Big four banks face dominance probe


Published: Wednesday 5th November 2014 by The News Editor

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A major investigation into the dominance of Britain’s big four banks over the accounts of consumers and small businesses is expected to be announced tomorrow.

The Competition and Markets Authority (CMA) will confirm whether it has decided to press ahead with an inquiry into personal current accounts and small and medium-sized enterprise (SME) banking.

It has previously said that it is minded to launch a full-scale investigation, but it has given the “big four” – Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland (RBS) – the opportunity to come up with their own solutions.

Previous studies by the CMA have found that essential parts of the retail banking sector “lack effective competition and do not meet the needs of personal consumers or SMEs”.

The CMA has been consulting on a provisional decision that there should be an in-depth investigation into the current account market, which generates revenues of more than £8 billion, and SME banking, including the more than £2 billion business current account market and business loans.

Some 65 million active personal current accounts exist in the UK, while there are more than 3.5 million business current accounts.

The big four banks collectively supply more than three-quarters (77%) of the personal current account market in the UK, and the CMA has previously found that despite moves to make it easier to switch banks, the number of people who actually do so remains low.

The big four also account for more than 85% of business current accounts and 90% of business loans. The CMA has said that SME switching levels remain low, with just 4% changing their bank every year.

The CMA has been inviting views on proposals to remedy the suspected problems in the SME banking sector which have been put forward by Barclays, HSBC, Lloyds and RBS as a possible alternative to a market investigation reference being made.

These proposals would involve the banks giving undertakings to set up a comparison website to improve transparency as well as establishing new standards around account opening.

The CMA said in July that while it remained open-minded, “we provisionally consider that it would be more appropriate to conduct a full investigation than to accept these proposals”.

The watchdog, which has been collaborating with the Financial Conduct Authority (FCA) to gather evidence, has not commented on what the decision to be announced tomorrow will be.

But Sky News said it understood that the decision to proceed with a formal investigation was approved last month.

The CMA said in July that many customers see “little difference” between the largest banks in terms of the services they offer.

It has previously raised concerns that limited levels of transparency mean it is hard for customers to shop around between banks and make comparisons. Overdraft charges on personal current accounts in particular can be “complex”.

It is also possible that current accounts which are “free” as long as someone stays in credit involve some customers effectively subsidising others, which may also distort competition, it has said.

Customer satisfaction levels with the big four banks are around 60%, and banks with the highest levels of customer satisfaction have managed to make only very limited market share gains, which is not something that would normally be expected in a well-functioning, competitive market, the CMA has previously found.

An initiative to make it easier for people to ditch their old bank and switch to a new one was launched by the Payments Council in September last year.

The service has cut the length of time it takes to switch from up to 30 working says previously to just seven. Outgoing and incoming payments are automatically transferred over to the new account and the customer is guaranteed not to be left out of pocket if something goes wrong.

Figures released by the Payments Council have shown that more than 1.2 million current account-holders swapped to a new provider in the first year of the switching initiative, marking a 22% increase compared with the same period a year earlier.

There have been some signs of banks making stronger efforts to attract current account customers since the initiative was launched, with offers of cash to switch, accounts with relatively high rates of interest, and cashback incentives.

Some new players have also entered the market, with Marks & Spencer unveiling its first “free” current account and Tesco Bank also launching its first current account.

Published: Wednesday 5th November 2014 by The News Editor

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