# Are current accounts competitive?



## Brendan Burgess (21 Aug 2003)

The Competition Authority is looking at the competitiveness of current accounts. Here are the questions they want submission from consumers on:

Questions regarding personal current accounts (PCAs):
Product Market
Q.1 What features are required for a PCA offering to be competitive in the marketplace?

Q.2 Where should the boundaries of a product market including PCAs be drawn for the purposes of this study and, in particular, which products are sufficiently close substitutes for a traditional PCA to be included in the relevant market with PCAs?

Geographic Market
Q.3 Are relevant geographic markets for PCAs in Ireland local, regional, or national?

Q.4 To what extent do PCAs provided through remote distribution channels (Internet, telephone banking, Automated Teller Machines) compete with those offered by local branches? How important is each of these channels? For example, what proportion of each type of transaction is made through each of the channels?

Q.5 How important is a local branch for a household when choosing a PCA supplier? Is a household likely to hold a PCA at a financial institution that does not have a local branch?

Q.6 How close to the place of residence or work must a financial institution’s branch be in order to be considered an economic substitute for other local branches?

Nature and Extent of Competition
Q.7 How do the providers in the market for PCAs compete with each other?

Q.8 How competitive is the relevant market?

Barriers to Entry
Q.9 What are the barriers to entry into the PCA market, if any? In particular, indicate where such barriers to entry are ‘asymmetric’ in the sense described in paragraph 3.9 of this document.

Q.10 Is acquiring regulatory permission to enter markets a significant barrier to entry? What other regulatory barriers to entry are there in the PCA market and are these significant?

Q.11 Is gaining adequate access to the payments system a significant barrier to entry?

Q.12 Are there any switching costs that would make it more difficult for a new entrant to attract customers?


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## daltonr (21 Aug 2003)

> Q.1 What features are required for a PCA offering to be competitive in the marketplace?



What does this mean?  Does it mean to compete with existing accounts, or does it mean to be compeditive enough that consumers don't feel they are being fleeced?



> Q.2 Where should the boundaries of a product market including PCAs be drawn for the purposes of this study and, in particular, which products are sufficiently close substitutes for a traditional PCA to be included in the relevant market with PCAs?



It would have to cover the Fees (Including "Membership" fees as U-First likes to call them), interest, and debit interest.
It would also have to extend to switching costs (including unnecessary hassle, e.g. Direct Debits mysteriously not working etc.)



> Q.3 Are relevant geographic markets for PCAs in Ireland local, regional, or national?



The banks claim the UK is not comparible but I don't see why it shouldn't be.



> Q.4 To what extent do PCAs provided through remote distribution channels (Internet, telephone banking, Automated Teller Machines) compete with those offered by local branches?



They don't all of those things are only available to holders of PCAs.  they are alternative front ends to the same service.



> How important is each of these channels? For example, what proportion of each type of transaction is made through each of the channels?



Since customers are slowly being forced out of the branch whether they like it or not, the percentage of automated transactions is obviously growing.  Case in Point the insistence by BofI that All customers must use ATMs.



> Q.7 How do the providers in the market for PCAs compete with each other?



By grabbing you in College, and making it difficult to switch.



> Q.8 How competitive is the relevant market?



How long is a piece of string.  The relevant question is do we get better or worse vaalue for money than the UK or Europe.  



> Q.11 Is gaining adequate access to the payments system a significant barrier to entry?



Bank of Scotland think so, and they should know better than us.



> Q.12 Are there any switching costs that would make it more difficult for a new entrant to attract customers?



Yes.

-Rd


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## MugsGame (26 Aug 2003)

> Product Market
> Q.1 What features are required for a PCA offering to be competitive in the marketplace?



By definition, the features common to existing current account offerings, i.e. those that already successfully compete in the market!

These would probably include
* cash lodgements (counter) and withdrawals (ATM)
* electronic lodgements (salary, etc.) and withdrawls (DD, SO, sender initiated transfer)
* access to bank drafts/cheques (I don't have a chequebook but occassionally need a cheque for instance) 
* cheque lodgement facilities
* above are useless without facilitiy to receive or initiate transactions against all other current accounts in Ireland



> Q.2 Where should the boundaries of a product market including PCAs be drawn for the purposes of this study and, in particular, which products are sufficiently close substitutes for a traditional PCA to be included in the relevant market with PCAs?


 
There are a wide variety of current account offerings in Ireland from free fees, to capped fees, to full fees. I do not believe we lack competition in current accounts.

Many consumers in Ireland are not willing to pay the true
cost of operating a current account. This effectively forces banks to offer the service below cost, while hoping they will make up the difference by cross-selling mortgages, loans, credit cards, "savings" plans, FX, stock-broking, etc. which in general we are quite happy to be ripped off on. This why the only new competition we have seen has been cherry-picking on the add-ons (e.g. mortgages - BoS, UB, deposit accounts - NR, AngloIB). 

Similarly the clearing banks scramble to get third-level students to sign-up -- current accounts are in general nothing more than a marketing vehicle. Most banks would probably close their capital and people intensive current account facilities tomorrow if they thought they'd get away with it (RaboBank/ACC!).

In other words I don't think the sale of debt products can be divorced from an analysis of the currrent account "marketplace".



> Q.3 Are relevant geographic markets for PCAs in Ireland local, regional, or national?



National. With the EU possibly further afield. It is rediculous that you cannot open a single current account with access to a time and cost-efficient pan European clearing system. A bank that offers such a facility to business will do very well!



> Q.4 To what extent do PCAs provided through remote distribution channels (Internet, telephone banking, Automated Teller Machines) compete with those offered by local branches? How important is each of these channels? For example, what proportion of each type of transaction is made through each of the channels?



ATMs are very important -- we are not in a cashless society yet. But again there is  an unwillingness to pay the true cost of "access to our money". Internet/telephone banking are useful for routine transactions, but are on longer a key differentiator between banks.




> Q.5 How important is a local branch for a household when choosing a PCA supplier? Is a household likely to hold a PCA at a financial institution that does not have a local branch?



Define local. Most banks are reducing their branch network or replacing it (AIB -> An Post). Banks are encouraging us to perform routine transactions remotely; physical interaction is now only required for marketing/finalizing the anciallary products I referred to earlier. The effect of this on the elderly or technologically disenfranchised needs to be addressed, though it presumably does not fall within the CA's remit.

Is each bank having a separate branch network sustainable?

Does An Post meet most of the criteria I gave in Q.1? If so, it should fall under the CA's remit.

What are the terms of the (arguably) goverment sponsored deal between AIB and An Post? Are other banks precluded from access to An Post's network? 

Does An Post have a government mandate to become the central clearing/branch network "utility" ? 
Can companies tender effectively for e.g. the lottery or social welfare contracts (was the complaint to the EU commission on that subject ever resolved?).



> Q.6 How close to the place of residence or work must a financial institution’s branch be in order to be considered an economic substitute for other local branches?



Arguable. Proximity to a bank is important and convenient for non-routine transactions. But if you have equal access to your account through the clearing system than any bank/An Post would do, with certain provisos re: setting up new accounts (see below).



> Nature and Extent of Competition
> Q.7 How do the providers in the market for PCAs compete with each other?



I don't know if I can anything here to what I've said in earlier questions.



> Q.8 How competitive is the relevant market?



If we redefine the market to include all the add-ons, there is value to be found in all sectors, but no single bank excels; it is necessary to shop around. Personal loans, credit cards and small business services probably deserve the most attention in terms of lack of value/poor spread of terms & rates.



> Barriers to Entry
> Q.9 What are the barriers to entry into the PCA market, if any? In particular, indicate where such barriers to entry are ‘asymmetric’ in the sense described in paragraph 3.9 of this document.





> Q.10 Is acquiring regulatory permission to enter markets a significant barrier to entry? What other regulatory barriers to entry are there in the PCA market and are these significant?



I don't know. Northern Rock are operating here under UK FSA approval -- would that (from a regulatory standpoint) be enough for them to operate a current account?


Let's not ignore the inordinate amount of government red-tape involved in opening a 
new account of any form -- two proofs of address, photo id (more if applying by post 
and not in person.).

The sheer hassle factor involved in opening an account is probably enough to prevent 
most people from switching. If you do not drive then you will probably have to visit
a bank during business hours to get some other form of photo id verified.

This is particularly difficult for immigrants trying to open an account -- if 
you are not a tenant on a lease and your name is not on any bills how do you
get multiple proofs of address? Also, many landlords want to see bank statements
before accepting tenants - catch 22. And as we saw from the recent seizures criminals will 
always find a way to bypass these controls by forging documentation.
I am not convinced the regulations as implemented have any value other than making
things more difficult for the rest of us, and contributing to the financial
inertia of most people.

Additionally the Government stamp duty on credit, ATM/cheque cards precludes customers
from switching easily or operating multiple accounts. This is anti-competitive
and something the government can easily address by switching to a per-transaction
model (more costly to implement but fairer), just like cheques.



> Q.11 Is gaining adequate access to the payments system a significant barrier to entry?



BoS have got access for business customers through BNP.
RBoS acquired it by purchasing UB. So I would have to say no. 



> Q.12 Are there any switching costs that would make it more difficult for a new entrant to attract customers?



Banks need a financial incentive (agreed timeframes + non-performance penalities) to collectively develop effective + simple systems for transferring DD/SO/salary mandates.

Ditto for access to mortgage deeds when remortgaging.


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