Osborne to cheer small banks with payment reform in budget

Tim Wallace
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CHALLENGER banks are set to be given a boost in the budget with George Osborne likely to announce a new consultation into competition in the payments system, City A.M. understands.

Currently small banks have to access the system through their larger rivals, adding extra costs and making it harder to compete in crucial areas like current accounts.

Osborne has already dropped hints that he will change the system, arguing small firms face long delays on payments because a lack of competition in the sector means there is no pressure for improvements to be made.

And the consultation could for a popular part of a package of measures to boost lending under the banner of credit easing.

Challenger banks welcomed the idea the system could be altered.

“This is a massive barrier to entry for small banks and new entrants,” Secure Trust Bank’s chief Paul Lynam told City A.M.

“Regulators last year increased the coverage of faster payments regulations. We now have to offer same day transfers with current accounts, and my clearing bank charges me 40p for every one of those faster payments.”

“That makes it impossible for me to provide free in-credit current accounts – if they want to increase competition, the only way is to let us access the clearing system at costs as opposed to paying extra to the profit of the large clearing banks.”

New banks are also expected to benefit from reduced capital requirements under plans due later this month, making it easier to launch a new lender, again boosting competition in the traditionally very concentrated market.