Big Four High Street banks stranglehold of current accounts to be probed by the The Competition and Markets Authority
Following an announcement in July, the CMA embarked on a consultation regarding its provisional decision to launch a market investigation. Considering the big four banks – Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland – have a 77 per cent share of the personal current account market between them it came as no shock that most respondents agreed that there should be a market investigation.
Having carefully considered the consultation responses, the CMA continues to have concerns about the effectiveness of competition in these sectors and has decided to make a market investigation reference.
Concerns raised included low levels of consumers shopping around and switching accounts, even though on the 16th September 2013, the Payments Council launched a new account switching service – the Current Account Switch Service.
Banks also stand accused of limited transparency, making it difficult for consumers to make comparisons between banks, particularly for complex overdraft charges on personal current accounts. In the first six months of 2014, The Financial Conduct Authority received 319,505 complaints about current accounts, 11 per cent higher than the same period last year.
If you dislike a bank or have had issues – even with the switching service – consumers feel trapped, feeling there is little to no difference between banks on the high street. The big four banks hold 85 per cent of business current accounts and provide 90 per cent of business loans, with only 4 per cent of accounts being switched.
The lack of new banks entering the market place could be blamed on continuing barriers to entry and expansion within the sector This has an adverse affect for consumers limiting the ability of smaller and newer providers to develop their businesses and compete with the 4 largest banks, which provide over three-quarters of personal and business current accounts
Alex Chisholm, CMA Chief Executive, said: “Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy.
Mr Chisholm continued: “After carefully considering the consultation responses, most of which supported a market investigation, we remain of the view that there should be a full market investigation into the sector, conducted by a Market Reference Group drawn from the CMA’s expert panel of independent CMA members.
“The Market Reference Group will investigate in detail and decide what action, if any, may be needed to improve competition for the benefit of personal and small business customers.”
The group will be appointed shortly and will publish a timetable for the various stages of the investigation and develop and consult on an issues statement, which will set out the investigation’s proposed focus.
The CMA has also decided to conduct a review of the competition undertakings put in place following the Competition Commission’s (CC) report in 2002 into small and medium-sized enterprise (SME) banking, in order to examine whether any change of circumstances since then warrant their being varied or terminated. This review will be conducted alongside the market investigation by a group composed of the same panel members as those conducting the market investigation.
The British Bankers’ Association said that advances in technology and the greater use of the internet are helping to shake up banking, with the number of branches that a bank physically has on the high street being less significant than previously in terms of how many customers it is able to attract.
It said while branches can still play an essential role, they are not the barrier to growth that they once were and newer players such as M&S Bank and Tesco Bank as evidence of the changing face of banking.
Anthony Browne, BBA chief, said: ‘All the banks will co-operate fully with any investigation. There are already substantial changes currently under way across the banking industry to strengthen competition, which improves choice and service for customers.
‘Banks are pro-competition – they compete for business every day.’