Watchdog plans to tackle current account and business banking problems


The competition watchdog will announce today how it plans to tackle problems in the £16 billion current account and business banking sectors.

The Competition and Markets Authority (CMA) previously found that banks do not have to work hard enough to compete for customers and they have been able to "sit back and take their existing customers for granted".

Its retail banking investigation will issue its provisional decision on remedies.

The CMA's probe into the dominance of the big banks found that current account customers could save up to £260 a year by switching to a better deal.

It said that despite seeing some evidence that some banks with larger market shares had personal current accounts which were more expensive and/or of a lower quality, just 3% of people switched their account in 2014.

Across the market generally, while current account customers could save themselves £70 a year by switching on average, people who use their overdraft heavily can save around £260 a year. Yet overdraft users are often the least likely people to switch.

The watchdog's proposed remedies have included requiring banks to prompt customers to review the service they are getting at certain "trigger points" - such as when their overdraft charges change or their local bank branch closes.

Other potential remedies could include requiring banks to help raise public awareness of, and confidence in, switching bank accounts and requiring better sharing of information with credit reference agencies, banks and financial advisers to make it easier for businesses to shop around for a loan. 

But consumer campaigners and challenger banks have said these proposals have not gone far enough.

The CMA provisionally rejected the idea of forcing a break-up of the banks, saying a lack of switching was the underlying problem.

The watchdog also provisionally decided not to bring an end to "free" if in credit current accounts. Around three-quarters of current accounts are of this type.

In reality, consumers do pay for these accounts, through overdraft charges and foregone interest that they could have received elsewhere.

According to figures in the CMA's previous findings, Britain's biggest four banks - Lloyds Banking Group, HSBC, RBS and Barclays - accounted for around 70% of active personal current accounts and 80% of active business current accounts in 2014.

Personal current accounts generated revenues of around £8.7 billion in 2014 across the industry, while business current accounts generated around £2.7 billion in revenues.

Looking at barriers to switching, the CMA's investigation found that overdraft charges were "complex" and information on product service and quality was limited, making it hard for customers to compare deals.

More than half (57%) of consumers had been with their account provider for more than 10 years and 37% for more than 20 years.

The CMA also said there was a particular problem with SME (small and medium enterprise) customers opening their business current accounts (BCA) at the same bank where they had their personal current account, then sticking with the same bank for their business loans.

It said the lack of competitive pressure in SME banking was highlighted by the fact that more than 50% of start-ups looking for an SME account chose the bank with which they had a personal current account, over 90% stayed with their BCA when the initial free banking period came to an end, and around 90% then went to their BCA provider when they were looking for business loans.