Those who wrote off the high street banks underestimated their resilience, says TERRY MURDEN
There was a time when it looked like the banking system would never be the same again. The crash of 2008-09 appeared to spell permanent change, and the talk was all about “challenger” banks shaking things up, with technological advances over the following decade forcing a significant shift in the shape of the sector. But anyone who wrote off the established players was wrong to do so. Make no mistake, big banking is back.
This week may be looked upon as a significant milestone in that long journey back to health and in the structure of banking. Barclays kicked off the half-year results season with a sharp increase in profits. Lloyds followed with its biggest acquisition since it returned to full private ownership four years ago and a restoration of its dividend. NatWest, the re-branded Royal Bank of Scotland, followed up with a return to the dividend list and share buyback that may boost the price and encourage the government to offload more of its holding which is due to fall below 50%.
With ironic synchronicity, Tesco Bank – one of those “challengers” that emerged in the dark days – announced it was closing all of its current accounts, having already sold its mortgage book to Lloyds two years ago. Gerry Mallon, its chief executive, admitted that most current account holders did not see it as their main account.
Tesco Bank was one of the new breed of “supermarket banks” who hoped to cash in as customers lost faith in the established players following their near collapse. Along with M&S Bank and Sainsbury’s Bank it offered competitive rates as they hoped customers would add a loan or a savings product to their grocery basket.
It came at a price and at a time when retailers found themselves with other battles to fight. M&S Bank, which operated in 29 in-store branches and had as many as four million customers, closed all of its branches earlier this month and preceded Tesco by closing its current accounts.
Sainsbury’s is believed to have put its banking division up for sale after reporting a £21m loss last year and looks likely to be gobbled up by one of the high street banks or other predator.
The smaller of the already long-established players are still fighting for market share, though their ability to penetrate the big four remains limited. The Co-op Bank, which itself had to revived from a near-death experience, has turned a £44.6m pre-tax loss into a £21.4m profit, and TSB swung from a loss of £65.5m to a £42.9m profit, with chief executive Debbie Crosbie yesterday proclaiming it is now the “main challenger bank”.
TSB has also clawed its way back to health after a torturous few years that has seen its ownership flip from Lloyds, to independent listing to acquisition by Spanish bank Sabadell, which briefly looked for a buyer and now says it regards TSB a valuable part of its offering.
For a brief time it looked like the old Scottish bank could become part of a resurgent Virgin Money which won the branding battle after its merger with CYBG, holding company for Clydesdale Bank, another brand which has been laid to rest. Like TSB, Glasgow-based Virgin Money is staking its claim as a key challenger, though there are those who see it eventually succumbing to a new round of consolidation as the big players assert their dominance.
The next phase of the battle is moving increasingly online with the emergence of brands such as Starling, Atom and Revolut. They are popular with a younger generation who live their lives through apps and are comfortable with a lack of visibility. The days of worrying about branch closures are fading as the big four gets a grip on these upstarts and the threat they pose.
Who will be the “challengers” and ultimately the winners in this new era? The new banks proving they are winning the battle over technology and trust? Or the old players who will use their muscle and established know-how to sweep the incomers aside? Much will depend on how the big four adapt and change, driven by fast adoption of new ways of banking. We wrote them off a decade ago. It would be premature to do so again.
Terry Murden held senior positions at The Sunday Times, The Scotsman, Scotland on Sunday and The Northern Echo and is now editor of Daily Business