HSBC 2002 Annual Report Download - page 28

HSBC HOLDINGS PLC
Description of Business (continued)
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investment companies providing commercial
banking products and services, and with investment
banks and the investment banking operations of
commercial banks providing investment banking
products and services.
Global factors
Consolidation in the banking industry
The trend towards bank consolidations, at both the
national and international levels, is creating a broader
range of banks capable of competing directly with
HSBC in an increasing number of markets
worldwide in which previously only HSBC and a
few other global banks offered the full range of
banking services.
Limited market growth
In HSBC’s largest current markets, the UK, France,
the US and Hong Kong, there is limited market
growth in the provision of basic financial and
banking services. There is, however, growth potential
in the provision of a full range of financial services.
Advances in technology
Technological innovations, including new and
expanding information and communication
technologies, are altering radically HSBC’s range of
competitors, as specialist providers and non-financial
organisations begin to offer financial services
without the need of a traditional physical branch
network. Such innovations increase the pressure on
traditional banks to maintain and enhance service
quality and also to make the investments required to
offer similar services. HSBC is actively adapting its
business to allow customers to access its full range of
services in the manner they wish: through the
internet, interactive TV, mobile phones, WAP,
telephone banking as well as the branch system.
Regional factors
UK
Although market growth in the UK has remained
limited, competition continues to increase. The
market has seen an array of new entrants, new
channels and new products. Such new entrants have
included insurance companies, supermarkets,
clothing and grocery retailers, car manufacturers and
utilities, each providing a variety of products and
services to challenge traditional banks.
In March 2002, the Competition Commission
Report on the supply of banking services to small
and medium sized businesses was published. The
Report prescribed several remedies including a
‘Transitional Remedy’ which allowed the banks the
choice of paying interest on current accounts at a
minimum of 2 ½ per cent below base rate or
providing free money transmission services to
businesses with up to £25 million turnover. During
the year, discussions took place with The Office of
Fair Trading (OFT) following the completion of the
Competition Commission’s report on the provision
of banking services to small and medium-sized
businesses. HSBC Bank plc has developed an
enhanced package of initiatives for customers,
estimated to be worth US$125 million per annum.
Interest on current accounts has been paid
automatically to all qualifying customers with effect
from 1 January 2003. Further initiatives include the
introduction of a new instant access savings account
and improved terms for start-up businesses.
In November 2002, OFT announced that in early
2003 it is to launch a new market investigation
looking into payment systems developments. It has
stated that this will pave the way for its prospective
powers to promote effective competition in payment
systems. On 11 February 2003, OFT announced its
preliminary conclusion that an agreement between
MasterCard’s UK members (which includes HSBC
Bank plc) on a common interchange fee charged on
transactions made in the UK by credit and charge
cards infringes the Competition Act 1998. OFT has
given MasterCard a further opportunity to justify the
existing agreement or suggest changes to it so that it
will meet the conditions for an exemption under the
Competition Act. A final decision on this issue is
expected in the spring of 2003.
France
Like the other western economies, the French
banking sector was affected in 2002 by the poor
economic environment and the equity market
turmoil, but benefited from high volumes of sight
deposits and slightly improved lending margins. A
debate has been opened on the legal prohibition of
remuneration for sight deposits. The trend towards
consolidation in the sector is expected to continue.