The UK’s big banks have been given until the autumn to find ways to increase competition in the personal current account market or face a full-scale inquiry by the Competition and Markets Authority.
A report by the CMA found that UK retail banking is still not serving the needs of small business and personal account customers, despite moves to make switching easier and remove barriers for new banks looking to enter the market.
It has taken a ‘provisional view’ that a full market investigation will be necessary, though it will consult on the issue and give the ‘Big Four’ banks, Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland, a chance to find their own solutions before embarking on such an inquiry.
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Current account switching
The report found that the levels of switching and shopping around in the current account market are ‘not what would normally be expected in well-functioning, competitive markets’.
Switching is on the increase due to the introduction of the Current Account Switch Service (CASS) but switching levels are still much lower than in other markets.
Meanwhile customers continue to find it difficult to make comparisons between the accounts on offer, particularly on complex overdraft charges.
The CMA pointed out that Which? customer satisfaction levels for banks were below 60% and the ‘Big Four’ banks, who together control 77% of the current account market, were not being placed under enough pressure to deliver a better service to customers.
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Current account market
The report also found significant barriers to entry exist for new providers looking to shake up the market. Despite the fact that less capital was now needed to start up in the industry, it was still proving difficult for new providers to get off the ground.
There was “very little movement” in the market share of the largest banks and many customers saw little difference between the largest banks in the services they offered, the CMA said.
Customer service ‘revolution’
Which? executive director Richard Lloyd said: “For too long customers have been getting a raw deal from the biggest high street banks, so a full inquiry into the current account market is welcome if long overdue.
“While there have been encouraging signs of change from some banks, we need to see a revolution in customer service and much better, easily comparable products if more people are to be convinced that it’s worth switching accounts.
“The CMA must now get to the bottom of why this market is not working for consumers, but the banks should not waste any time in making changes to put the interests of their customers first.”
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