Competition in UK Banking: A Report to the Chancellor of the Exchequer

This weeks longer read from our newsletter takes us back 20 years to the Cruickshank Report; “Competition in UK Banking: A Report to the Chancellor of the Exchequer.

To put todays banking landscape into perspective it is worth reading the Executive Summary.

The executive summary, published in 2000, opens with:

Banks operate on a huge scale at the heart of the modern economy. Scale is often hard to grasp. To give an illustration, in 1998, three UK banks each made more profit than the UK’s five major publicly traded supermarket companies added together. The top 10 banks together made 10 times the profit of all these supermarkets, and are, collectively, worth £200 billion. However, it is the banks’ control of the money transmission systems – cash, cheques, cards, electronic payments – that makes their innovation and efficiency crucial to the UK economy as it competes in an e-commerce world. It is this feature of banks, more than anything else, that is the focus of the Review.

On Money Transmission the report noted:

The Review uncovered profound competition problems and inefficiencies in the market for money transmission services. Some of these problems will be only too familiar to bank customers: slow clearing cycles for cheques and automated payments, and high charges for cash withdrawals. Others are less evident, but just as important: for example the three quarters of a billion pounds of interchange fees paid in the UK each year, and the way in which full participation in payment schemes is nearly always restricted to banks. Innovation is stifled and the system has proved slow to adapt to an e-commerce environment. Many of these problems can be traced back to the structure of the UK payment systems market which consists of a series of unregulated networks, mostly controlled by the same few large banks who in turn dominate the markets for services to SMEs and personal customers.

The report recommended the establishment a payment systems commission:

The existing framework of competition law is not sufficient to deal with network industries such as payment systems. The incentives and scope for abuse by firms, or groups of firms, with significant market power are simply too strong. To achieve effective competition in this type of industry requires the Government to set down a series of ex ante rules, in addition to the normal provisions against anticompetitive agreements and abuse of a dominant position. The most effective way of achieving this is to set up a licensing regime, similar to that in place for other utilities, and to establish a new body to supervise this regime. The Review recommends that: the Government should bring forward legislation to establish a payments systems commission (PayCom), charged with supervision of a payments system licensing regime. It should be independent of the competition authorities, other regulatory commissions, and of the industry.

A few paragraphs in the Money Transmission chapter caught my eye – there are elements in the Cruickshank report to Gordon Brown that I became responsible for delivering. 

As the guardian of the Current Account Switching Service from its launch until 2018:

Schemes have made slow progress towards helping customers switch accounts using the BACS infrastructure, for example, or displaying ATM charges at the point of withdrawal.

As the first CEO of Bacs Payment Schemes Limited (formed in 2003):

The boards of payment schemes are in effect committees of bankers. They lack the fresh ideas and expertise that directors from other areas of life would bring. This is a particular shortcoming when facing new challenges such as e-commerce. This does not mean that the UK payments system is incapable of innovating. Existing schemes have made a number of real achievements over the past five years. But better governance would undoubtedly spark more innovation.


A clean and effective first step in reforming the governance of BACS would be to transfer the infrastructure owned and operated by BACS Ltd to an independent for profit company. Non discriminatory access implies that non banks that meet objective risk based criteria would have full access to the BACS infrastructure and to the schemes using it. There would be no obligation to join APACS in order to obtain full access to BACS. The wholesale charges levied by BACS Ltd on its users would be made public.

As the first Managing Director of Faster Payments Limited:

The constitution of mutually owned schemes can further constrain the operators of shared infrastructure such as BACS and LINK, holding them back from collaborative ventures with non members to develop new shared facilities. Examples include delays in developing paper and especially electronic payment systems, and the limping development of online internet payment mechanisms.


The rhythm of the UK payment system often seems to reflect the nineteenth century more than the twenty first. It takes three to four working days for a customer of an internet current account provider to transfer money electronically through BACS to an account held with another supplier, for example. Other aspects of the payments cycle still bear witness to the work habits of a nineteenth century bank clerk. Weekends and bank holidays add further unnecessary delays to what are now largely automated processes. Internet retailers are frustrated at the credit and debit card systems’ lack of flexibility in adapting to an e-commerce world.

Removing float from Bacs transactions whilst CEO:

Delays matter for a number of reasons. One reason is that banks and building societies can earn float revenue from delays. This argument is often overstated. For most cheque and BACS transactions, the recipient starts receiving interest for the transaction value on the same day as the payer stops receiving it. In some cases, the recipient’s account is credited before the payer is debited. Where float revenue is earned, however, it is a particularly opaque form of charging. It is not transparent to those who pay for it and it is difficult to calculate.

During my time as Bacs’ CEO I was pleased to launch an independent Bacs Affiliates Interest Group:

End users are not represented on the boards of either APACS or individual clearings. APACS provides various forums to discuss end user demands. For example, it holds a bill payers workshop for large users of BACS. But end users are not directly involved in decisions about how the payments system should be adapted to meet their demands.

As, at various stages in my career, Bacs’ CEO, Faster Payments’ MD and CHAPS’s MD it was my privilege to act as the Admissions Official admitting banks, building societies and Non-bank PSP’s as full direct scheme participants:

Domestic APACS clearings do not actively recruit new members, for instance. This contrasts strongly with CHAPS Euro, which faces stiff competition from other European payment schemes and is much more active in recruiting new members.

As Bacs’ CEO ensuring that our tariff was not differentiated by volume – participant costs were calculated by the value they brought to the system:

While the total value of these costs is relatively low – the last annual call was for just under two and a half million pounds – it shows a massive variation in the cost per transaction charged according to the size of the member.

You’ll find the full report in the National Archives at: A report to the Chancellor of the Exchequer.

Re-reading the Criuckshank report twenty years after publication it is clear that much has been achieved and I am super proud of the part I was able to play. That said, there is much more to be done……

I’ll leave the final words to the author of the report contained in the press release from the 20 March 2000:

What would Don write in a report twenty years on?

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