Santander, the Spanish banking group, today confirmed a £1.26 billion proposed takeover of Alliance & Leicester (A&L), Britain's seventh-largest bank.

If the deal proceeds, the plan is to combine the former building society with Abbey - which it bought in 2004 - creating a business with 959 UK branches and a share of more than 8 per cent of the savings and personal loans market. The deal should be completed in October - if no rival offer emerges.

But what will it mean for the customers of both banks?

I have a mortgage with one of the banks. Will I notice any difference?

Existing customers should not see any immediate change. However, if you are an A&L customer, Abbey branding may appear on future correspondence.

Santander also said that combinining the two banks will enable it to offer more competitive products and services. If that is correct, customers may be able to negoatiate better deals when they remortgage as both banks have been hard hit by the squeeze on borrowing during the credit crunch.

However, there are no guarantees of an improvement. Darren Cook, of Moneyfacts.co.uk, the comparison website, said: “Historically, A&L has had more accommodating criteria, with a maximum advance of £1million, compared with Abbey’s £550,000. A&L’s customers also benefit from more flexible features, such as underpayments and payment holidays.

"In the past, mergers in the mortgage market have worked out as more of a takeover of the mortgage book, with one company's product range disappearing without bringing together the best of both product ranges."

How will savers be affected?

There will be little change in the near term, but there could be benefits for both sets of customers in the longer term because a bigger bank could offer more competitive savings products.

However, some commentators fear that a deal will be detrimental to savers. Kevin Mountford, head of current accounts at Moneysupermarket.com, another comparison website, said: "Abbey and A&L have similar structures, making a merger desirable, but they have both been key players in driving competition. We have often seen them head to head in the savings and current account markets, ensuring that customers had some excellent options to choose from. The question now is whether this competition will be neutered."

He added: "This news also increases the likelihood of other smaller innovators being swallowed up by big institutions, potentially damaging competition further."

I am an A&L shareholder. What will I be offered?

A&L shareholders would receive one Santander share for every three A&L shares, as well as a previously announced interim dividend of 18p in cash per A&L share.

Roy Brown, A&L's acting chairman, said that, against the background of uncertainty in the UK, the deal with Santander represented value for A&L's shareholders. By offering shareholders the right to keep A&L's 18p interim dividend, the deal is worth 317p a share.

Are there any losers?

The biggest potential losers are staff. Santander said that it expects to make annual savings of more than £180 million by the end of 2011 through the combination of back office functions.

The Communication Workers Union (CWU) has voiced fears over potential job cuts among A&L staff.

Andy Kerr, deputy general secretary of the CWU, said: “This is potentially a very serious situation for CWU members in A&L. A takeover by any company already active in the UK could mean a potentially large number of job losses. Staff at A&L deserve to have answers about their future and we urge the company to be upfront about its intentions.”