22nd October 2015
Current account customers could save around £70 a year by switching provider according to the Competition and Markets Authority.
Following an 18-month investigation into the £16bn current account and business banking sectors, the regulator has concluded that presently the market is not operating at a competitive enough level.
Its investigation has identified a number of problems in both the personal current account (PCA) and small and medium-sized enterprise (SME) banking markets.
It discovered that accounts, which are more expensive and below average quality are not losing customers to cheaper and better alternatives at the rate that would be expected in a well-functioning market.
The CMA found that 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.
It added that there is a particular problem in SME banking where many firms open their business current accounts (BCA) at the same bank where they have their PCA, then stick with that bank for their business loans.
Overall 57% of consumers have been with their current account provider for more than a decade and 37% for more than 20 years.
It said that customers with current accounts are faced with complex overdraft charges and limited information on product and service quality, which, along with limited effective comparison tools, makes it very difficult for customers to know what they are paying and to compare banks and products.
While the Current Account Switch Service (CASS) was set up to make the process easier and according to the CMA is functioning reasonably well, it added however that awareness and confidence in the system remain low. Only 3% of customers switched their current account 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.
Alasdair Smith, chairman of the retail banking investigation, said: “There have been long-standing concerns about the retail banking market, where many customers could save money and get better services by switching accounts. This investigation was an opportunity to take a detailed and independent look at the sector.
“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.”
The CMA has published an initial list of remedies, which sets out possible measures aimed at addressing these issues. These include:
Commenting on the CMA’s provisional findings, Andrew Hagger of Moneycomms said: “We may well have a slick and efficient current account switching mechanism in place, however until something is done to make it easier for people to compare accounts and identify one that matches the way they run their day to day finances people will remain reluctant to move banks.
“The crux of the problem is that people simply don’t have the confidence to uproot their banking relationship because they don’t know which account to move to – the array of different in credit and overdraft tariffs is so confusing many don’t bother no matter how slick and polished the switch process has become.”