Out-Law News | 26 Oct 2015 | 11:37 am | 2 min. read
The UK's competition regulator has ruled out breaking up the biggest banks to improve competition for personal current account (PCA) and small business banking customers. Its provisional remedies, published as part of its ongoing investigation into the £16 billion market, are instead based around giving customers "control", it said.
Banks could instead be required to prompt customers to think about switching at certain 'trigger points', such as service outages or changes to account terms and conditions, the CMA said. It could also recommend upgrading Midata, the government-backed open banking data initiative, and require the industry to fund a "widespread and sustained" advertising campaign promoting the seven-day Current Account Switching Service (CASS), according to the regulator's provisional report.
"We think customers need to be put in charge of their banking," said Alasdair Smith, who is chairing the CMA's market investigation.
"Despite some encouraging developments, particularly in the shape of challengers that have entered the market in recent years, for too long banks have been able to sit back and take their existing customers for granted … We are considering a series of measures that will have a far-reaching impact on how banks operate and will empower accountholders to search for and switch to the account that suits them," he said.
Separately, the UK government has begun a public consultation exercise through which it intends to gather information about customers' experiences switching bank accounts and energy and telecommunications suppliers. Switching should be free for consumers in most cases and should only require the customer to deal with their new supplier; while customers should also be given access to consumption or transaction data in a format they can take to price comparison sites, according to the government's new 'principles' for switching.
The CMA began looking at competition between banks providing PCAs and SME banking services in July 2014, prompted by the results of a joint market study conducted with the Financial Conduct Authority (FCA). The regulators were concerned about low levels of switching by customers despite low satisfaction levels, and the high market shares held by a small number of providers.
Its in-depth investigation found that consumers remained reluctant to switch their current accounts to a new provider despite the existence of CASS; perceiving it as "complicated, time-consuming and risky". Only 3% of consumers switched PCA provider in 2014, while 57% have been with their current provider for more than 10 years and 37% for more than 20 years, the CMA said. The problems were even more pronounced among SMEs, which in 50% of cases chose the bank with which they held a PCA and in 90% of cases remained with the same provider even after the initial free banking period came to an end, according to the CMA.
PCA holders could save an average of £70 a year by switching provider, while those with heavy overdrafts could save up to £260 per year, the CMA said. It said that banks should do more to raise public awareness about the ease of switching through CASS, while SMEs could benefit from a dedicated bank account price comparison website and better sharing of information between credit reference agencies, banks and financial advisers.
"The interesting thing to come out of the CMA was that although the facilities and the technology are available to allow switching of bank accounts, very few people appear to be actually using them," said competition law expert Robert Eriksson of Pinsent Masons, the law firm behind Out-Law.com.
"We know that both at EU and UK level, policymakers are keen to drive more competition and innovation in banking. This can be seen from the recent Payment Services Directive 2 and HM Treasury proposals on opening up bank data to customers. The real question remains over how to prompt consumers to use the underlying services," he said.
The CMA intends to develop its proposed remedies through discussions with the banks and other interested parties over the coming months. It will publish its final report in May 2016, it said.