Bank switching targets look far too optimistic

AMID signs the scheme designed to help banks challenge Royal Bank of Scotland group’s dominance in the small and medium sized business market is failing bureaucrats have been under fire but the wrong ones may be taking the flak.

The Banking Competition Remedies (BCR) programme was launched in 2017 under the £775 million alternative remedies programme agreed by Royal Bank and the UK Government with competition regulators.

It was intended to help Royal Bank comply with the terms imposed by the European Union for agreeing to the £45 billion bailout of the group by the UK Government during the financial crisis that started in 2008.

Royal Bank had to come up with alternatives after failing in its attempt to meet the original condition, which was to offload its Williams & Glyn operation. Separating out the business proved to be a nightmarish task for Royal Bank, which recently changed its parent group name to Natwest Group.

Last week the officials that run the BCR programme admitted that more needed to be done to get closer to its target of encouraging 120,000 SMES to switch from taxpayer-owned Royal Bank by the end of August.

Only 30,000 had decided to make the move by the end of December under the £275 million incentivised switching scheme that forms part of the BR programme.

Under this, dowries of up to £50,000 will be paid to businesses to tempt them to switch to one of 12 qualifying banks. The list includes Virgin Money-owned Clydesdale Bank and Edinburgh-based private bank Hampden & Co.

Some £425m BCR money was allocated to 15 banks under a capacity building and innovation scheme. The beneficiaries range from Nationwide building society to smaller firms such as Fluidly.

The disappointing switching scheme numbers were announced days after a report in the Financial Times in which senior bankers called for politicians to intervene to revamp the BCR scheme, which one dubbed “farcical”.

The independent body that runs BCR is seen as having acted too slowly. But its chairman Godfrey Cromwell insisted last week that the switching scheme was doing pretty well. The numbers that have switched represent a significant increase on historic rates for the sector.

The latest progress reports produced by the organisation and scheme participants makes clear how much thought has gone into the development of the programme.

The biggest awards have been made with the intention of helping established players beef up their presence in the market and to support new challenger banks.

A range of beneficiaries such as Fluidly are working on the development of technologies and systems in areas such as cashflow management and foreign exchange payments.

It is obvious from the reports that some BCR participants have found it harder than they expected to establish themselves in the market.

In its February progress report, Nationwide said work on the launch of a business current account has gone slower than expected. Metro Bank scaled back its growth plans following an accounting error in January that left it short of capital.

In January, Clydesdale Bank owner Virgin Money said the pace of switching remained slower than expected.

The Glasgow-based bank seems to have struggled to take advantage of a historic opportunity to win a significant amount of market share from Royal Bank. Its rival’s brand was tarnished by the fallout from the financial crisis.

The challenger probably did not help itself by axing branches with as much apparent gusto as Royal Bank before Virgin Money decided to axe the historic Clydesdale brand.

Some firms may simply be reluctant ever to change banks.

The challenges faced by BCR provide a reminder of the scale of the mess that resulted from the grandiose expansion programme followed by Royal Bank’s former boss Fred Goodwin.

They also raise fresh questions about why Brussels imposed such burdensome restrictions on the group following bail outs that may have helped avoid a European banking system meltdown.