Clark is Financial Secretary to the Treasury and MP for Tunbridge
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The success of Britain’s financial services industry matters to all of us. Together with the associated business services sector, it employs two million people up and down the country. Furthermore, it contributes one pound out of every eight of all the taxes paid in Britain.
That very importance carries risks – which is why this Government has done what the previous one failed to do: legislated to create a stringent supervisory regime so that banks can no longer look to the taxpayer to bail them out, and to charge a permanent annual levy to contribute to the greater risk they are associated with than other companies.
As a workforce and as taxpayers we have a big interest in the success of our biggest industry.
But what about our interests as consumers?
For all the global importance of financial services in Britain, and banking in particular, I’m not convinced that British consumers have seen enough of what should be a market place teeming with life-improving innovations.
The staples of the retail banking experience – credit cards, ATMs and online banking – were all established years ago. Many people’s first experience of cashless payment systems was not through innovative solutions offered by their banks, but through the Oyster Card launched a decade ago by a state-owned bus and train operator.
Meanwhile, German bank customers have had access to theGeldKarte electronic payment card system since as long ago as the 1990s. Elsewhere in the world, companies have been rushing to offer innovative services to consumers. Kenya’s Safaricom has enjoyed success with the M-Pesa system which allows mobile phone users to deposit, withdraw and transfer money using their mobile phones.
If Britain is to maintain its status in as a world-leading centre of financial expertise, then this should surely be reflected in the access that the British public has to state-of-the-art financial products and services. Britain should be to consumer financial services what Silicon Valley is to high tech firms.
The fact that we have not been in recent years is partly due to the concentration of big incumbents in British retail banking, leading to torpor in the competitive environment. Indeed, an over-concentrated industry has become even further concentrated as a result of the forced mergers that took place at the height of the banking crisis.
As we recover, I am determined to open up the banking sector to the dynamism that comes from new challengers. The industry regulator has just issued new rules making it much easier and quicker for new entrants to establish themselves. The Financial Conduct Authority, which came into being last month has an explicit duty to promote competition – the first time the financial services regulator has had such a remit. I expect the competition authorities to be active in sniffing out and punishing rigorously any anti-competitive behavior on the part of the incumbents. And in last month’s budget we published proposals to make payment systems – currently controlled by the incumbents – open to competition and consequently innovation.
Sadly, the very words ‘financial innovation’ now have a negative connotation, being associated with the creation of dangerous complex investment products, the mis-selling of financial services and the aggressive marketing of personal debt – all which played their part in stoking the worst banking crisis in decades.
What we need now – and what our reforms are designed to deliver – is financial innovation that provides tangible benefits for British consumers. A diverse and competitive British banking sector should be in the forefront of a positive change; not catching up with other countries, but leading the way.