22nd Oct 2015 06:50
LONDON (Alliance News) - The UK's competition watchdog on Thursday ruled out any major structural reform of the UK retail banking market, and said there should be no end to free if-in-credit banking.
The provisional findings of the investigation, which examined the supply of personal current accounts and of banking services to small and medium-sized enterprises, had been highly anticipated after the probe was confirmed by the Competition and Markets Authority in November 2014.
Big structural changes, such as forcing the break-up of large retail banks, have been provisionally rejected, according to the CMA, which said that it was decided that such a radical step would be unlikely to address the competition concerns it honed in on. The CMA said there was "no convincing evidence" that free if-in-credit accounts distort competition.
In parallel, the CMA said that creating new, smaller banks would be unlikely to to resolve its competition concerns. The competition watchdog said that the "underlying issue" of a lack of switching between account providers that must be addressed.
"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," Alasdair Smith, chairman of the retail banking investigation, said in a statement.
Under the CMA's list of potential remedies, banks could be required to prompt customers to review their service and to raise public awareness of switching.
In addition, the CMA wants it to be easier for people and businesses to compare bank products, and the establishment of a new price comparison website for SMEs. Credit reference agencies, banks and financial advisors are set to be told to embark on "better" sharing of information" to make it easier for SMEs to shop around for loans.
The CMA said that low levels of customer switching mean that banks don't face enough competitive pressure in the GBP16 billion current account and business banking sectors. It said also that new products and new banks do not attract customers quickly enough.
One particular issue raised by the CMA is that many SMEs open their business current accounts at the same bank where they hold their personal current accounts, which causes them to stay with the same lender for their business loans. More than 50% of start-up companies looking for a SME account choose the bank where their owners hold their personal current accounts.
The CMA said that people who use an overdraft to borrow from a bank are even less like;y to switch from their personal current account provider. "Heavy overdraft users, in particular, could save up to GBP260 a year if they switched. On average, current account users could save GBP70 a year by switching," the CMA said.
According to the case website for the retail banking investigation, the final report is to be published in April 2016.
The four largest UK banks - Barclays, HSBC, Lloyds, and Royal Bank of Scotland - in 2014 held more than 70% of personal current accounts and between 80% and 85% of business current accounts.
By Samuel Agini; [email protected]; @samuelagini
Copyright 2015 Alliance News Limited. All Rights Reserved.
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