End of Abbey heralds all change on the high street

Your favourite bank or building society could be disappearing soon – replaced by a new name or brand.

From Monday one of our leading high street banks will have a new name over the door. Abbey will have disappeared, and the fascias of the former Abbey National Building Society, which became a bank in 1989, will bear the name of the Spanish bank Santander.

At the same time Santander, which bought Abbey in 2004, will rebrand the savings arm of Bradford & Bingley it took over from the Government. It will then rename Alliance and Leicester, which it bought in 2008, later this year.

A time traveller from 25 years ago arriving in a typical British town today would hardly recognise the names of the banks: Barclays, NatWest, and Lloyds are still there, but many, including Williams & Glyn's and Midland Bank, have gone, replaced by the Royal Bank of Scotland and HSBC respectively. Many of the old building societies have also disappeared and new brands taken their place.

There are more changes to come. Datamonitor, the business information analyst, said in a report: "Additional industry consolidation will continue by means of mergers and acquisitions." At the same time, however, there will be new entrants into the banking sector as the Government seeks to increase competition."

Andrew Hagger, a banking expert at the financial services website Moneynet.co.uk, said: "By the time we reach the end of 2010 there will be some new names replacing some of the established financial brands in high streets across the UK."

At the hub of the activity, at least in the short term, will be Northern Rock, the bank that crashed so spectacularly at the end of 2007 and had to be nationalised to safeguard savers' deposits. It has now completed its split into a "good bank", which includes £20bn of deposits and low-risk mortgages that is ready to be sold to a new owner, and a "bad bank" containing toxic assets.

Those in the frame to take over the "good bank" are Virgin Money and National Australia Bank – both existing players in the UK financial market but not necessarily familiar names on the high street.

There are likely to be some totally new banks founded as well. The first to appear is likely to be Metro Bank, headed by the US entrepreneur Vernon Hill. It plans to open two London branches in the next few months.

Another new entrant could be an as-yet unnamed venture being set up by the former Panmure Gordon analyst Sandy Chen, while supermarket Tesco, which has obtained a banking licence, has declared it is to launch 30 branches in stores branded Tesco Bank. Richard Branson's Virgin, which also already has a finance arm, applied for a banking licence three months ago. In the meantime it is said to have been considering the acquisition of a small bank that already has a licence, so that it can keep up with other players while its own application comes through.

Customers fed up with the recent shenanigans of the banks – from bankruptcies to bonuses and overcharging to mis-selling – will welcome some new names to give the established players a run for their money, according to Hagger.

"Some fresh blood in the banking sector, with simple, well-priced products, is needed to give customers something other than just the same old, same old to choose from," he said. "The biggest players in the financial services have had it too good for too long and have relied on an apathetic customer base that feels that the grass would be no greener if they were to switch to one of their rivals."

Datamonitor is, however, sceptical about the potential success of new entrants to the market. It said: "New entrants to retail banking could potentially disrupt the industry status quo. In reality, new banks are already too late to capitalise on opportunities in the market."

It cited a Datamonitor Financial Services Consumer Insight survey, published last year, that revealed that although just 29 per cent of consumers trust the banking industry as a whole, as many as 50 per cent of UK consumers trust their own bank, which could indicate they are unlikely to switch.

At the same time, banks are launching attractive new products, for existing customers only, in order to induce them to stay where they are.

David Black, a banking specialist at financial information service Defaqto, said: "Banks see the current account as the main relationship-builder with the customer. The cross-selling of other products on to the existing customer base is destined to become the key battleground, as each bank strives to become the one-stop shop for all the personal finance needs of their customers."

So will consumers be persuaded to switch their custom to new market entrants? The answer is that they may be forced to if their own banking provider is sold off.

The Government is determined to break up the financial behemoths such as Royal Bank of Scotland, which started life as a regional Scottish bank before gobbling up NatWest and ABN Amro to become "too big to fail". After overreaching itself with poor lending decisions, it is now 84 per cent-owned by the taxpayer.

Halifax, the former building society, turned itself into a bank after merging first with the Leeds Building Society and later swallowing up the Birmingham Midshires. In 2001 it agreed a £10.8bn merger with the Bank of Scotland. Yet by 2008 it was in a parlous state, racked with "toxic debt" as a result of ill-advised lending, and in January 2009 it was acquired by Lloyds TSB, which renamed itself the Lloyds Banking Group.

Among the interested parties for the parts of these businesses that are due to be sold off are National Australia Bank (NAB), which as well as eyeing up Northern Rock already owns the Yorkshire Bank and Clydesdale brands, and Itaú Unibanco, one of Brazil's biggest banks, whose reported interest in buying a stake in RBS pushed its share price up last week.

We can expect more change in the building societies sector, too. In 1986, when the Building Societies Act was passed that allowed the demutualisation of Abbey, there were 110 building societies. By 2002 this number had fallen to 65. Assuming the proposed merger of the Yorkshire and the Chelsea goes ahead later this year, just 51 will then be left.

For the first time a number of "shotgun marriages" of societies have left building society "brands" in the marketplace, even though they are no longer building societies in their own right. For instance, anyone opening a Cheshire account is actually a member of the Nationwide.

"In the last two years we've witnessed a raft of building society mergers," said Hagger. "However, rather than adopting an overall identity, the old building society names are being retained as brands or trading divisions. While the local community may be pleased to see the name of their society preserved, it could well cause confusion with regards to the level of protection afforded to them under the Financial Services Compensation Scheme."

At the moment, deposits in any one organisation are protected by the scheme up to £50,000 per individual, but those with the maximum protected sum invested in societies that have been recently taken over are temporarily enjoying double, or even triple, protection, according to Hagger.

"For example, members of the enlarged Nationwide (i.e. Derbyshire, Cheshire and Dunfermline) maintain multiple FSCS protection until December 2010. However, this does not cover any deposits made after the merger or acquisition has taken place. It's a bit of a minefield for consumers to keep tabs on where they stand with the FSCS protection, and no doubt an administrative nightmare for the societies themselves," he said.

More mergers are on the cards, as societies battle to compete in a low interest rate environment and struggle under the burden of the Financial Compensation Scheme levy.

Defaqto's David Black sees the biggest threat to existing banks and building societies coming from established brands in other retail arenas, such as Tesco.

"Tesco could be a real threat to established banks. It has real market potential, with a trusted brand and existing premises if they choose to move aside the cornflakes."

Hagger adds: "If the likes of Virgin Bank, Tesco Bank or Metro Bank come to the table with a package of consistently competitive products backed up with top-notch customer service, then it may well be the formula that wins them a decent share of the personal finance market.

"Innovative new players that can balance shareholder and customer expectations have a window of opportunity to convince millions of consumers that they represent a credible banking alternative and one worth switching to."

Big business: Who owns what on the high street

* Lloyds Banking Group owns Lloyds TSB Bank, Lloyds TSB Scotland, Bank of Scotland, Halifax, Cheltenham and Gloucester, Birmingham Midshires, Intelligent Finance, Scottish Widows Bank, Scottish Widows, Clerical Medical (being merged with Scottish Widows, and the Clerical Medical brand phased out), Lloyds TSB Insurance Services and Halifax Insurance

Future: The group will divest itself of around 600 branches and about 19 per cent of its mortgage book, including C&G savings accounts and all C&G branch-based mortgages, all C&G branches but not the C&G brand. It will also sell off the whole of the Intelligent Finance online banking brand; Lloyds TSB Scotland and around 250 Lloyds TSB branches in England and Wales, and the TSB brand

* RBS owns more than 40 consumer brands, including Royal Bank of Scotland, NatWest, Ulster Bank, Coutts, Adam & Co, Child & Co, Isle of Man Bank, Drummonds, Citizens Bank (in the US), First Active, The One Account, and the Direct Line, Churchill and Privilege insurance brands.

Future: It will dispose of 318 branches over the next four years, including RBS branches in England, NatWest branches in Scotland and its entire insurance portfolio.

BUILDING SOCIETIES

* Nationwide owns the Cheshire, Derbyshire, and Dunfermline former building society brands

* Cooperative Financial Services, owns the Britannia Building Society

* Yorkshire owns the Barnsley brand and is in the process of taking over the Chelsea Building Society

* Skipton Building Society owns the former Scarborough Building Society