Recent comments by RBS chairman Howard Davies may have left its small business customers scratching their heads.
Why? Because he hinted that the banking giant was closing branches in order to force them elsewhere.
This may sound bizarre, but he blamed branch-cutting decisions on its competition responsibilities linked to its government bailout during the financial crisis, suggesting customers would be less inclined to switch banks if branches were open.
At present, a number of ‘challenger’ banks are battling for a war chest that RBS has had to make available as part of the same conditions. This is Money explains what’s going on.
Big hint: RBS chairman Howard Davies said: ‘It would be difficult for customers to transfer or get them to transfer if their branches were still open’
What the chairman said…
Last month, shareholders at its annual general meeting pressed the bank on its responsibility to customers amid plans to shut 162 branches in England and Wales.
Mr Davies said: ‘We must – or else we may be fined – transfer a proportion of our small business customers from the branches which are currently branded RBS but would have been Williams & Glyn.
‘It is not possible for us to keep all our branches open if we are forced to transfer customers, which is what we are forced to do indeed.
‘It would be difficult for customers to transfer or get them to transfer if their branches were still open.’
Williams & Glyn failure and the SME fund
The statement suggests RBS is being forced to close branches in order to force business customers elsewhere – or face major fines.
RBS, now 62 per cent taxpayer owned after a recent shares sell off, is having to hand out £775million to its rivals to increase competition in the small business current account sector after it failed to spin off the Williams & Glyn brand.
This plan, an European Union penalty after its 2008 bailout, failed over a seven-year period and cost it £1.5billion.
Williams & Glyn – an old brand, defunct in 1985 – would have been split away from RBS and revived, much like TSB was from Lloyds, to become a separate brand and sold off to a competitor.
However, it was plagued with problems and finally canned last summer.
The 162 branches in question would have been under the Williams & Glyn brand. As a result of its failure, the payout to rivals was the alternative.
Howard Davies: The RBS chairman says the bank will be fined unless it transfers a number of its SME customers
Battle for the money by ‘challengers’
RBS, along with Barclays, Lloyds and HSBC, make-up a huge 80 per cent of the small and medium-sized enterprise (SME) current account market.
Firms tend to stick with their bank and rarely switch, often seeing it as inconvenient or not worthwhile.
The idea of the £775million fund is to increase competition in the SME current account market and none of these big banking boys can go after the treasure chest.
However, the fund – officially known as the RBS Alternative Remedies Package -has not been without controversy.
Small challengers are allowed to battle for the money – but some have voiced concerns about the size of those who can go for the cash.
Applicants must have less than £350billion in UK assets. Santander just about qualifies to go after the cash, despite being a huge high street banking giant which already has 10 per cent of the small business market.
One challenger bank boss told This is Money that it seemed these goalposts were set to allow the Spanish bank to qualify. Santander had previously failed to buy Williams & Glyn.
Others after the money include Clydesdale and Yorkshire, Metro Bank, Starling Bank and TSB.
Just over half the tranche of cash will be in the form of 15 small grants which challengers will be given, the rest is what banks can bid for, with only three being able to get a slice of the £325million pie.
Santander: The banking giant qualifies to apply for the tranche of cash available to stimulate SME current account competition
Nationwide Building Society has put its hat in the ring for cash – but not the main tranche.
Joe Garner, chief executive of Britain’s biggest mutual, said it would be the first time in its 172 year history it would offer small business current accounts, if the big is successful.
It already offers business savings accounts and has considered expanding into the sector previously, but deemed the costs of entry too expensive.
Mr Garner believes the second tier of cash available, which includes packages of up to £50million, would be enough for Nationwide to step into SME banking.
The idea is the cash will be used to incentivise 220,000 what would have been Williams & Glyn customers to leave RBS for new pastures.
Furthermore, challengers were left frustrated by the length of it time took the Government to finally get a committee together to award the cash.
The fund was given the green light in 2017, but the independent committee was only finally cobbled together last month.
‘Opportunity to transform business banking’
Craig Donaldson, chief executive at Metro Bank, told This is Money: ‘It is imperative that the funds from the RBS Alternative Remedies Package are used to help break up the monopoly of the big five banks, by those who truly wish to challenge the status quo and provide businesses with a superior level of service that’s long overdue.
‘This is a once in a generation opportunity to transform the business banking landscape and make a difference to SMEs up and down the country, who have for years been underserved, underinvested in and underwhelmed by their banking providers.’
Mr Donaldson’s labels them the ‘big five banks’ to include Santander with the other big banking names.
Paul Pester, the TSB boss, also consistently says the big five banks, clubbing Santander into the mix.
Challengers – which technically includes Santander – are likely to bid for the cash over the summer.
It may stimulate competition, but it also appears, given Mr Davies’ comments, that it has helped shrink the British branch network to boot, unless those awarded the cash use it in part to open branches – and many SME owners value having a branch nearby, rather than having to do all of their banking online.
Additionally, if Santander is awarding the big pot, expect there to be much grumbling among the smaller challengers.
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