Banks to be told to help customers find better deal

COMPETITION chiefs are recommending a number of “far reaching” changes to business and current account banking to make the market place work better for consumers.

After an 18-month investigation into the £16bn current account and business  banking sectors, the Competition and Markets Authority stopped short of calling for a break up of the big four banks – Barclays, NatWest, Lloyds and HSBC which dominate the sector – but found that they do not have to work hard enough to compete for customers.

Its remedies include forcing banks that raise charges or cut interest rates to help customers to shop around for a better deal. Serious IT failures, closures of local branches and major disputes with customers will also act as triggers forcing banks to tell savers that they could benefit by switching accounts.

It also says new free price comparison sites for SMEs and personal accounts should be brought in.

The investigation identified a number of competition problems in both the personal current account (PCA) and small and medium-sized enterprise (SME) banking markets. Low levels of customer switching mean that banks are not put under enough competitive pressure, and new products and new banks do not attract customers quickly enough.

There is a particular problem in SME banking where many SMEs open their business current accounts (BCA) at the same bank where they have their PCA, then stick with that bank for their business loans.

The CMA said 57% of consumers have been with their current account  provider for more than 10 years, and 37 per cent for more than 20 years.

Bank customers fear that switching their current account to a new bank will be complicated, time-consuming and risky. The Current Account Switch Service (CASS) was set up to make the process easier and is functioning reasonably well, but awareness and confidence remain low. Just 3% of customers switched their PCA in 2014 and just 16% looked at alternative accounts.

The CMA found that overdraft users are even less likely to switch PCAs than other users. Heavy overdraft users, in particular, could save up to £260 a year if they switched. On average, current account users could save £70 a year by switching.

The lack of competitive pressure in SME banking is highlighted by the fact that more than 50% of start-ups looking for a SME account choose the bank with which they have a personal current account, over 90% stay with their business account when the initial free banking period comes to an end, and around 90% then go to their current account provider when they are looking for business loans.

The CMA’s potential remedies include:

·     Requiring banks to prompt customers to review the service they receive from their bank through receiving individual messages at certain ‘trigger points’. These trigger points could include a loss of service, closure of their local branch, unarranged overdraft charges or a change in the terms and conditions of their account. In the case of SMEs a key trigger point could come at the end of free banking periods

·     Making it easier for consumers and businesses to compare bank products by upgrading Midata, an industry online tool, launched with the support of Government, that gives consumers access to their banking history at the touch of a button. Midata allows consumers to easily access their banking data from their bank and input it directly into a price comparison website which can then analyse their transactions, and alert them to available bank accounts which best suit their needs. An improved Midata could have a radical impact on consumer choice in retail banking markets

·     Requiring the creation of a new price comparison website for SMEs – currently nothing effective exists to fulfil this role

·     Requiring banks to help raise public awareness of, and confidence in, switching bank accounts, through increasing their funding for a widespread and sustained advertising campaign promoting CASS and improving the service it offers

·     Requiring better sharing of information with credit reference agencies, banks and financial advisors – making it easier for SMEs to shop around for loans and cutting out the need for multiple application form filling.

It added: “Structural remedies, such as forcing the break-up of banks, were also provisionally rejected as it was decided that they were not likely to be effective in addressing the competition concerns found. 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.”

Alasdair Smith, chairman of the Retail Banking Investigation, said: “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. We are considering a series of measures that will have a far-reaching impact on how banks operate and will empower account-holders to search for and switch to the account that suits them.”

Close