Blogged: Competition, Competition, Competition

If you haven’t had a chance to do so already, it really is worth skimming through the BBA’s report on Promoting Competition in the UK Banking Industry. Having reviewed the landscape, the BBA’s primary conclusion (that “competition is already in evidence in the banking industry”, and that an intensification of such competition is already on its way) may strike some commentators as overly-optimistic. The BBA do, however, make one particularly pertinent point with regard to the competitiveness of current arrangements; namely, that conceptualising banking as a single market, and thereby criticising its level of concentration, loses sight of significant variations in the provision of different services. Below, for instance, is a graph from page 38 of the report which shows how concentrated different segments of the market are according to the Herfindahl Index. Keep in mind that a score of over 1500 constitutes what US regulators deem to be a moderately concentrated industry.

Graph 2

Based on the BBA’s own calculations, it seems clear that the market for SME Business Accounts is by far the most problematic. Given the litany of particularly stubborn issues still holding back entrants into the SME market, in particular the high cost of accessing payment systems and the inertia of SME account users, both highlighted by the BBA, it seems both challengers and policymakers may have their work cut out.