A full-scale investigation of the current account market has been launched by the competition watchdog after an initial probe earlier this year found it “lacked effective competition” and “did not meet the needs of customers”. MoneySavingExpert.com is calling for portable bank account numbers to ease the switching process.
The Competitions and Markets Authority (CMA) has today announced it will undertake the investigation as it “continued to have concerns about the effectiveness of competition in the sector”. (See our Best Bank Accounts guide to get the top deals.)
In the first set of full year figures since seven day current account switching became possible in September last year, just 1.2 million switches took place, according to the Payments Council, the banking trade body.
This is a tiny proportion of the approximately 65 million current accounts out there and was only a relatively small increase on the 985,600 switches completed in the previous 12 months, before seven day switching was introduced.
In its report, the CMA highlighted the following concerns:
- Low levels of customers researching the top deals and switching.
- Limited transparency and difficulties for customers in making comparisons between banks, especially relating to complex overdraft charges.
- Barriers to entry and expansion in the industry, which limits smaller and newer providers from developing their business.
- Very little movement over time in the market shares of the four biggest banks (Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland Group), which account for 77% of the industry.
Probe must remove 'hassle factor'
Martin Lewis, MoneySavingExpert.com founder, says: “The CMA has a tough job on its hands. For those in credit there is a natural disinclination to switch their day-to-day account – as the mark of success is that it works without you noticing it, which will make fixing this market tough.
"The people who face the real costs are those who are overdrawn – over two million people in the UK pay over £400 a year for their banking. Yet here the issue is that to change bank to a more competitive deal you need pass a credit check – and those already in debt fail this.
“There are things that can be done to overcome the hassle factor – portable bank account numbers, similar to the way the mobile phone industry works. The Midata project is already underway, where banks are being forced to provide individuals with their usage data, so the true cost of banking and a comparison with others can be done. MoneySavingExpert made a commitment to the Treasury that we would investigate launching a comparison tool to use this data once the banks provide it.
“The biggest problem for the CMA is many in the industry believe we should end the ‘fees free in credit’ banking and charge realistic fees to end the cross subsidy from the poorest who are overdrawn to the richest who aren’t. This would make a more transparent market, something many policymakers favour – yet they’d be brave to do it as it is incredibly unpopular with the public.”
Service poor among big providers
The CMA also says larger providers offer poorer service than smaller providers – with less than 60% customer satisfaction.
This confirms the results of our banking index, which show the big players consistently failing in comparison to competition from smaller brands, or more recent market entrants.
In August 2014, 8,000 people took part in our twice-yearly poll, which saw Barclays relegated to the bottom of the table. Only 36% of its customers rated its customer service as ‘great’ while 26% rated it as ‘poor’. Lloyds Bank, RBS and HSBC also ranked in the bottom half of the table.
HSBC subsidiary First Direct has topped every single service poll we’ve done and again secured the top spot, with more than 90% of its account holders rating its service as ‘great’. See the full Banking Service Index results.
Today’s decision to launch an investigation confirms its earlier announcement made in July (see the MSE news story: Current account market faces inquiry).
What do the banks say?
Anthony Browne, chief executive of the British Bankers' Association, says: "There are already substantial changes currently underway across the banking industry to strengthen competition, which improves choice and service for customers.
"Banks are pro-competition – they compete for business every day. This summer we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians."
Alex Chisholm, CMA chief executive, says: “After carefully considering the consultation responses, we remain of the view that there should be a full market investigation into the sector, conducted by a Market Reference Group (MRG) drawn from the CMA’s expert panel of independent members.
"The MRG will investigate in detail and decide what action, if any, may be needed to improve competition for the benefit of personal and small business customers."