Big banks still control current account market

The Office of Fair Trading (OFT) said “further significant changes” are needed to reduce their dominance in the £9bn personal current account (PCA) market.

But the regulator decided not to refer the issue to the Competition Commission, saying imminent changes in the pipeline should improve competition.

The OFT probed current accounts in 2008, but said since then, big banks’ dominance has increased, while new competitors remain rare.

“Personal current accounts are critical to the efficient functioning of the UK economy,” said OFT chief executive Clive Maxwell.

“Despite some improvements, this market is still not serving consumers as well as it should.”

In 2008 the OFT said the combined share of the PCA market by Britain’s big four banks – Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC – stood at 64 per cent.

The government brushed aside competition concerns when it allowed Lloyds to buy Halifax Bank of Scotland in 2009.

The big four banks’ PCA share rose to 77 per cent in 2010, largely down to the Lloyds/HBOS merger, and is now about 74 per cent.

Lloyds now accounts for almost twice the PCA share of the second largest provider, RBS.

However, Spanish-owned bank Santander now has a market share of 11 per cent, similar to HBOS before the crash, thanks to buying Bradford & Bingley and Alliance & Leicester.

The Independent Commission on Banking cited the current account market’s concentration as a key concern in 2011.

Lloyds is being forced to dispose of 630 branches, known as Project Verde. These are being sold to the Co-operative, which Lloyds says will then have almost seven per cent of the PCA market.

However, the Co-op this week said it is closing 37 branches ahead of the Verde acquisition.

This includes branches in Bradford and Hull, as it erases the Britannia brand from the high street.

Lloyds said in a statement: “Lloyds has been at the forefront of developing the proposal for the world-leading seven day switching service which will launch in September 2013 and we are confident this will shake up the current accounts industry. Alongside this, the creation of TSB and significant improvements to transparency will also bring further competition and innovation to the market this year.”

RBS is currently looking for a new buyer for 316 branches and 1.7m retail customers, equivalent to two per cent of the retail banking market, after a deal with Santander fell through.

‘Challenger’ brands include Marks & Spencer, Tesco Bank, Metro Bank and Virgin Money, which bought Northern Rock. However, their progress in the PCA space has been slow.

The OFT said there have been some improvements. It estimates people have saved up to £928m a year from the fall in unauthorised overdraft charges between 2007 and 2011, although it said overdraft charging structures remain “too complex”. It hopes a new automated PCA switching service, plus more transparency over costs, will improve competition.

But the OFT found comparing the costs of current accounts is “challenging” and people are not confident in the switching process. Lack of competition, limited innovation and customer apathy mean the PCA market is “not working well for consumers or the wider economy”, it said.

Which? executive director Richard Lloyd said: “If the reforms under way do not quickly make a real difference to consumers, the whole of retail banking must be referred to the Competition Commission without any further delay.”

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