Consumers and small businesses could save up to €500 million a year as a result of increased competition in the Irish banking sector according to a new study.
Economic consultants, Compecon, claimed that more competition between financial institutions would also add another €700 million annually to Gross Domestic Product.
The report, which was commissioned by Bank of Scotland, found considerable evidence of a lack of competition in the provision of banking services to personal customers and small businesses. It claimed the high barriers to entry to these markets was the main reason for this.
Compecon managing director, Mr Pat Massey, said increased competition would lower prices and yield wide benefits to the economy. "Restrictions of competition, such as those identified in the banking industry, increase the share of the cake that goes to producers at the expense of consumers while simultaneously reducing the overall size of the cake."
Mr Massey, a former chairman of the Competition Authority, also pointed to the lack of interest paid on current account balances held by personal customers and small businesses meant that banks enjoy the benefit of such money for free.
The report suggests real competition would lower personal overdraft interest rates by up to 2.5 per cent and that small business customers could enjoy similar reductions in borrowing rates.
It claimed that competition problems were most pronounced in money transmission services, in unsecured lending and in personal and small business banking.
It also calls for a series of reforms including the establishment of an independent process outside of the Irish Payment Services Organisation to reform the money transmission system. It urged the adoption of a revised voluntary bank code to allow greater account switching, the removal of the regulation of bank charges, new measures to increase price transparency and to allow banks to access the An Post network.
Bank of Scotland chief executive, Mr Mark Duffy, said the report confirmed what it has consistently maintained. He said the current lack of genuine competition in Irish banking is putting Ireland at a competitive disadvantage and costing consumers dearly.
The Irish Bankers' Federation said the report made a contribution to the discussion on banking competition but contended that it did not fully reflect the many positive developments within the sector.
The timing the report coincides with Bank of Scotland's application for membership of the Irish Paper and Electronic Clearing Companies and IPSO. That organisation expressed surprise at the report's conclusions and in particular at the calls for the establishment of an independent process outside of its control.
It also challenged the report's claim that its arrangements made it difficult for other financial institutions to gain entry to the money transmission system. "No bank has ever been refused membership of either IPSO, or any of the clearing companies," it said.
