Clearing banks lay new Eggs

Lloyds TSB is to launch a new Internet brand – another sign that banking could have changed forever.

With better customer service and lower prices, new direct brands such as Prudential’s Egg and Standard Life have rattled traditional players. Lloyds TSB’s launch of a brand that could offer better rates than its main operation speaks volumes about the perceived threat.

The invasion of US credit card cost-cutters, such as Bank One and Providian, is also squeezing traditional banks’ margins. In an attempt to reduce costs, they responded initially by setting up online accounts under existing brand names and encouraging customers to use cash machines and call centres instead of their costly branch networks.

But observers say most traditional banks have approached the Net half-heartedly. They also suspect these heritage-oriented brands are not suited to it.

Given the success of Egg, the Net appears to favour a different kind of – more modern – brand. Although its detractors say any company can gain market share if its savings rates are higher than its lending rates, many traditional players are following Egg’s lead. Halifax, Abbey National and the Co-Operative Bank are setting up Net banks under the names Greenfield (a working title), Aquarius and Smile, respectively.

Gordon Pell, group director of UK retail banking at Lloyds TSB, says: “We are already one of the most efficient businesses in the financial services sector. But, like all the banks, we are looking at ways to improve what we offer and cut costs.”

Lloyds TSB has what is considered an efficient cost/income ratio of 45 per cent. This compares with 67 per cent for NatWest, which is one of the highest. Lloyds TSB reported pre-tax profits of &£1.6bn for the six months to June 30.

It is understood PricewaterhouseCoopers has been hired to cut &£1bn from Lloyd TSB’s &£5bn a year costs.

Pell continues: “The new Net bank will be an attractive package and could offer better rates of interest than our existing branch-based accounts because of the cheaper cost of delivery.”

Lloyds TSB will be the first high-street clearing bank to launch a separately branded Net operation, although Barclays has so far made the most of the Net’s potential, with 400,000 online customers.

HSBC (outside First Direct) and NatWest have yet to offer online banking, although they have plans to do so.

Lloyds Private Banking – for selected premium customers – is to be relaunched on November 1 as Lloyds TSB Private Banking, and will have a new Website.


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