David Ruffley MP questions Eric Daniels, Group Chief Executive of the Lloyds Banking Group, on Competition and Choice in Banking

Tuesday, 7 December, 2010

On the 7th of December 2010 David Ruffley MP questioned Eric Daniels, Group Chief Executive of the Lloyds Banking Group, on Competition and Choice in Banking.

The text of Mr Ruffley's interview can be found below, the full text of the proceedings can be found here

David Ruffley: Could I just ask one question, going back to the profitability or the low returns on PCAs, which is what I think you have given evidence on. You will be familiar with the 2008 market study by the OFT on PCAs, and it says the OFT estimated banks earned £8.3 billion in revenues from personal accounts in 2006, equivalent to £152 per active current account. It broke it down by saying that these profits were generated by five sources: net credit interest, the difference between interest paid on credit balances to consumers and income derived by the bank from those funds; net debit interest, interest paid by consumers minus the cost to the bank of lending these funds; insufficient funds charges; package fees and ancillary charges. All that comes together in 2006 to £8.3 billion for all the banks. This seems a rather profitable business, and I am rather concerned when I also see that the OFT believe that the PCA revenues are bigger than savings and credit cards combined. So if the PCA generates more cash for you guys than savings and credit card products, why are you telling us that you are doing us all a favour providing PCAs?

Eric Daniels: I'll ask Helen to comment as well, but I think that you're looking at only one component of the profit and loss statement. In other words, you're looking at the revenues that are coming in. Against those revenues we have losses on the overdrafts, which we have mentioned before. We have branches, we have ATMs; we have thousands and thousands of employees who serve the PCA market. So I think that if you were to look at the net-in other words, you take the revenues, less the costs, less the losses-then the return against the PCAs tends to be at the lower end of the range of the banking products that we do offer.

David Ruffley: Finally, Chair, I would like to just clear this up, because it is suggesting here that savings and credit cards together generate less revenue than active bank accounts, and I understand that you are saying that when you net off the cost of ATMs-but there must also be similar costs for savings and credit cards?

Eric Daniels: Yes and no. For a credit card, for example, most credit card providers don't use branches, so-I think there are something like 60 credit card providers, perhaps 30 to 60, I'm not sure which, but there are a fair number of credit card providers-the majority of them don't have branch networks so, in other words, their cost dynamics are much different. They tend to use the mail; they tend to use direct marketing rather than branch sales, so that changes their dynamics.

David Ruffley: Is it true of savings products as well?

Eric Daniels: There are approximately 80 savings competitors in the marketplace. Many of them are direct.

David Ruffley: I think what we would find useful, Chair, is if we could have a written breakdown of some of the evidence you have given about the profitability and the margins on PCAs for your bank, if you could provide that.

Eric Daniels: We would be happy to give you what information is available.