The Office of Fair Trading (OFT) has launched a review into problems in the UK current account market.
The review will focus on the development of greater competition between bank account providers, the lack of transparency over bank charges and improving the current account switching process. The OFT plans to publish the findings of its review by the end of 2012.
Bank account switching investigated
The bank account review will look at whether initiatives agreed by the OFT with banks have been successful at improving the switching process, increasing the transparency of personal current account charges and allowing people to manage their accounts more effectively.
OFT director Claire Hart said: ‘Through this review we want to understand what progress banks have made in providing customers with better information about account charges, greater control over their accounts and easier account switching facilities.
‘More generally, we are concerned that a lack of effective competition means the retail banking sector is not working in the interest of customers and businesses. We want to see banks become more customer-focused and this will be the central theme of our programme of work going forward.’
Which? calls for banking reform
Which? has long called for banking reform measures, including:
The introduction of portable account numbers
Portable account numbers would boost consumer confidence in the switching process, encourage competition and make it easier to enable the smooth transfer of customers in the event of a bank takeover, merger or failure.
Some 43% of consumers say they would be more likely to switch their current account if they could keep the same account number. With an easier switching system, consumers could benefit if banks are forced to compete properly for customers. For example, new ‘challenger’ banks could provide targeted offerings such as a ‘week-long trial’ of a new current account.
Greater bank account competition
From next year the responsibilities of the current financial regulator, the Financial Services Authority (FSA), will be divided between the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
Which? thinks that the incoming PRA should be given a specific duty to promote effective competition in the interests of consumers. The PRA will have a goal of promoting ‘safety and soundness’ in the banking system, but unlike the FCA, there is no mention of competition in the PRA’s objectives.
Banking barriers to entry are too high
When only one new high street bank has so far launched in over 100 years (Metro Bank) it is obvious that barriers to entry are too high. Other recent new entrants tend to have either been backed by one of the ‘big five’ or have benefited from government sell-offs.
As a result of government bail-outs and mergers, the big five banks (Lloyds, RBS, HSBC, Santander and Barclays) have an estimated market share of 85% of the personal current account market and 67% of the mortgage market.