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CMA tells the banks to put customers first

Written by: Adam Lewis
Banks are not working hard enough to compete for customers according to the Competition and Markets Authority (CMA).

An in-depth investigation into the £16bn current account and business banking sectors identified a number of competition problems in both the personal current account (PCA) and small and medium-sized enterprise (SME) banking markets.

Indeed the CMA found that only 3% of customers switched their PCA in 2014, while just 16% looked at alternative accounts. Over 10 years 57% of customers have been with the same PCA provider and 37% for 20 years.

“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,” stated the report.

According to the investigation bank customers fear that switching their current account to a new bank will be complicated, time-consuming and risky. Meanwhile, faced with complex charges, it found overdraft users, despite the fact they could save up to £260 a year by changing, are even less likely to switch PCAs than other users.

In response to the CMA has set out a list possible measures aimed at addressing these issues by increasing competition and securing a better deal for customers.

These potential ‘remedies’, which the CMA says it will develop over the coming months, 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.
  • 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.

Alasdair Smith, chairman of the retail banking investigation, said: “We think customers need to be put in charge of their banking. 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.”

Commenting on the investigation, Jayne-Anne Gadhia, chief executive at Virgin Money, said: “We welcome the report from the CMA today but believe its provisional findings do not go far enough to transform such an important market. It is estimated that interest foregone cost customers over £3bn in 2013 and we would like to see all banks being required to pay net credit interest on current account balances.”

Kevin Mountford, banking expert at MoneySuperMarket, added: “Unfortunately one of the key areas that hasn’t been tackled in great detail is the free in-credit current account model and helping consumers understand how this works. It would of been good to have seen some firm recommendations here so that consumers would get a better understanding about how they really pay for their current accounts via charges and other fees that banks apply.

“We know banks currently make between £7bn – £8bn a year this way, so they certainly aren’t free but unfortunately consumer awareness of this is probably quite low.”

The CMA will now consult and hold detailed discussions with all interested parties on the findings and possible remedies ahead of publishing its final report in May 2016. For a full list of the initial proposed remedies, visit here.

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