CURRENT account customers could save £260 by switching to a different bank – but just three per cent made the move last year, the competition watchdog has found.
The Competition and Markets Authority (CMA) said banks had been able to “sit back and take their existing customers for granted”.
An investigation into the dominance of the big banks suggested some with larger market shares offered more expensive and lower quality services, but more than half of customers had been with the same bank for over 10 years and over a third for over 20.
Customers were not flocking to cheaper and better alternatives at the rate that would be expected in a well-functioning market, the CMA found.
Lloyds was gaining personal current account customers, despite having above average prices and below average satisfaction ratings.
The CMA’s analysis, which used satisfaction ratings from consumer group Which?, also found that the Royal Bank of Scotland, Bank of Scotland, NatWest, and the Co-op had above average prices but below average satisfaction ratings.
Meanwhile, Santander, Nationwide Building Society, Metro Bank and First Direct were found by the CMA to have costs below the market average, while offering quality which was above average.
Customers could save £70 a year by switching and around £260 if they use their overdraft heavily – yet overdraft users are often the least likely to switch.
The watchdog, which will publish a final report into its investigation into the £16bn current account and business banking sectors next April, suggests requiring banks to prompt customers to review the service they are getting at “trigger points” – such as when their overdraft charges change.
But consumer campaigners and challenger banks have said the proposals do not go far enough. The CMA stopped short of forcing a break-up of the banks, saying a lack of switching was the underlying problem. It has also provisionally decided not to bring an end to “free” if in credit current accounts, which account for around three-quarters of current accounts. In reality, consumers do pay for them through overdraft charges and foregone interest.
Andrew Tyrie, chairman of the Treasury Committee, said: “Free-in-credit banking is a con trick and it is disappointing that the CMA have decided that it should be allowed to continue.
“It seems reasonable that millions of customers should be allowed to know how much they are being charged for having a bank account.”
According to the report, Britain’s biggest four banks – Lloyds Banking Group, HSBC, RBS and Barclays – accounted for around 70 per cent of active personal current accounts and 80 per cent of active business current accounts in 2014. The personal sccounts generated revenues of around £8.7bn in 2014 across the industry, while the business accounts generated around £2.7bn.
Which? executive director, Richard Lloyd, said: “These proposals don’t go far enough.
“The CMA’s own evidence is that consumers are disengaged from the banking market, so better information and nudges to switch will not be enough.”
Nick Kennett, director of financial services for Post Office Money, said the report was “disappointing and misses the opportunity of making significant change to the current account market”.