UK banks face full-scale competition probe
Big banks face threat of being broken up.
The Competition and Markets Authority (CMA) is calling for a full-scale inquiry into the UK banking sector.
The market watchdog said essential parts of the market lacked ‘effective competition’ for personal and business customers.
It has now opened a consultation on its proposal inviting views until 17th September, with the final decision on whether to go ahead with a full market investigation announced later in the autumn.
If the market is found to be lacking sufficient levels of competition, big banks face the threat of being forced to divest parts of their business, breaking their stranglehold on the market.
Major problems
The CMA said the UK’s ‘big four’ banks have a 77% share of the personal current account market.
It said the dominance of the largest banks had remained unchanged other than through mergers and acquisitions, despite new initiatives like the Current Account Switch Service, reforms in requirements for new banks and general customer dissatisfaction.
The CMA found just 3% of customers were moving banks each year which indicates we see little difference between them.
Another concern was the lack of new and smaller banks into the market, particularly in Scotland and Northern Ireland. New entrants like Metro Bank, Tesco Bank and TSB had a combined market share of just 5%, where TSB (after its split from Lloyds) represents 4.2%.
The CMA is also worried about a lack of transparency making it difficult for people to make comparisons between banks, in particular on overdraft charges. The watchdog suspects there is a degree of ‘cross subsidy’ where the ‘free-if-in-credit’’ model is offset by other charges.
Industry reaction
The British Bankers' Association (BBA) has said the industry would fully cooperate with the review and any subsequent investigation but that "substantial" changes were already underway to strengthen competition.
Anthony Browne, chief executive of the BBA, said: "Banks are pro-competition - they compete for customers every day. Last month we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians."
Ideas in the proposal included the introduction of a price comparison website, to help consumers switch accounts more easily. But the CMA said it would prefer a full-scale inquiry.
Alex Chisholm, CMA Chief Executive, said the competition in banking markets was essential to the success of the UK economy.
“Our provisional view is that a full market investigation by an independent, expert CMA group is necessary to look at this market in detail and identify appropriate measures if competition concerns are found. However we very much welcome views, which we will carefully consider, before taking a final decision.”
Past probes
This isn’t the first time personal current account market has faced a probe.
There have been several attempts to investigate why competition isn’t working effectively dating back to March 2000.
But despite some positive developments like quicker and easier account switching, the same problems keep emerging.
However, the new power of the CMA, which took over the functions of the Competition Commission and the Office of Fair Trading, could bring about more reforms than other probes have managed so far.
However, we're in for a long wait with investigations typically lasting 18 months once they're off the ground.
More on banking:
How to switch your current account in seven days
The winners and losers of the current account switch
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