More radical action is still needed to shake up the £16 billion current account and business banking sectors, according to consumer campaigners and finance experts, who said the competition watchdog’s proposals could have gone further.
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Regulators and lawmakers are keen to break the dominance of the country’s biggest four lenders – Lloyds Banking Group LLOY.L , Royal Bank of Scotland RBS.L , Barclays BARC.L and HSBC HSBA.L – which control more than three-quarters of current accounts and provide nine out of 10 business loans.
The provisional findings of the investigation, which examined the supply of personal current accounts and of banking services to small and medium-sized enterprises, had been highly anticipated after the probe was confirmed by the Competition and Markets Authority in November 2014.
The Current Account Switch Service (CASS) was set up to make the process easier and is functioning reasonably well, but awareness and confidence remain low. The CMA said the problems in the market are unlikely to be resolved by creating more, smaller banks – as it is the underlying issue of the lack of switching which needs to be addressed.
The CMA previously said that only 8% of consumers had switched accounts in the last three years, compared with 45% of consumers who had switched auto insurance provider.
That is little more than were switching before September 2013, when the seven-day switching service was launched.
It is thought that banks will have to prompt customers to consider switching to a rival when account holders suffer a problem, such as a loss of online service, the closure of a local branch or incurring unauthorised overdraft charges.
It said that overdraft charges are “complex” and information on product service and quality is limited, making it hard for customers to compare products.
The competition watchdog has ruled out breaking up Britain’s biggest banks and defended so-called free banking practices.
In addition, the CMA wants it to be easier for people and businesses to compare bank products, and the establishment of a new price comparison website for SMEs.
One headline conclusion from the 12-month investigation was that the “free if-in-credit” current accounts model should not be abolished.
“The CMA’s work complements the work the Government has already undertaken, and continues to take, to increase competition in banking and create a fiercely competitive market which delivers for consumers and the wider economy”.
Customers fear that switching their current account to a new bank will be complicated, time-consuming and risky, the CMA said.
Separate figures from the Current Account Switching Service showed that the number of people transferring their current account has fallen by 14% in the a year ago. “Credit reference agencies, banks and financial advisors are set to be told to embark on “better” sharing of information” to make it easier for SMEs to shop around for loans.
“Despite a few encouraging developments, particularly in the shape of challengers that have entered the market in recent years, for too long banks have been able to sit back and take their existing customers for granted”, said Alasdair Smith, head of the retail banking investigation for the CMA.
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The investigation also found that accounts which are expensive are not losing customers to cheaper and better alternatives at a rate that would be expected in a well-functioning market. The CMA will now consult and hold detailed discussions with all interested parties on the findings and possible remedies ahead of publishing its final report in May 2016.
