking Code was, until recently, monitored by an
       Independent Review Body which was considered ineffective as it had no enforcement
       powers against firms which breached the Code. Similarly, whilst the Banking Ombudsman
       could award compensation to individuals who complained to him that they had suffered
       as a result of a bank breaching the Code, he had no powers to enforce the Code generally. In
       a recent review of the codes, the Ombudsman stated that ‘the lack of a wider policing and
       enforcement mechanism undermines the effectiveness of both codes’ 2.

       4.81       A review of the Banking Code by the industry is currently underway. Publication of
       a new edition is due in July 2000. The Independent Review Body has been replaced by a new
       Banking Code Standards Board which has ‘an increased budget, new premises and a range
       of monitoring activities that will monitor compliance much more vigorously’3. The Board
       still has no powers of enforcement although it has said it intends to introduce new rules on
       disciplinary procedures and penalties once these have been negotiated with the BBA. The
       Review doubts that such procedures will prove effective.
       1
         Board of the Office of the Banking Ombudsman Terms of Reference April 1997
       2
         The Banking Ombudsman The Banking Code and The Mortgage code: Suggestions for Review May 1999
       3
         Banking Code Standards Board Fact Book January 2000


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         4.82     A possible alternative route for consumer redress is the general law. The Unfair
         Terms in Consumer Contracts Regulations are starting to be applied successfully in some
         areas, the right to prosecute having been recently extended to a number of bodies
         including the Consumers Association (CA). This has enabled the OFT and CA to tackle
         issues such as unfair mortgage redemption penalties, in some cases with lenders agreeing
         to change the terms of their contracts voluntarily rather than face legal challenge.


         Conclusion

         4.83     The analysis points to five central conclusions. First, the supply of banking
         services to UK personal retail customers is highly profitable. Second, the current account
         holds the key to competition between firms supplying other products. Because
         consumers often rely on their current account provider for the sale of other products, it is
         essential that competition for this product works well. But the supply of current accounts
         is the most highly concentrated product group of all those examined here. Added to this
         are the significant deterrents to switching between providers because of the perceived
         time and trouble involved in transferring accounts.

         4.84    Third, consumers perceive significant barriers to switching for all their personal
         banking products. The problems affecting the current state of competition for each of
         these product groups stretch beyond those relating to industry structure. For markets to
         work effectively in the interests of consumers, it is vital that the costs or difficulties of
         switching are kept to a minimum. Fourth, there are severe information problems. For
         every product group considered here, the Review has identified central elements which
         consumers do not appear adequately to understand. Finally, avenues of redress are
         inadequate.

         4.85     These conclusions should not be surprising. It has long been in the banks’
         interests to suppress switching. Consumers who are locked in to a provider (by inertia if
         nothing else) tolerate higher prices than those who actively shop around and switch
         between providers. Firms have as a result an interest in exaggerating the difficulties
         involved in changing suppliers and making sure that consumers are not in a position to
         make informed choices. However, these conclusions are based on the current state of
         competition and do not take into account the many changes taking place in the market.
         The next section examines current market dynamics.


         M A R K E T DY N A M I C S

         4.86   This section assesses the impact of current and prospective developments on
         competition in the relevant markets. The discussion centres on two issues:

                    • first, whether industry concentration can be expected to diminish in the
                      future as a result of changes in the patterns of new business and the success of
                      new entrants in securing business;

                    • second, how technological changes in the pattern of service delivery are likely
                      to impact on competition.

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       S h a re s o f n ew b u s i n e s s

       4.87     For current accounts, savings accounts, and mortgages, the Review found shares
       of new business in 1998 - the last year for which figures were available - were very similar to
       shares of existing business. For credit cards and personal loans, however, there was some
       evidence of shifting market shares. In both cases the big four banks were losing market
       share to other established banks although, in the case of loans, not by much.

       4.88      These data offer a snapshot of the market in 1998. More recent evidence suggests
       further shifts in market share. A number of suppliers using alternative delivery channels
       have entered the market place since then and successfully secured new business. For
       example, Standard Life introduced its mortgage product in January 1999. In its first year of
       operating it secured about 51,000 mortgages worth approximately £4 billion in total. As a
       share of existing standard accounts, this represents less than 1 per cent, but about 5 per
       cent of new business that year. And because of their higher than average value, Standard
       Life’s share of mortgages by value has been estimated to be considerably higher than this,
       up to 10 per cent. Prudential has also secured sizeable entry in the savings account sector:
       by the end of December 1999, it had approximately £4 billion in savings and
       approximately 265,000 consumers (equivalent to less than 0.5 per cent of total business).
       Despite being relatively recent, the 1998 figures may therefore not be representative of
       current market conditions.


       Entry

       4.89     There have been 21 new entrants into personal consumer banking over the past
       five years, including the converted building societies. However, these have come either
       from a related industry (insurance) or from foreign banks. The two main retail banks -
       Sainsbury’s and Tesco Personal Finance - cannot be regarded as new competitors in the
       national market, as both authorisations were joint ventures which allowed their Scottish
       partners access to new regions. All other retailers offering banking services were
       also,originally, joint ventures. Many still do not have their own licence. Details are set out
       in Table 4.6. In most cases the retailer banks use the back office facilities and staff of their
       partner banks. The joint venture structure allows the partnership bank to develop their
       business into new segments while minimising the danger of cannibalising existing
       business.


       Table 4.6.         Retailer involvement in banking services
                                       Own licence        Partner                             Form of partnership
       Marks & Spencer                 Yes                Originally Royal Bank of Scotland   -
       Tesco Personal Finance          Yes                Royal Bank of Scotland              Joint venture (51% RBS)
       Sainsbury’s Bank                Yes                Bank of Scotland                    Joint venture (45% BoS)
       Safeway                         No                 Abbey National                      Branches in store
       Virgin                          No                 Royal Bank of Scotland              Joint venture (50:50)
       Littlewoods                     No                 Woolwich                            Joint venture (50:50)


       4.90     Those new entrants which did not enter through partnership arrangements with
       a long established bank have adopted a much more aggressively competitive pricing
       strategy and have encouraged their customers to use new technologies more than other
       providers. This is particularly true of the insurance companies. Since April 1999

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         Prudential’s offshoot, Egg, has only accepted applications for its savings product over the
         internet (it commenced operation in October 1998) and Standard Life Bank is operated
         from a call centre based in Edinburgh.

         4.91     In general, the new entrants have been very selective about the markets they have
         entered. This can be seen from Table 4.7. Very few offer current accounts, and only recently
         have new banks of any size deployed a significant marketing effort to challenge the strong
         position of the well established banks in the supply of current accounts.


         Table 4.7.            New entrants
         Product                        Entrant (since 1989)
         Current Accounts               Abbey National                                 Flemings
                                        Nationwide                                     Citibank
                                        Halifax                                        Virgin One Account
                                        Woolwich                                       Smile (Co-Operative Bank)

         Mortgages                      Paragon                                        Sainsbury’s Bank
                                        The Mortgage Business                          Virgin Direct
                                        Capital Home Loans                             Legal & General
                                        Mortgage Trust                                 Scottish Widows
                                        Direct Line Insurance                          Verso
                                        Prudential                                     First Active
                                        AIB Bank                                       Standard Life
                                        Household Mortgage Co

         Personal Loans                 Marks & Spencer                                Sainsbury’s Bank
                                        Halifax                                        Beneficial Savings Bank
                                        Direct Line Insurance                          Prudential
                                        Bank of Ireland                                Capital One
                                        Hamilton Direct Bank                           Liverpool Victoria
                                        Lombard                                        Phone-a-Loan
                                        MBNA                                           Egg
                                        Goldfish                                       Tesco

         Savings Accounts               MBNA                                           Tesco
                                        Citibank                                       Norwich Union
                                        Triados                                        Standard Life
                                        Direct Line Insurance                          SAGA
                                        Friends Provident                              Safeway
                                        Scottish Widows                                Virgin Direct
                                        Prudential                                     Egg
                                        Sainsbury’s Bank                               First-e
                                        Legal & General

         Credit Cards                   MBNA                                           RBS
                                        GM                                             Sainsbury’s Bank
                                        HFC Bank                                       Tesco
                                        Peoples Bank                                   Capital One
                                        The Associates                                 Egg
                                        Goldfish
         Excluding Cash ISAs



         4.92     New entrants’ success in securing new business has varied considerably between
         product groups. In mortgages and credit cards, new entrants have had reasonable
         successes in securing new business. And in the mortgage market, there is some indication
         that entrants are beginning to have an effect on incumbents’ pricing.

         4.93     In other segments, however, the success of entrants in securing new business has
         been notably muted, particularly if account is taken of the competitive nature of their
         product offerings. While gaining a toehold in some markets, they have yet to establish a
         real presence or to affect in any substantial way the competitive strategies of the major

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       incumbents, especially in relation to price setting. Whether they could continue to
       operate and maintain or increase their market share in a less buoyant economic
       environment is uncertain.


       Te c h n o l og i c a l d eve l o p m e n t s

       4.94     The development of the internet and other online services is likely to have a
       significant impact on the way banking services are delivered to personal consumers.
       Internet use is increasing rapidly in the UK. In late 1999, 27 per cent of the UK population
       had used the internet in the previous month, compared with 14 per cent the same period
       the previous year4.

       4.95     Consumers are also becoming more willing to use electronic channels for
       financial and banking services. The Review found that approximately 5 per cent of all
       current account holders use PC banking, choose an account because it offers PC or
       internet banking, pay bills this way, or have closed a previous account because PC or
       internet banking was not available. Research suggests that approximately 15 per cent of
       UK consumers would use the internet to help arrange a mortgage, personal loan, credit
       card or current account5. As access to the internet becomes cheaper, easier and faster,
       more people will use it. And as perceptions of the ease and security of internet
       transactions change, the willingness of consumers to embrace technology in connection
       with financial services and products will increase even more.

       4.96       The internet offers the prospect of more competitive banking services because it:

                  • reduces unit costs compared with branch based supply;

                  • potentially makes it easier for consumers to compare the products of rival
                    companies;

                  • potentially increases the effect of cross border competition from non UK
                    based financial firms, who will be able to distribute their products without a
                    branch network in the UK.

       4.97     In practice, altering the delivery method will not affect the structure of the
       markets if the same players still have market power. Experience from other, more
       developed, internet markets has shown that search costs may well remain significant.The
       internet may also support uncompetitively wide price dispersion or price discrimination.
       A study by academics at the Massachusetts Institute of Technology showed that the prices
       charged by internet providers of CDs and books are widely dispersed6. Moreover, the
       brand leaders (CDNOW and Amazon.com) were found to be able to charge significantly
       higher prices than others in the market. The importance of a ‘first mover advantage’ in
       internet markets is arguably one of the reasons underlying the often high valuations of
       internet stocks. The expectation is that early entrants to new product segments will be
       able to derive substantial market power.

       4
         CommerceNet/Nielsen Internet and Ecommerce Survey 1999
       5
         Information provided by Lloyds TSB
       6
         Smith, Bailey and Bryholfson Understanding Digital Markets: Review and assessment July 1999


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         4.98     It is likely that trust is particularly important in a disembodied transaction.
         Established internet operators are more likely to be able to charge a premium to
         consumers for giving peace of mind. This is likely to be particularly true of banking
         products, allowing providers with a long standing reputation and clearly visible high
         street presence to continue to enjoy some market power, irrespective of the ‘first mover’
         advantage. A number of the high street banks are now offering the internet as an
         alternative delivery channel.

         4.99     The same rationale applies to cross-border competition. Moreover, until the UK
         adopts the Euro, different currencies will increase uncertainty and transaction costs,
         leaving other European financial firms at a distinct competitive disadvantage.

         4.100    These factors are beginning to come into play in the internet offerings of the high
         street banks. For example, at least one major bank sets the prices of its internet services on
         the basis of what consumers are willing to pay, rather than the cost of supplying the
         service.


         R E C O M M E N DAT I O N S

         4.101    New entry and the use of technology will have some beneficial impact, but, even
         taken together with the recommendation in chapters 2 and 3, are unlikely to deliver
         effective competition for consumers for some time to come across all product groups. A
         number of problems are still likely to remain in the medium term:

                     • the supply of current accounts is highly concentrated and holds the key to
                       competition between suppliers in other product areas;

                     • consumers perceive significant barriers to switching current accounts;

                     • few consumers are fully aware of the terms and conditions of the products
                       they hold, pointing to significant information problems;

                     • consumers have inadequate representation and recourse to redress.

         4.102    This may suggest that radical intervention is required, particularly to address the
         problems in the supply of current accounts. However, the Review judges that a more
         hands off approach is called for. The recommendations in earlier chapters will curb
         future, damaging, increases in concentration, make new entry easier and ease difficulties
         with switching current accounts. With these conditions in place, future costs of entry to
         the supply of current accounts should be relatively low.

         4.103    In these circumstances, detailed product or behavioural regulation is unlikely to
         provide the best outcome for consumers. Such regulation imposes higher costs for the
         industry which then feed through to higher prices for consumers. It stifles innovation and
         blunts incentives to compete. Conduct of business rules have in any case not always
         proved successful when applied to other financial services.


         4.104   In proposing intervention the Review has therefore sought to identify and tackle
         the main causes of these problems, in line with the principles set out in chapter 2, and that
         intervention should be proportionate and not cause further market distortions.

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       Knowledgeable consumers provide the best incentive to effective competition. With the
       right information, consumers can take responsibility for their own financial well being,
       shop around and exert the pressures on suppliers which drive a competitive and
       innovative market.


       4.105     The FSMB allows the Government to specify activities which should be regulated
       by the FSA. It is these powers which the Government has said it intends to use to regulate
       mortgages. The Review does not believe that regulation of any of the personal consumer
       products considered in this chapter is warranted. The direct costs of the regulatory regime
       proposed for mortgages may be small, but the pressure is bound to be to increase the
       scope of regulation. Given the structure of the FSMB, it is not possible for the Government
       to dictate the precise outcome of regulatory powers conferred through secondary
       legislation. The result could be higher costs than the Government anticipated, and an
       increase in entry costs.


       4.106    The review therefore recommends that the Government should announce an
       intention not to designate the supply of personal banking services as regulated activities
       under the provisions of the FSMB. Recognising that there will nevertheless be continuing
       pressure to regulate, the Review recommends that the Government should, in the near
       future, publish objective and proportionate critera for determining whether particular
       banking services should, in exceptional circumstances, be designated as regulated
       activities.These criteria should be used to evaluate any future demands for regulation.In
       its review of the operation of the FSMA the Government should reappraise its decision to
       designate the sale of mortgages as a regulated activity,against these criteria.


       4.107    Although product regulation is not required, decisive action is still needed to
       tackle the problems which are likely to persist even when it becomes easier to switch
       current accounts, and conditions are more favourable. These include:


                   • establishing effective consumer representation and redress;


                   • introducing benchmark products;


                   • providing comparative information;


                   • developing consumer education.

       4.108    The Review considered whether a specific interim intervention was needed to
       enable customers to switch current accounts more easily. As highlighted earlier in the
       report, BACS recently introduced a pilot scheme to help simplify the process. But the
       scheme is paper-based, time consuming and has been boycotted by some of the large
       banks. The Review therefore considered whether it would be appropriate to introduce
       some form of account portability, allowing consumers to take their bank account number
       with them when they moved banks. There would then be no need to rearrange direct
       debits and credits and standing orders. Such an approach would be very interventionist,
       however. The proposed licensing framework for payment services should help to make
       switching accounts easier. However, if this proved to be too slow a mechanism, it should

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         be possible for a compulsory account portability scheme to be imposed under the new
         licensing framework.



         E f f e c t i ve c o n s u m e r re p re s e n t at i o n a n d re d re s s

         4.109     The Review is concerned that the FSA’s Consumer Panel will not be sufficiently
         independent of the Authority. The way it is to be set up is in sharp contrast with other
         sectoral regulators where the Government is seeking to replace arrangements like these
         with separate, independent consumer councils. The need for a independent consumer
         voice is just as important, if not more so, for financial services. It could, for example, play a
         key role in improving consumer education.


         4.110    More importantly, the FSMB specifies that the Consumer Panel should be
         confined to looking at services provided by authorised persons in the course of carrying
         on regulated activities, which will undesirably narrow its perspective. The Review
         therefore recommends that in its review of the operation of the FSMA the Government
         should consider establishing an independent Financial Services Consumer Council
         covering all financial services, not just those which are supplied in the course of carrying
         on activities regulated by the FSA.


         4.111   Inevitably, a Consumer Council will not be able to forestall all problems and
         consumers will still need effective avenues of redress when things go wrong. As
         highlighted earlier, the current self regulatory mechanisms of the Banking Ombudsman
         scheme and the Banking and Mortgage Codes are not generally effective.


         4.112     The Review is concerned, although there are impending changes to the
         Ombudsman scheme, it will continue the current practice of using the industry Banking
         and Mortgage Codes to determine what is ‘fair and reasonable’. It is entirely inappropriate
         for the banks to determine the standards against which complaints against them are
         judged. The Review therefore recommends that the Government should ensure that the
         rules of the new Financial Services Ombudsman Scheme specify that the Ombudsman
         will draw up consumer guidelines, after consultation with interested parties, including
         consumers, the OFT, the FSA and the industry. The Ombudsman should then use these
         guidelines to determine whether a banking supplier’s actions are ‘fair and reasonable’.


         4.113    The consumer guidelines will allow the Ombudsman to set out what consumers
         can expect from the suppliers of banking products. The Review expects that the guidelines
         will concentrate on making sure that consumers get timely, accurate and relevant
         information from their suppliers. The Review recommends that the consumer guidelines
         set by the Ombudsman should, where necessary, include disclosure requirements for all
         banking services. Given the particular information problems the Review has identified,
         the Review recommends that the requirements for disclosure should,among other things,
         include:


                     • redemption penalties on mortgages and loans, which should be clearly
                       expressed to the consumer in monetary terms at the time of purchasing the
                       loan;

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                   • information relating to credit card statements, which should state clearly
                     that if the account is not fully cleared interest will be charged on the total
                     value of the statement, not just the outstanding balance; and that interest
                     payments increase the longer payment is delayed (even before the monthly
                     payment date). Statements should also make clear that interest will be
                     charged on a daily basis,and show actual daily and equivalent yearly interest
                     rates. Finally, the front of all credit card statements should state the amount
                     of interest payable if the minimum payment is received on the last day for
                     payment;

                   • standards of service for switching current account supplier.

       4.114     Another issue raised with the Review is redress for consumers who bank over the
       internet with firms based outside the UK. At present, these firms may not be eligible to join
       the Ombudsman scheme. In concept, internet banking is no different from other forms of
       banking. A UK consumer could hold a postal account with a French firm and consumer
       redress would be a matter for French authorities. However, consumers may not always
       realise that a particular internet bank is not a UK bank and that its redress mechanisms are
       therefore different.

       4.115     Ultimately the choice must lie with consumers and it would be inappropriate for
       UK authorities to regulate banks which are based outside UK jurisdiction (so called ‘host
       state’ regulation). There may be cases, however, when an internet bank might voluntarily
       wish to join the UK Ombudsman scheme, because the bank considers it would be in its
       customers’ interests, for instance, or to gain a competitive edge. The FSMB allows
       voluntary jurisdiction where the FSA considers it appropriate. But as currently drafted, it
       is not clear whether the scheme’s scope could extend to services offered from outside the
       UK. The Review therefore recommends that the Government should ensure that the new
       Financial Services Ombudsman Scheme allows voluntary membership to firms offering
       banking services to UK consumers, by whatever means, from outside the UK. Such a
       mechanism could help promote consumer confidence in e-commerce but its voluntary
       nature would strike the right balance in not imposing regulatory burdens on new entrants
       to the UK market.


       B e n c h m a r k p ro d u c t s
       4.116   Even if consumers understood their own products better, it might still be difficult
       to compare them with products from other firms to see whether they offered good value
       for money. Such comparisons would be easier if consumers had a benchmark against
       which to compare their products.

       4.117   For two products (most recently mortgages) the Government has specified and
       encouraged the use of standard products, called ‘CAT standards’. Financial suppliers are
       under no obligation to offer these products but, if they do, the products must have certain
       characteristics, and charges and prices are capped at a level prescribed by the
       Government. For example, the interest rate on a cash ISA must be no less than 2 per cent
       below the Bank of England ‘repo’ or base rate.

       4.118     The Review’s view of the role of a benchmark product differs critically from that
       implicit in CAT standards. The aim of the CAT standard is to give the consumer some form

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         of government guarantee that they are buying a sensible product at a reasonable price.
         Benchmark products, by contrast, enable consumers simply to compare the products of
         different suppliers while being confident that they have not overlooked any key clause
         contained in the document’s small print. The benchmark should not specify the price.


         4.119    Although the government does not set the prices of CAT standards, it establishes
         a ceiling which prices should not exceed. This has the dangerous effect of providing a
         ‘focal point’ for suppliers offering these products. The Government is not well positioned
         to prescribe the prices of these products, and there is a real risk that introducing
         government determined prices into the market will suppress price competition. The
         Review considers that it is better to let competition between suppliers set prices. Because
         benchmark products are identical in key respects, consumers can readily make
         comparisons regarding these products (aided perhaps by comparison tables). This will
         put pressure on suppliers to drive prices down to competitive levels.


         4.120    The Review has also considered whether suppliers should be given an obligation
         to supply benchmark products. On the one hand, the more suppliers that offer the
         services, the greater the degree of comparability between them. On the other hand, there
         are dangers in placing such requirements on companies. In particular it may introduce
         inefficiencies by distorting their product portfolio.


         4.121   The Review does not recommend that the provision of benchmark products
         should be made compulsory, although if few of the major suppliers offer these products,
         then such an obligation might be considered. The Review recommends that the
         Government should introduce ‘benchmarks’ for a wide range of personal consumer
         products to facilitate price comparisons. Unlike the current CAT standards, these
         benchmarks should not specify price caps.



         C o m p a r at i ve i n f o r m at i o n

         4.122   Another way of making it easier for consumers to compare products is to provide
         them with comparative information. It is difficult to construct comparisons when
         products have a range of features, not all of which are priced. For example, current
         accounts have a range of different charges for overdrafts and some money transmission
         functions. Charges may vary according to the method of transaction, branch based being
         more expensive, for instance. Unpriced elements might include a ‘buffer zone’ (no
         charges up to a certain overdraft limit), or additional features like the use of a debit card.


         4.123    The FSA has expressed concerns that if it were to publish comparative
         information under its own name, that this might imply the regulator’s endorsement of
         certain products7. Despite these problems, the benefits of publishing comparative
         information far outweighs the disadvantages. The process of compiling the information
         has value. Financial firms will find that it provides a further incentive to keep prices down
         and to justify the value to consumers of apparently small differences in product features.
         It is important, however, that the body publicising the tables should not be seen to
         endorse particular products.
         7
             FSA Comparative information for financial services Consultation paper 28 October 1999


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       4.124    The Review believes that the FSA is best placed to publish comparative
       information, particularly given its objective under the FSMB to promote public awareness
       through providing appropriate information and advice. However, the FSA’s scope to
       publish the most informative data on financial services is limited. In particular, it cannot
       require firms to provide information for publication. The Review recommends that in its
       review of the operation of the FSMA, the Government should consider giving robust legal
       powers to the FSA to require information from suppliers of retail financial services,
       including information relating to those services which are not supplied in the course of
       carrying on regulated activites for the purpose of publication for the benefit of
       consumers.


       There is nevertheless much the FSA can do to build on its existing information initiatives,
       using the idea of a benchmark. The Review recommends that the FSA should publish
       comparative tables which,among other things:


                   • rank all benchmark services by supplier,according to price;


                   • group non benchmark services into categories and rank these according to
                     price,highlighting any material differences between services.


       4.125    Information relating to complaints against particular firms would also be helpful
       to consumers. Aggregate information about complaints that reach the Ombudsman is
       already published in the Annual Reports of the current Banking and Building Society
       Ombudsmen. Publishing additional information about complaints and settlements
       made against individual firms would give consumers valuable information about the
       service standards of these suppliers. It would also give the banks an incentive to achieve
       higher service levels. The Review recommends that the FSA should compile and publish
       comparative tables of,among other things,the number of complaints:


                   • received from personal customers by individual firms;


                   • received by the Ombudsman about individual firms;


                   • upheld by the Ombudsman against individual firms, including the total
                     value of settlements made against each firm.


       To the extent this information cannot be obtained by voluntary means, it underlines the
       need for the FSA to have robust legal powers to disclose information which is of value to
       consumers.


       4.126     In order to discharge these recommendations, and in recognising that some
       groups of consumers need more help in making choices than others - specifcally those on
       low incomes or who are currently excluded from financial services - the Review
       recommends that the FSA should rebalance the resouces it expends on consumer
       awareness, to give more attention to the information problems experienced by personal
       consumers, especially those on low incomes and those currently excluded form banking
       services.

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         B ro a d e r e d u c at i o n a l i n i t i at i ve s

         4.127    The extent of consumer confusion about financial products is worrying. Many
         consumers lack confidence to exercise choice in the market place. This results in many
         wrong decisions which carry unnecessary financial costs, in both the short and longer
         term. The difficulties highlighted by this Review in many ways represent the tip of the
         iceberg, as pensions and equity products have not been included. The strongest curb
         against the misselling of financial products is to equip consumers with the basic
         knowledge and confidence to ask the right questions and to seek out the best products or
         the ones which suit them best. The Review recommends that the Government should
         encourage the FSA in its promotion of financial awareness amongst the population.Such
         promotion should provide consumers with a means of making informed choices about
         allocating their finances between different types of financial services and different
         suppliers.




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