George Osborne orders big four banks to allow new 'upstarts' on the hight street

George Osborne today ordered the big four banks to open up the high street to “upstart challengers” offering newer, faster services to consumers.

In a keynote announcement, the Chancellor said he would appoint an independent regulator to oversee the payments system that underpins the banking industry and, say critics, keeps out new banks.

His aim is for new banks to speed up new services like mobile phone payments and other innovations not yet available in Britain, like automatic bill-sharing for restaurant diners.

“I want upstart challengers offering new and better services that shake up the established players,” he told traders at JP Morgan in Bournemouth, in a speech to launch the Banking Reform Bill.

Mr Osborne said the current system “isn’t working for customers, so we will change it”.

He asked: “Why, in the age of instant communication, do small businesses have to wait for several days before they get their money from a credit or debit card payment? It should be much quicker.

“Why do cheques take six days to clear? Why is it that big banks can move their money around instantly, but when a small business wants to make a payment it takes days?”

The financial crisis had strengthened the grip of “a few big banks” whose market power “verges on an oligopoly”, he said.

Three-quarters of all personal current accounts were in the hands of just four companies. Mr Osborne said a key barrier to new banks was the payment systems, the infrastructure that transfers money between banks, firms, cheques and cash machines. At present, a new bank had to obtain these services from one of the existing big banks.

“Asking your rival to provide you with the essential services you need at a reasonable price is not a recipe for success,” he said.

Mr Osborne also confirmed that the banks will face complete separation if they flout new rules to ring-fence risky investment operations from savers’ deposits.

He said it would end the days of “too big to fail” and stop banks being bailed out if they mess up.

But Anthony Browne, chief executive of the British Bankers’ Association, said: “This will create uncertainty for investors, making it more difficult for banks to raise capital, which will ultimately mean that banks will have less money to lend to businesses.”