The competition watchdog has decided against recommending an end to “free” in-credit banking or forcing the break-up of big banks to improve competition in UK banking sector, but has recommended measures to simplify account comparisons.
The Competition & Markets Authority said that banks must address long-term problems and make it easier for customers to take charge of their accounts.
The watchdog found that banks are not being put under enough competitive pressure in the current account market and customers could typically save £70 by switching.
The CMA, which released its provisional findings of a probe into the dominance of the big banks in the sector, found that 57 per cent of consumers have been with their account provider for more than 10 years and 37 per cent for more than 20 years.
Bank customers fear that switching their current account to a new bank will be complicated, time-consuming and risky, the CMA said.
The CMA found that customers with an overdraft are less likely to switch their personal current account than other users.
Heavy overdraft users in particular could save themselves up to £260 a year if they switched, the investigation found, while on average current account users could save £70 a year by switching.
It said that overdraft charges are “complex” and information on product service and quality is limited, making it hard for customers to compare products.
The CMA also said there is a particular problem with SME (small and medium enterprise) customers opening their business current accounts (BCA) at the same bank where they have their personal current account, then sticking with the same bank for their business loans.
It said the lack of competitive pressure in SME banking is highlighted by the fact that more than 50 per cent of start-ups looking for an SME account choose the bank with which they have a personal current account, over 90 per cent stay with their BCA when the initial free banking period comes to an end, and around 90 per cent then go to their BCA provider when they are looking for business loans.
Potential remedies being suggested by the CMA to help include:
:: Requiring banks to prompt customers to review the service they receive from their bank through receiving individual messages at certain “trigger points”. These 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, a Government-backed online tool that allows consumers to access their banking data from their bank and compare their existing deal with other accounts which may suit their personal needs better. An improved Midata could have a “radical impact” on consumer choice in retail banking markets, the CMA said.
:: The creation of a new price comparison website for SMEs - currently nothing effective exists to fulfil this role, the investigation found.
:: 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.
:: Requiring better sharing of information with credit reference agencies, banks and financial advisers - making it easier for SMEs to shop around for loans and cutting out the need for multiple application form-filling.
The watchdog said previously that there has been “very little movement” in the market shares of the four largest banks, which are Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland (RBS).
It said that the big four banks collectively supply more than three quarters (77 per cent) of the personal current account market in the UK, as well as more than 85 per cent of business current accounts and 90 per cent of business loans.
The CMA is expected to publish a final report into the market in April 2016.