Outlook: Standard Life

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ESTABLISHED BANKS and building societies must be starting to get seriously worried. In the past they could rely on customer apathy and lack of competition to sustain their fat profit margins. On both counts, things are changing with a speed few could have anticipated.

Customer loyalty has already all but vanished; the only thing that holds customers to their established provider of financial services these days is the cost and inconvenience of moving. The new generation of low cost operators are now beginning to remove these road blocks too.

Having already made a splash with its new bank, Standard Life yesterday launched into the mortgage market with a target of taking 4 per cent of net new mortgages within a year. From a standing start, that would put Standard Life on a par in terms of new business with established mortgage providers such as the Woolwich and Abbey National.

This would be a quite astonishing speed of entry into any market, let along that of mortgages. Certainly nothing like it has been seen in the mortgage market since the banks decided to bust the building society cartel in the early 1980s. In the end, however, the banks ended up charging the same as the building societies, so it was neither here nor there for the mortgage holder.

This time round things look like being different. The initial Standard Life offering seems to be as competitive as anything else around - a floating rate of 4.8 per cent for the first six months, 6.8 per cent thereafter and no penalty clauses for chucking it in and remortgaging after a year. Fixed rate and cap & collar mortgages are promised for the future. Furthermore, Standard Life is prepared to approve a mortgage "in a matter of minutes" over the phone, taking the pain of remortgaging out of the process.

The degree to which the new low cost operators, without the big branch networks of the banks and building societies to support, take market share from the established players seems to be limited only by their ability to cope with demand and provide the necessary capital backing.

All of which will further increase the pressure on banks and building societies to address their bloated cost bases by merging. Perhaps the most surprising thing about all this, given the obvious threat to profits and margins, is that the merger process is taking so long to get under way. The Standard Life initiative cannot help but provide an extra spur.