Bank of Scotland - Competition in banking welcome

THE tantalising prospect of real competition in the Irish financial market, something that is blatantly lacking, could be significantly enhanced today.

A high street bank will be opening the first of 46 branches with the stated and laudable aim of giving punters a better deal.

There is a deplorable absence of meaningful competition between financial institutions, a scenario which has long been the subject of scathing criticism in one report after another, and rightly so.

But despite vociferous complaints, the major banks go on making vast profits on the backs of personal customers. Given the uncompetitive nature of the money business, any development likely to break their monopolistic stranglehold will be warmly welcomed.

So, the average borrower is sure to look with greater than usual interest in the alluring promise of better value for money coming from the Bank of Scotland Ireland (BoS).

With the aim of developing a countrywide branch network here, the group bought 54 ESB shops last March for €120 million. At the time, consumer hopes were fanned by predictions it would spark genuine competition between the banks at long last.

While BoS spin sounds promising, borrowers and investors alike should remember that the banks are not charities. Profit-making is their business and thus caution is warranted, particularly when the economy is booming and financial institutions are throwing money at people.

That said, the brand image being projected by BoS is calculated to capitalise on its popular appeal among punters who have already been encouraged by its track record.

When the Scottish bank first entered the Irish mortgage market six years ago, it had the instant effect of whipping up competition, forcing all the other lenders to reduce their rates. As a result, hundreds of thousands of people are now paying less for their mortgages every month.

Today sees the opening of retail BoS branches at Ballyfermot and Dun Laoghaire in Dublin and a third in Limerick. Over the next 14 months, a further 43 branches will open for business.

In addition to telephone and online banking, the group promises to introduce a rapid series of products with the expressed aim of “winning customers” from both Bank of Ireland and AIB, which between them dominate the retail banking sector with over 80% of current account business.

In a shot across their bows, BoS has unveiled a monthly savings account, paying 3.75% in interest, ahead of the competition. Under financial regulations, it will be a year before its can offer current accounts and the real threat posed to the big two will then be seen.

Already, however, it is turning a more customer-friendly face to the market. Emulating the example of credit unions, it will be more accessible to punters. For instance, when other banks will be closed on Saturdays, BoS branches will be open from 9am to midday. It will also be open daily from 9-5, an hour longer than the main banks.

If it lives up to its promise, customers could look forward to cheaper car loans, cheaper insurance, cheaper credit card rates and higher savings rates.

By offering them a better deal, BoS hopes it can persuade people to switch accounts. If that happens, its aggressive policies could make a marked difference.

But by far its biggest challenge will be to overcome the perplexing sense of inertia gripping consumers in a market where, despite new guidelines aimed at making it easier to switch accounts, people have been slow to leave the bank they love to hate.