The UK's competition watchdog wants to make it easier for consumers and small businesses to compare products and services and switch accounts after deciding that the country's biggest financial institutions do not have to work hard enough to compete for customers.
Publishing its provisional findings as part of an in-depth investigation into the £16 billion current account and business banking sectors, the Competition and Markets Authority (CMA) stopped short of suggesting a breakup of the banks, declaring: "The problems in the market are unlikely to be resolved by creating more, smaller banks; it is the underlying issue of lack of switching which has to be addressed."
The CMA investigation found that current account customers are faced with complex overdraft charges and limited information on product and service quality, which, along with limited effective comparison tools, and an ineffective switching service, makes it difficult for them to know what they are paying and to compare banks and products.
Remedies to the problem include forcing banks to invest more in the Midata comparison tool that gives consumers access to their banking history at the touch of a button. Banks should also be required to prompt customers to review the service they receive by automatically informing users of a loss of service, closure of their local branch, unarranged overdraft charges or a change in the terms and conditions of their account.
The CMA has additionally proposed the creation of a new price comparison website for small businesses and better sharing of information with credit reference agencies, banks and financial advisers - making it easier for SMEs to shop around for loans and cutting out the need for multiple application form filling.
Alasdair Smith, chairman of the retail banking investigation, says: "Despite some encouraging developments, particularly in the shape of challengers that have entered the market in recent years, for too long banks have been able to sit back and take their existing customers for granted.We don’t think that customers will truly benefit from a more competitive marketplace until they can compare accounts more easily and feel confident that they can switch without risk, and that is why our provisional remedies are aimed at giving customers control."
The absence of a more radical plan of action has been criticised by consumer groups. “The CMA’s own evidence is that consumers are disengaged from the banking market, so better information and nudges to switch will not be enough,” says Richard Lloyd, executive director of Which?. “The regulator now has six months to find more radical ways to promote switching, improve information for consumers and punish those banks who fail to treat customers fairly.”
The CMA's push to open up competition in the market has, however, been applauded by challenger banks. Sophie Guibaud, VP of European expansion at Fidor, comments: "In the future, we believe that more people will end up switching their banking services to different providers when they see clear differences in the offers available to them. With new banks coming to the market with more innovative and targeted offerings, the percentage of people switching services will likely increase."