CMA announces investigation into UK current accounts
Britain's high-street banks are facing an 18-month investigation by the UK's new competition watchdog.
Britain’s high-street banks are facing an 18-month investigation by the UK’s new competition watchdog, focussed on banking services for small businesses and current accounts.
The Competition and Markets Authority (CMA), formed in April, said there is a lack of competition amongst lenders and that proposals put forward to improve transparency and make switching banks easier did not go far enough.
“Our studies have found that despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks,” said Alex Chisholm, CMA chief executive.
The CMA has the power to order structural reform, such as breaking up dominant banks and order banks to change their behaviour to improve transparency.
Currently the UK’s banking industry is dominated by Royal Bank of Scotland, Lloyds, Barclays and HSBC.
According to the CMA, these four banks hold 77% of the 65m personal current accounts in Britain and 85% of the 3.5m business current accounts, as well as providing nine out of every 10 business loans.
The CMA is to make a final decision later in the year, giving banks 17 September to submit their views. However, the watchdog said it expected the investigation to go ahead.
The investigation proposals have been welcomed by so-called “challenger bank” Metro Bank.
Craig Donaldson, Metro Bank CEO, said: “We fully support the CMA’s announcement today and believe an investigation into the personal current account market and SME banking sector is indeed needed to create a level playing field, which in turn will create a competitive banking sector.
“As the first new high street bank in more than 100 years, we understand the challenges that new competitors face.
“While work has been done to improve this, we desperately need a level playing field that allows new entrants to come into the sector and win customers. Importantly, these new entrants should offer differentiated banking models that suit different customers’ needs; giving customers a choice is the key.”
The big four banks had attempted to fob the CMA off with proposals to set up a comparison website to increase transparency and make it easier for companies to switch banks, but the CMA is keen to press ahead with a full investigation.
Despite the UK Payments Council’s seven day switch initiative, rolled out 16 September 2014, the number of individuals switching their current account to another bank has actually fallen since 2012.
During 2012, 1.2m consumers switched their current account, but in 2013 that number fell to just over 1m and predictions based on data from the first half of 2014 see the total for the year falling short of 2012 again.
So far, Santander has been the main beneficiary of the battle to attract UK current account holders while NatWest and HSBC have lost ground, according to the monthly TNS Current Account Switching Index.
The TNS Current Account Switching Index was launched in September, and compares the percentage of customers switching towards and away from each of the major UK current account brands. In its April report, it found that Santander was the largest winner, gaining 23% of those switching their accounts. Other strong performers were Halifax (17%) and Nationwide (10%).