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CMA ups pressure on banks over lack of competition

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In its first joint work with the regulator, the Competition and Markets Authority is preparing the way for a consultation into the consumer detriment caused by lack of retail and business banking competition.

Research shows the biggest four banks still hold 77% of all retail accounts and 85% of business current accounts. Any investigation would focus on both the business account market worth £2bn and personal current account sector with revenues of £8bn a year.

Just three retail banks have launched recently to challenge the current account monopoly including Metro Bank, Tesco Bank and TSB on the retail side representing just a 5% market share. Just one entrant – Metro Bank – has launched into full-service SME banking.

The CMA is recommending a full investigation into the banking sector after it took over the work of the Office of Fair Trading and Competition Commission on 1 April.

Essential parts of the UK retail banking sector lack effective competition and do not meet the needs of personal consumers or small and medium sized enterprises (SMEs), two studies from the CMA have found.

Previous initiatives including making the authorisation regime for new banks simpler and faster, to making switching accounts easier have helped but problems remain, it said.

It concerns include the fact barriers to entry and growth for smaller banks are still too high and markets are still too concentrated in Scotland and Northern Ireland.

Research showed there is very little movement in the market share of the largest banks and customers find it hard to tell their services apart. Shopping around and switching accounts between banks remains low where customers might be expected to switch more readily to banks with better levels of customer satisfaction.

Limited transparency and difficulties for customers in making comparisons between banks remain, particularly on often complex overdraft charges on personal current accounts. This means that if consumers have no idea where the best services are, banks are less likely to compete for customers.

Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland Group have already offered ‘in principle proposals’ in a bid to stave off a full investigation.

The CMA is looking for further views from the banks on its own proposals including a promise the biggest banks will create a comparison website for current accounts to aid transparency. Other proposals include making it easier for commercial clients to switch bank accounts and offer more information to help them do so.

If these proposals are met, the CMA may decide against an investigation in the Autumn.

Alex Chisholm, CMA chief executive, said: “Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy.

“Our provisional view is that a full market investigation by an independent, expert CMA group is necessary to look at this market in detail and identify appropriate measures if competition concerns are found. However we very much welcome views, which we will carefully consider, before taking a final decision.”

Aldermore chief executive Phillip Monks said: “We welcome the CMA’s conclusions and strongly encourage the opening of a wider inquiry into competition in the SME lending market. It is imperative that we identify why the market is not working in the best interests of customers at present and this inquiry will be key to ascertaining the challenges and potential solutions to this issue.”

All views need to be sent to the CMA by 17 September 2014 to

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