On 22 October 2015, the Competition and Markets Authority (“CMA”) published the provisional findings of its 18 month investigation into the UK’s £16 billion small and medium-sized enterprise (“SME”) and personal current account (“PCA”) sectors, and opined that UK banks are not being put under sufficient competitive pressure to adequately protect the interests of customers and innovate in the market.
The banking sector is largely dominated by four main players which make up 85% of the SME banking market and 77% of the PCA banking market. The CMA has pronounced that these banks, and others, are simply not working hard enough to compete for customers.
The CMA’s main concerns are that customers are not given sufficient information on alternative bank accounts available to them, and that there is an unsubstantiated but deeply engrained resistance to switching bank accounts. The CMA’s investigation revealed that 57% of consumers have stayed with their PCA provider for over 10 years, and 37% for over 20 years. Only 3% of customers switched their PCA in 2014 and only 16% researched alternative accounts. Additionally, over 50% of start-up companies looking for an SME account choose the bank with which they have a PCA.
The CMA’s preliminary proposals seek to support the notion that it should be, and customers should feel that it is, easy to compare competitors in the market and switch accounts confidently. They also aim to enforce the underlying principle of an efficient market by ensuring that the banks which offer the poorest deals, the worst service, and the highest costs should be faced with the prospect of losing their customers to their competitors.
With this in mind, some notable features of the preliminary list of remedies are as follows:
• Banks should be required to alert a customer to the availability of other banking service providers where that customer has been subjected to an inconvenience, such as the closure of their local branch or a loss of online services.
• The online Midata government tool, which exists to enable customers to compare banking service providers in light of their own specific financial data, should be upgraded for improved ease of use.
• An online SME banking comparison tool should be created; as such a program does not currently exist.
• A campaign should be funded to raise customer awareness of the Current Account Switch Service (“CASS”). This service, launched in 2013, facilitates the switching of bank accounts by automatically transferring all payments and direct debits from an old account to a new one within seven days, and by forwarding all payments into the old account into the new account for a period of 36 months.
However, the above proposals were criticised by challenger banks and business lobbies who believe no real shake-up can occur without a break up of the four main UK banks and an end to free in-credit banking. The particular concern is that whilst customers believe their personal banking is ‘free’, they remain oblivious of charges, forgone interest and other profits enhancers used by banks. Aside from a break up of the larger established players, less extreme measures proposed by challenger banks include greater transparency over these charges.
The CMA aims to publish its final report around April 2016 in which it will provide further detail on all of its proposals and expectations.