James Daley

By James Daley

Launching a bank in the UK is no mean feat. Metro Bank likes to remind people that it was the first full service high street banking brand to enter the UK market for over 100 years - and while we've seen the likes of M&S and Tesco enter the fray since then, they're learning the hard way that this is a hard market to crack.

Regulators dream of a day when there are dozens of local banks - so that the importance of the biggest four or five is less important. At the moment, the Big Four account for over 70% of the bank account market - and there's no indication that these newer entrants are going to change that anytime soon. One of the biggest gainers in the switching market at the moment is Halifax - which is owned by Lloyds. So while an increasing number are switching away from the Big Four brands, many don't realise that they're actually moving to another member of the Big Four.

David takes on Goliath

The Competition & Markets Authority plans to spend the next two years trying to get to the bottom of how we get more competition in the market. But one promising idea that is being talked about behind the scenes is a project that would bring together a consortium of building societies, giving the capability to offer day to day bank accounts in competition with the mainstream banks.

Nationwide - the UK's largest building society - already has an established successful current account business. But aside from them, it's only Norwich & Peterborough and Coventry Building Societies who have any real presence in this market.

There is, however, one lesser know brand that offers a bank account - Cumberland Building Society. And while the Cumberland's footprint in the market is currently pretty small - it sees the opportunity to share its services with others - and to provide the foundations for current accounts across several other societies.

Today, most building societies are simple savings and loan businesses - and some people would suggest that they should stay that way. But building societies' mutual ownership structure gives them the ability to play the long game in a way that most privately owned entities are not wise enough to.

Real local banking

This kind of approach in the current account market could provide a real shake up - a return to the kind of "local banking" that TSB claims to offer in its advertising, but which it clearly doesn't offer just yet.

Setting up the infrastructure, however, would not be the hard part. As Metro, M&S, Tesco and other new entrants know all too well, the real challenge is getting people to up sticks and switch their account. And it will be hard for them to compete with some of the incentives that the bigger banks offer. These larger organisations use bank accounts as a gateway to sell all sorts of other things to their customers. And it's not desirable to imagine a world where building societies were dragging themselves down to fight on those terms.

Nevertheless, if they can quietly make the case for cleaner, simpler, fairer banking - as organisations like Coventry Building Society manage to do at the moment - then I could see them gaining some real traction over the longer run. And the Competition & Markets Authority will hopefully change things in a way that gives smaller players every chance of succeeding.

It requires a steady hand, and some tough decision making from the building society sector. In the past, executives have too often tried to apply the Big Four banking model to building societies and have come unstuck as a result. But if they can stay true to their mutual values - it's an interesting idea.