Andrea Leadsom is MP for South Northamptonshire.
Earlier this week I attended the launch of Virgin Money, which has bought Northern Rock from the taxpayer. Its current accounts will go live next year and it targets doubling the number of current account customers within 5 years. This is a thoroughly welcome development. High street banking is a sector that has long seen a major lack of competition – four banks enjoy more than 70 per cent share of the market – so it is hardly surprising that it has seen such complacency and incompetence in recent years.
Virgin has been criticised for proposing customers should pay £60 for a current account. But I say good on them! The concept of "free banking while in credit" is a massive con that certainly doesn’t mean free banking at all. In fact what happens is that banks keep the interest on our credit balances (where we have them) and charge often usurious fees to those who go overdrawn. So the poorer are subsidizing the wealthier bank account holders, but in truth, none of us are getting free banking.
Greater transparency in the relationship between banks and their customers is a key element needed in bank reform. One of the reasons we rarely switch from one bank to another is because it’s impossible to tell the difference between them – even now our bank statements don’t record the true cost of our banking services, so we can’t choose one tariff over another. Such practice would be unthinkable in say, mobile phone contracts. And there’s another lesson we could learn from the mobile phone industry. Some years ago mobile providers were forced, to their great protest, to allow telephone number portability to their customers. At a stroke this meant we could switch from one provider to another, taking our phone numbers with us.
Well, the Vickers Commission has called for a free "current account redirection service" that would enable people to switch banks within seven days, meaning a faster process, but still with all the hassle of having to change bank account number, credit cards, online payments etc. I think the government should be more ambitious than this. The banks should be required to develop a shared infrastructure for bank accounts that would mean switching your bank would be at the touch of a button, and you could keep your account number and all payments if you chose to do so.
Such a single clearing system could be owned by the Bank of England, and a series of "unique identifiers": could be all that’s needed to show where your account is held. Not only would this be great for consumer choice, but it would also massively reduce the current barriers to entry for new challenger banks who would have direct access to the system. It would also make a run on a bank far less likely, because the Bank of England could easily facilitate the transfer of accounts from a failed bank to a solvent one.
Banking has been a noble profession – without it we would all live in poverty. At its best it generates business growth, cuts the cost of living for each of us and enables us to live in our own homes and save for our future. It is crucial, however, that the industry is overhauled and improved. More competition from the likes of Virgin and other new entrants will, I hope, play its part in ushering in a new and brighter age for banking. Government should also play its part too by breaking down the comfortable oligopoly that currently exists.