The big four banks in the UK, have control of the majority of the market. Do we not already know that without real competition services and products suffer?
The UK’s Competition and Markets Authority (CMA) works to promote competition for the benefit of consumers, both within and outside the UK. Its mission is to make markets work well in the interests of consumers, businesses and the economy. The CMA’s announced yesterday that it has started an investigation into the big four banks – Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland – because the CMA continues to have concerns about the effectiveness of competition in these sectors do we really need an investigation to be told the obvious?
It does not take a rocket scientist to come to the conclusion that banks have a captive market in the UK, and no matter how you wrap it up it is obvious that this has a detrimental affect for consumers. The CMA claims it has concerns, but Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland have had a stranglehold over the market for decades.
My concern is as banks got bigger they only ever only had to compete against themselves which led to them becoming lazy and uncompetitive. Banks are like sheep. If one drops a rate, or another offers a 4 year interest free credit card balance transfer all follow suit. It is very difficult, if not impossible to actually find any significant differences between the big four.
But, for all the negatives opinions about banks there still continues to be a misconception by consumers that they need to appear loyal towards banks when taking out products, such as loans and mortgages. It amazes me how many people are offered mortgages with a bank, yet feel compelled to accept offers to take out their home and contents cover, life and other protection insurance products at the same time.
It is a against the law to only offer a product under the condition you take out their insurance, but consumers feel that they don’t want to risk losing a mortgage or loan by looking elsewhere for a far superior product at a fraction of the price. Obviously there is a certain generation who will always buy everything through the bank as that is the way they have been brought up to trust banks.
Take the recent case where a lady had a renewal from her bank for her home and contents insurance. The renewal quote was £650 and looking at previous premiums the bank had been charging in excess of £500 for many years. When I looked at the policy I found the same cover with other respectable insurers for around £150 to £200 per year.
When the bank was informed she wanted to go elsewhere the bank offered to match her new quote. Now, I don’t know about anybody else, but if a bank or insurer was willing to knock nearly £500 off a renewal I’d feel ripped off, not just for the renewal but for all those previous years.
I also hear stories where consumers are offered far superior policies or products from independent financial advisers for a lower premium but the consumer won’t move away from the bank. Excuses include: well we have only had the mortgage just over a year and we don’t want to upset the bank by moving our insurance.
Unlike banks, advisers have to work dammed hard to gain new business and are not in the fortunate position like banks where potential new customers are continuously walking through their doors. Just think about it for a minute. Can you name the last time you went into a bank where the cashier did not try to sell you a product or service?
Because of this very reason consumers pay higher premiums for certain types of insurance than they could get on the high-street or through and adviser not associated with a bank. The problem is not just current accounts. For consumers to get a genuine fair deal and for banks to improve their services and products there would have to be a significant change where the market is fully opened up.
Take David Fishwick who became a people’s champion when he tried to open a bank in Burnley, ‘Bank on Dave’. Even though everybody could see what he was trying to achieve he hit brick wall after brick wall. If Mr Fishwick had a spare £50 million or so he could have stood a small chance of opening an official bank, but in the end he had to accept second best.
Bank of Dave is actually not a bank because the laws regulating the sector stop him from calling himself a bank. The result was a “bank” thwas not a bank and was in fact a The Burnley Savings and Loans Ltd, a Peer to Peer lending system backed by an insurance policy. The show which featured Mr Fishwick’s attempts to open a bank showed just how difficult it is to get a foot in the door.
The problem with the CMA’s investigation is what can really be done as ‘Bank of Dave’s’ are not going to change the world overnight? You can’t force a new player into the market with any clout to to take on the big boys. The only option is to break up the big four banks, but I think it’s safe to say that won’t happen and it would be even worse for consumers if banks were nationalised.
I genuinely welcome the review into the banks but I believe the result is a forgone conclusions. Nothing will change.