Sir,
There is much merit in banks thinking innovatively about how to secure good shareholder returns in a competitive market. But they may regret acceding to the beguiling argument advanced by Derek French ('High-street banks can profit by sharing branches', November 17).
Today many customers have multiple providers of financial products. As a result these customers generate little or no profit for individual product providers. And the challenge for them is to build customer loyalty (long-lived and multiple-product relationships) without ceding too much profit margin.
Lowering the cost base by sharing branches may paradoxically have the reverse effect. It may encourage customers to 'shop around'. Conversely, introducing account fees, which can be waived for loyal customers, may prove astute as it reduces cross-subsidisation from loyal to foot-loose customers. It is our view that it is indefensible and unsustainable cross-subsidisation that is the Achilles heel for retail banks, not the cost level per se.
Richard McManus
PA Consulting Group
London SW1W 9SR
