Lack of retail banking competition sparks investigation

First published by Admin on August 05, 2016 in the following categories: Latest and tagged with cma

In 2014, the Competition and Markets Authority launched an investigation into the personal current account and the small and medium sized enterprises of the retail banking sectors.

The reasons for the investigation were: concerns raised about the low level of customers shopping around and switching banks; customers having difficulty in comparing banks due to lack of transparency; limited entry of new banks to the market;  expansion within the sector which prevented smaller providers being able to develop; and the four largest banks market shares moving very little.

It is believed that competitive pressures are weak, so banks do not have to work as hard on prices or the quality of their service. The Competition and Markets Authority (CMA) want banks to work harder for their customers.

Competition is weak

Due to lack of transparency with banks, customers do not know if they are getting a good deal or not, and feel the process of switching banks is too complex. This has meant that over 90% of small and medium enterprise loans are from the banks in which they have their current account with, and that personal current account owners have stayed with the same bank for over 10 years, according to the reports.

As the market is dominated by a small number of large banks, together with the issue of the lack of transparency, banks do not have to work as hard in pricing or service quality. As customers generally stay with banks for a long period of time, competition pressure is weak for the dominating banks. In order to fix this problem, the Competition and Market Authority believe that splitting up the big banks and making banking more transparent should rectify this issue.

Remedying competition issues

In remedying the competition issues with the ideas put forward by the Competition and Market Authority (CMA), this should hopefully change the weak competition by encouraging expansion and further entry into the market, and also help customers to be more informed when it comes to banking.

Providing the customers with more useful information is a good proposal by the CMA as this would provide customers with the tools to be able to find which account providers are best value, and suit their needs the best. Online comparison tools are being encouraged as well to allow switching between banks easier for customers, as well as giving them confidence and knowledge of the switching process.

The CMA are looking to do this through the introduction of an Open Application Programming Interface banking standard. This would allow customers to share their transaction history securely with other banks in order for customers to find the right bank account that offers them the best deal.

This should also help small and medium enterprises receive a better banking service as it allows them to shop around and not just use the bank they use for their personal account. If the system was to become more transparent, this would give small and medium enterprises, and personal current account holders, the ability to shop around and consider other banking offers.

The CMA is hoping that these suggestion should hopefully remedy the lack of competition within the banking market.

Our Competition Lawyers welcome the ideas!