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Prestige lecture: Competition - the key to cultural change in banking

27 April, 2015

At first glance any connection one could make between the livery companies and guilds of the Middle Ages with the retail banking sector that dominates the financial lives of consumers in the 21st century may appear to be, at best, tenuous.

But that was the convincing link Dr Paul Pester, CEO of TSB, made when introducing the topic for ifs University College’s latest Prestige Lecture, “Competition - the key to cultural change in banking”.

Befitting of the magnificent surroundings of Fishmonger’s Hall in which the event was hosted, Paul began his lecture by discussing the economic policies and protectionism that defined commerce in the Middle Ages and how these gradually gave way to new economic theories, by the likes of Adam Smith, which advocated free trade.

The lessons of the livery companies however - whereby despite operating in theoretically competitive markets, a perfectly competitive market was stifled by high barriers to entry and a lack of innovation - are still highly relevant to the economy today. This is particularly true within the financial services industry, where the same mistakes are being made.

On the day annual UK current account switching numbers were revealed, Paul discussed the current state of the retail banking sector where, despite long-standing calls to introduce more competition to the market, genuine competition remains something of an illusion.

Paul argued that despite the good effort made by the Current Account Switching Service, switching levels in retail banking remain low and that those banks with the lowest levels of customer satisfaction are attracting greater numbers of customers than before, He further noted that those customers who may benefit most from switching their bank account, such as heavy overdraft users and those who incur other fees, are only half as likely to switch as other customers.

For Paul, small switching numbers magnify the advantages enjoyed by large incumbent banks who can use the profits generated by the large pools of valuable customers they have built up over time – who are less likely to switch – to maintain market share. A fact that lifts the barriers to entry for new players even higher.

This lack of competitiveness, he explained, is not a simple or short-term issue. It cannot be solved by Government diktat. Instead ,individual companies must recognise the benefits of genuine competition and introduce new cultures where service is placed above profit.

To that end, Paul concluded by outlining some of the policies he has introduced at TSB since it launched onto Britain’s high streets 18 months ago.  This includes the implementation of a new reward strategy and partnership model for employees, and greater transparency for products and services offered to customers.

Following the conclusion of Paul’s remarks, the floor was opened up to questions from a receptive audience, who comprised a mixture of ifs University College members and students, both past and present.

A thoroughly enjoyable evening in the spring sunshine was had by all and guests left with much to ponder.

ifs University College would like to thank Paul for his time, and the audience for their engaging and thought-provoking questions.