Chris Skinner's blog

Shaping the future of finance

Banking run by secret “gentlemen’s agreements”

Chris Skinner Author Avatar
by

I got a note yesterday from a friend in Turkey who brought to my attention that the Board of Competition fined seven of their banks for working together in a cartel-style operation that was anti-competitive. They called it “a secret gentlemen’s agreement”.

Apparently, the agreement in this case was based upon competitive bidding for corporate client’s contracts.

The idea is that the banks should compete on processing fees, services and contracts for running corporate payroll services as this normally means that the employees of the corporations will open accounts with those banks.

That’s attractive.

Instead, the banks agreed secretly that they wouldn’t participate in a competitive bidding process but to dish out business on a rota basis.

An agreement not to compete in other words.

Tut-tut.

But this does not surprise me too much.

After all, banks regularly get fined for agreements not to compete:

French Authority Fines 11 Banks $504 Million in Check Fee Cartel, September 2010

BNP Paribas SA, Groupe Credit Agricole, BPCE SA and eight other banks were fined a total of 384.9 million euros ($504 million) after France’s competition regulator said an electronic check-processing program improperly levied fees on consumers ...

RBS fined £28.6m for price collusion, March 2010

The Office of Fair Trading (OFT) has issued a £28.59m fine to Royal Bank of Scotland – a bank 84 per cent owned by the taxpayer – for breaking competition law.  The fine was announced yesterday after RBS admitted revealing details of its loan pricing plans for professional services firms, such as lawyers and accountants, to its rival Barclays ...

ECJ dismisses Austrian banks' appeal against cartel fines, October 2009

The European Court of Justice (the ECJ) has upheld the European Commission's (the Commission's) decision to fine four Austrian banks EUR 106 million for participating in a cartel.

Visa, MasterCard get Hungary cartel fine, September 2009

Hungary's competition authority fined Visa, MasterCard and the country's top commercial banks on Thursday for illegally fixing the fees they charge each other after bank card transactions.

The list goes on.

Why is this?

Because it can.

Banks are a collegiate in most countries, regulated by laws and licences that structure the industry in such a way that there are typically just three or four major players in each country.

Those three or four major players then carve their turf as they see fit.

Sure, they compete in some areas – branch based business, investment banking brokerage, mergers and acquisitions, capital raising and trade finance – but one area that is fairly uncompetitive is the whole aspect of fees and charges.

This is because most banks know that once you catch the bird with the early worm, then you don’t need to throw many more worms out there to keep the bird on the hook.

That sounds like a Cantonism - "when the seagulls follow the trawler, it is because they think sardines will be thrown into the sea" - and what I mean by this is that banks compete primarily to get new business.

Once the business is on the books, it is unexpected for customers to switch banks because (a) it’s too much trouble, (b) it doesn’t warrant the returns on investment, (c) banks are very similar in operation and service …

… it goes back to my old thing about competition in banking.

There will only be true competition when completely transparent fess, services and charges are compelled on an apples-for-apples comparison basis by law.

It's getting there, but such comparisons are hard.

For example, ask bank representatives to explain Annual Percentage Rates (APR), show how theirs works, and then show how theirs compares in a completely transparent like-for-like manner with their competitor's, and you'll see what I mean.

One day!

 

 

UncategorizedCategories
Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

Intelligent Money - Chris Skinner Keynote @ Pay 360 conference 2024

What is the future?

Learn more

Learn more about Chris

About Chris Skinner

The Past, Present And Future Of Banking, Finance And Technology

Fintech expert Chris Skinner: countries need digital transformation to remain competitive

Join me on Linkedin

Follow Me on X!

Hire Chris Skinner for dinners, workshops and more

Learn directly from from one of the most influential people in technology, gain insights from the world's most innovative companies, and build a global network.

Chris’s latest book

Chris Skinner’s ‘Digital For Good’ Book Launch Event – CFTE

Top 50 Global Thought Leaders and Influencers on FinTech 2023

Chris Skinner
Commentator, CEO of The Finanser and best-selling author at The Finanser

Thinkers360 Thought Leader

Contact Me

Global Awards

Lifetime Achievement Award

Global 100 - 2024 Winner

Chris Skinner - Financial Markets Advisor of the Year - The Finanser - UK 2023

Best Financial Markets Advisor of the Year 2023

30 Best Regtech Blogs and Websites 2023

Kids creating the future bank | TEDxAthens

Captain Cake and the Candy Crew

Captain Cake Winner of a Golden Mom’s Choice Award

TWO-TIME WINNER OF A MOM’S CHOICE GOLD AWARD!

Alex at the Financial Services

Gaping Void's Hugh MacLeod worked with the Finanser