Bank boss says big players have 'stranglehold' on the current accounts market

I just had a very interesting chat with the chief executive of a bank I'll bet you've never heard of.

Aldermore is a name you are likely to bump into in future if you are looking for either a mortgage or a business loan because it is out there on the 'Best Buy' tables trying to get noticed.

The bank was born in 2009 when the UK was in deepest, darkest recession. Today it is one of a number of 'challenger banks' fighting to steal business from the big, five established players.

Here's the puzzling thing: the incumbent banks have behaved rather appallingly over the last few years (think payment protection insurance, interest rate swaps, Libor-fixing, money laundering, tax avoidance and more). Yet, generally speaking, they have the same number of customers today as they did before the financial crisis.

The share of customers at the big banks has remained strong since the 2007 crisis. Credit: Mintel/Office of Fair Trading

Aldermore now has 136,000 customers on its books (up from 99,700 last year). Let's be clear, that makes it a tiddler still, but a tiddler that is growing fast.

The bank is attracting deposits, increasing its lending to businesses and homeowners (the bank is involved in the Help to Buy scheme) and its balance sheet has just topped £4 billion.

Aldermore does not have a branch network and the chief executive, Phillip Monks, concedes not many people have heard of them.

You'd think that offering current accounts to customers might help raise the bank's profile but Aldermore doesn't and doesn't intend to do so. That's in part - and this is the really interesting bit - because Monks believes the big banks have got the market all stitched up.

The seven-day switch guarantee was introduced last September to make moving banks easier. Mr Monks is sceptical about the scheme's success.

"There's a huge amount of inertia in the banking market...people find it difficult and are still fearful about moving their account"

– Phillip Monks, Aldermore CEO
Phillip Monks, left, calls for the government to seize the Payments System from the ownership of the big banks. Credit: Jon Super/PA Archive

Nonetheless, his biggest grumble is the Payments System.

Think of the Payments System as a network, rather like the National Grid. But instead of funnelling electricity around the country, the Payments System moves money.

Mr Monks' complaint (and he's not alone in this) is that the payments system is owned by the big incumbent banks who charge smaller banks to access it.

The government is in the process of creating a regulator to ensure access fees are fair but Phillip Monks says the proposed change does not go far enough. He believes the Payment System should be seized in the interests of competition.

At the moment the (big) banks have a stranglehold on the payments system and it is deterring new entrants."

– Phillip Monks, Aldermore CEO

Last year Aldermore wrote mortgages totalling £1.68 billion, spread throughout the UK. I asked Phillip Monks about Nationwide's calculation that house prices in London are 18% higher than they were a year ago.

His view is "there is a significant housing bubble" in the capital and that it is "cause for concern".

However, he then goes on to sound like a man not terribly worried at all.

The gap between house prices in London and the rest of the UK. Credit: Nationwide

"I think the averages are deceptive," he insists. "If you speak to someone in the north-east and talked about a housing boom they'd laugh at you".

His belief is that its the weight of foreign money - largely cash - that flowing into London that's the primary force driving prices up. And his view is there's not much that can be done about it.

"You can go to the ports and close the borders but I don't think that's going to help [...] I don't think it is possible to dampen housing demand in London without wrecking the rest of the UK housing market."

– Phillip Monks, Aldermore CEO
Regional house prices compared to their peak before the crash. Credit: Nationwide

As for the suggestion that Help to Buy is actually unhelpful, that's not his view.

He says Aldermore's experience is that 50% of applicants for the scheme are from the north of England, 50% are earning less than £40,000, 71% are first-time buyers and 75% of homes bought are for less than £175,000.

His conclusion: "in our experience this is a scheme that is working well throughout the country".