2 How would you evaluate the behaviour of banks trying to keep competition out from an ethical point of view? The high barriers to entry in financial services include structural barriers due to basic industry conditions like economies of scale, network effects and regulation. The latter is significant in this particular industry; to protect the safety and stability of the financial system there are high regulatory walls. While incumbents may complain as authorities introduce new regulations, they often promote them once they adapted to them as regulations raise barriers for new entrants. Hence, they tend to exploit and lobby for structural regulation barriers to their own advantage to keep competitors out.

In the UK regulative and other barriers have resulted in the ‘Big Five’ domination: HSBC, Barclays, Royal Bank of Scotland, Lloyds and Santander. Other markets are very similar with a ‘Big Five’ in Canada, ‘Big Three’ in Spain and the Netherlands and a ‘Big Four’ in Sweden. In the aftermath of the 2008 financial crisis regulations have increased further. The dilemma for regulators is that they have two partly conflicting objectives. First, to secure the stability of the financial system they need to have capital requirements and other strict regulations for banks. The second aim is to deliver more efficiency and more services for customers through increased competition. To act on this second objective regulators have started to encourage more entrants and assist them to find cracks in the barriers without totally breaking them. For example, the Managing Director Hannah Nixon of Britain’s Payment Systems Regulator proposes: ‘There needs to be a fundamental change in the industry to encourage new entrants to compete on service, price and innovation in an open and transparent way.’

UK’s financial regulators have even launched a start-up unit to help new players to enter as Andrew Bailey, former CEO of the Prudential Regulation Authority explained:

‘The New Bank Start-Up Unit builds on the work we have already done to reduce the barriers to entry for prospective banks, which has led to twelve new banks now authorised since April 2013.’