IN ITS efforts to spin the break-up of Lloyds and RBS as a boost to competition in retail banking, the UK government has succeeded in bringing the failures of the market into sharp focus.
The hopeful picture it paints is of a high street in which engaged customers move freely from bank to bank in search of the best products and service, forcing those that lose out to raise their game or be vanquished.
It's an attractive idea, but i
t does stretch the imagination somewhat. If competition is about the number of providers of banking products from which consumers can choose, there is already ample choice. There are dozens of providers of current accounts, and competition in the market is far keener than it was a decade ago, with a growing number of fee-based accounts featuring added-value services (albeit of questionable value), more providers offering high in-credit rates, differing approaches to charges – witness Bank of Scotland's dubious £1-a-day "innovation" – and more generous switching incentives.
Competition in the savings market is very healthy, with building societies and online banks dominating the best-buy tables.
But if it was all about rates and products, switching activity would be far greater than it is. One reason for the continued switching inertia is because consumers continue to lack confidence and trust in the banking industry a whole.
From overdraft charges and payment protection insurance misselling to bad service and sheer arrogance, the UK's banks have worked hard at betraying customer trust. Last week, the Financial Services Authority revealed it had received more than a million complaints about banks in the first half of this year alone, half of which concerned current accounts.
The top five high street banks accounted for more than half the complaints received by the Financial Ombudsman Service in the first half of 2009, the more damning statistic being the six out of ten that were upheld.
In theory, those banks would clean up their act in the face of new competition, but, in all probability, we merely face more of the same. Tesco will be among the most prominent new entrants in the coming years, but it will focus on using its Clubcard system to convert shoppers into banking customers rather than offering anything new to generate business.
So, new entrants will effectively be drawn from the same pool that already fails banking customers. Barely a week passes when I don't receive a call from a reader angered by unfair treatment at the hands of a big high street bank.
The complaints fall into two categories. The first can broadly be described as investment advice, usually around sales of investment bonds and structured products. In a desperate bid to generate revenue, some of our best-known high street banks are busy taking advantage of customers worried about low savings rates by flogging them entirely unsuitable investments – usually with-profits bonds, investment bonds or structured products – without clarifying their needs, circumstances or appetite for risk.
The second type of complaint typically involves appalling customer service standards. Last week, I heard from a reader abused by a bank call-centre representative for daring to express her concerns about the under-performance of an investment bond. The following day, another reader told of being asked to drop her passbook into her local branch so it could be updated. It was supposedly sent back to her by second-class post but never arrived. To her ire, the bank then classified the passbook – which she needed in order to access her account – as having been lost by the customer, giving her several extra time-consuming hoops through which to jump to get a new one. It was the usual outcome: one very aggrieved customer questioning her life-long loyalty to the bank, but with no confidence that her custom would be any more valued elsewhere.
These are just last week's examples from those with the energy left to complain.
Does anyone really think the appearance on the high street of a few new or resurrected brands is going to reverse years of shocking customer service, blatant misselling and shameless disregard for the needs of customers?
• See the Smart Money section in Saturday's Scotsman for more on personal finance.
