I can’t help but think that if Bank of Scotland had stuck to the broker channel that they wouldn’t have been in the mess they are in now, and there wouldn’t be 40 odd branches of Halifax closing (they wouldn’t exist), in my mind it is an example of how a large bank got it terribly wrong and ultimately failed to understand their customers.

Their distribution customers were brokers, and via brokers their end customers were Irish consumers, in the end they have alienated both of the groups they set out to serve.

Halifax, who were the retail side of Bank of Scotland Ireland, came about as a follow on from an expansion in the Irish market that was introduced and lead by mortgage brokers. In 2006 it was decided that a greater presence was warranted and they began creating a street presence via branches.

Entering a competitive and mature market with a high-cost/low-margin retail proposition is bound to have its problems. Bank of Scotland mistook the market signals they got from broker lead expansion as a genuine appetite for their entire offering (retail banking etc.), turning off the intermediary tap can be done overnight with ease,  I would wager that within the general population that almost nobody could state the time when BOSI essentially shut down the broker channel, it barely made news, and it didn’t cost the bank much to do. On the other hand when you want to shut down a retail channel it is a mess, lots of jobs are lost in the process, hence the current fiasco, affecting staff (job loss), customers (many will have to make alternative arrangements for credit cards/current accounts etc.), and intermediaries.

Yesterday on Drivetime I was making this point, because the other prime bank banks that stuck to their original intermediary distribution model (KBC) also shut off lending, and can now return to market armed with billions to lend. They didn’t go out and try to break into a well established retail market with low attrition rates.

The head-space of the Irish consumer when it comes to financial products is a strange phenomenon, ask anybody from any town around the country if they are angry with our banks and you’ll likely get a ‘yes’ response, but then ask them ‘have you done anything about it? Like moving your bank account to a different institution?’ and you’ll probably get a ‘God no! Sure I’ve been with the AIB for 20 years!’ or something to that effect, ultimately, Irish consumers, when it comes to retail banking are mainly all talk and no action. They will shop around for insurance, for mortgages and other financial products, but they don’t do the same for their current accounts and Halifax hadn’t bet on this. Sadly, people who did switch will likely return to the old banks and only further reinforce their hold on the Irish market.

While PTsb have had some success with current accounts, it has to be remembered, they are an incumbent with a long presence via the TSB, and for all the accounts they say they open, how many subsequently leave? The fact is that it is the younger generation who know no loyalty to their banks (this is a good thing in my opinion) but the older generation – where the real money rests – are not keen to change.

I feel awful for the people who work at Halifax, I have many friends there, people I know and respect, they have the same hopes and concerns as the rest of us, husbands, wives, children, and mortgages to pay, this will be a testing time as there are virtually no jobs to be had in the financial industry at present. I got several phone calls yesterday from some of them and its hard to stomach, especially as some of the talent there was induced away from jobs in other institutions that, if they had stayed, would still exist.

On the other hand, for Halifax in particular, I have almost no empathy, they went to great lengths to cannibalise their existing distribution via dual pricing in favour of branches and , hoping to circumvent it for higher returns and now that it has failed they have failed, they weren’t upset as brokerages closed and the effects of their decisions shattered the intermediary channel, so it is only right that in return we feel nothing for them, that is merely equal emotional recourse.

People will mourn the loss of competition, the fact is that it wasn’t operating competitively, they were operating at a loss, and loss isn’t competitive – its unhealthy. Halifax was literally buying in business on both mortgages and savings, they didn’t have huge levels of zero-rated funds swashing around in current accounts because they were paying high interest rates on current accounts and that funding approach is unsustainable.

There is also the issue that HM Treasury (and ultimately the UK taxpayer) had bailed out HBOS/Lloyds, and it would surely be unpalatable for the UK taxpayer to learn that a loss maker was being kept alive in a foreign jurisdiction? If we were to find out tomorrow that BOI was operating at full capacity in the UK at a loss would it not bring about similar pressure on them to close operations there?

Everything was in alignment against Halifax, even when they wanted to sell their branches and book nobody was interested, nor were any other institutions interested when they put themselves forward as being part of a ‘third force’, executives in at least one organisation said ‘they’d rather walk away’ than pair with them.

And thus it culminates in closure. Halifax were the first branch retail banking entrant to the Irish market in decades, perhaps we will have to wait several more before another entrant dares test the Irish retail banking waters.