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Comment – Increased bank charges but don’t blame the banks

Just for a change, this month’s column will not be used as a platform for bank-bashing. But it will still focus on the ongoing theme of retailers being continually stung by higher banking charges. By Scott Thomson


Comment – Increased bank charges but don’t blame the banks

For once the prospect of further increases is not directly down to the banks but rather a result of decisions being taken by the government on things that it appears to know very little about.

For starters, on October 27 it issued a report entitled ‘A Better Deal for Consumers’, which normally means it will ultimately be a worse deal for everybody else. Since it is aimed at the banking industry the result will be that the financial sector will then go for the weakest link and seek to recoup any losses it incurs as a result of carrying out the report’s recommendations from everybody else in the food chain. And smack bang in the firing line will be the retail industry yet again.

The government’s second damaging action of the week was its announcement on its plans to sort out the banks Lloyds TSB and RBS, which it majority owns. It has told RBS to sell off its acquiring business, which involves the processing of transactions for retailers. This is very worrying as RBS accounts for around 40 per cent of the total acquiring market in the UK.

An enforced sale could lead to higher transaction charges because any new owner is unlikely to have a banking relationship with RBS’ existing retail clients with the result that it will not be able to take advantage of providing a package of banking facilities to retailers. This has worked to the benefit of retailers in negotiating terms for their overall banking needs.

By only buying this isolated acquiring business there will be few synergies for a new owner and so to make the business case stack up they will likely push to increase transaction charges with RBS’ retail clients. With overseas banks looking interested in the business the likelihood of this scenario playing out looks pretty high.

It seems unlikely to me that the government is taking into account the effect that a forced sale will have on other sectors such as the retail industry. I’d argue it is okay to force the sell-off of say an insurance subsidiary because it does not involve day-to-day banking activities. However, the handling of money is the core practice of any bank and this is exactly what acquiring involves.

It is a fundamental element of any bank and stripping it of such a business has to be damaging in more ways than one and the ramifications will reach far beyond the bank itself.

If any retailer is currently reading the government’s documents on Lloyds and RBS (yes, it is unlikely, I admit) then there will probably a belief that it will make little difference to their business. But this would be a mistake because in my view it is a Red Alert to the retail sector.

When the changes are implemented by RBS then rest assured transaction charges will move up again so just remember that you did in fact receive an early warning. You read it here first.

Scott Thomson is an independent payments consultant

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