Vince Cable says competition in business banking gets a C-

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That's what I heard in his speech on banking at Bloomberg this morning. Some might argue that even C- is a bit generous.

I found Dr Cable's speech simulataneously encouraging and disheartening.

On the one hand, much more than others in the Coalition, he seems to get that competition is a major issue in banking in the UK and that it is hurting ours SMEs. He talked tough on legislating if necessary to ensure there was adequate data transparency from the banks on lending to SMEs - both gross and net - 'at the postcode level'. To be fair to the banks they have already made great progress in this direction.

He also made much of boosting competition - saying this was one of the three aims of his new business bank. And in this speech at least it was the only objective he paid much attention to.

Addressing long-term market failures (e.g. in the provision of growth capital) is a worthy objective - but I do think it is not on the same scale as the difficulties encountered by SMEs at the moment both for working and investment capital. From his comments today, I think Dr Cable sees it this way too.

What I found disheartening was the language Dr Cable put around actions to date.

He talked about the Cruickshank Review from 2000 and how the previous government had not acted on its recommendations for invigorating competition.

But then he claimed that we have 'turned a corner' in competition and later that change has been 'revolutionary'. I think this is going too far.

Dr Cable listed off the usual suspects of 'new' banks making an impresssion on the incumbents - but as he admitted the sum of all these incumbents is very small scale - collectively surely less than 10% of the total business current account market and that would be including the purchase of the Lloyds branches by the Co-Op. The big four would presumably still have close to 80% of the market. A revolution?

Cable also mentioned the incoming redirection service that from September will aim to ensure a smooth switching process for current accounts, taking less than a week. He said this was a good step towards full account number portability.

It begs the question of why the government is not pushing the banks to move to full account number portability as soon as possible.

My view looking at the evidence of how big challengers need to be to take market share off the incumbents is that on the current trajectory change will be measured not in years but in decades. Disheartening if that's what turning a corner looks like.


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