Santander/RBS deal: bad news for public
Competition in the banking sector took a further bashing today as Spanish banking giant Santander completed the purchase of 318 RBS branches - a deal worth £1.65 billion.
Santander already owns Alliance & Leicester, Bradford & Bingley and Abbey and following today's deal has over-taken HSBC to become the fourth-largest bank in the UK.
RBS agreed to sell the branches almost two years ago as part of the £54 billion government bail out it received. However, critics have questioned whether RBS customers will benefit from the Santander takeover.
Certainly customer service within the Santander group has suffered in recent months as the firm struggles to align its various product ranges.
In the Moneywise Customer Service Awards 2010 members of the banking group ranked in the bottom three across a number of products.
Abbey featured in the bottom three providers for current accounts, savings accounts and credit cards and A&L ranked near the bottom for mortgages. These results led Santander to be given the title of worst provider for customer service overall.
As one customer commented: "Any response from A&L or the Abbey/Santander group is not worth the corresponding aggro. Its head office/customer service department seems to be manned by a bunch of juvenile delinquents. Don't go there, avoid them like the plague."
The problem is, the group is getting harder to avoid, as it threatens to monopolise the market. Take current accounts for example, a quick search of comparison websites shows members of the Santander group dominate the market.
Santander itself offers an in-credit interest rate of 5% and a £100 incentive to switch, while A&L offers the same deal. Previously Cahoot, also a member of the Santander group, ranked in the table too, although it's currently not offering its current account service.
Santander also trumps the table for its two-year bond offering 3.6% AER on balances from £25,000 and 3.2% on balances from £1.
In a recent speech discussing the importance of competition in the banking sector, Peter Freeman chairman of the Competition Commission, said the preservation and promotion of competition had become a major concern following the financial crisis.
He added, however, that an investigation into competition in the banking sector by the Commission would be huge in scope and limited to a time frame of two years.
"Whatever the scope, the essential task would be to assess whether one or more banks enjoyed market power in a defined market, which they were able to exploit to the detriment of customers and the consumer," Freeman says.
Of course, such an investigation is currently hypothetical, but it would be interesting to know what conclusion the Commission would come to following Santander's expansion.
The Lloyds TSB/HBOS merger, which took place at the height of the financial crisis, and its implications for market competition would also be worthy of investigation - something Freeman nodded to in his speech.
Dominic Lindeley, policy adviser at consumer champion Which? says an opportunity to dilute the power of the big five banks (Lloyds Banking Group, RBS, Barclays, Santander and HSBC) has been wasted.
"At the end of 2009 the five biggest banks supported 85% of the current account market compared to 74% at the end of 2007," he says, "The effect of this will be increasing margins for the banks and increasing costs, worsening terms and less competition for the consumer."
Ultimately, however, customers will vote with their feet. And while many will continue to flock to Santander for the headline grabbing rates, they may in time turn elsewhere, if they are disappointed with the service.
On its part, Santander gave the following response to its poor placing in the Moneywise Customer Service Awards 2010:
"Santander takes the service it provides to its customers very seriously. In fact, customer-facing staff bonuses are now influenced by customer satisfaction scores and mystery shoppers.
"However, we acknowledge that we still need to do better and we will continue to put measures in place to improve the experience of all our 25 million customers."
Let's hope it does.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.