A SHAKE-UP of UK banks has moved a step closer after the competition watchdog warned customers and small businesses are getting a raw deal.
Options on the table include banning complex fees, capping overdraft charges and forcing banks to allow smaller rivals to use their branch networks or payment systems.
The Competition and Markets Authority has also not ruled out ordering a break-up of the the so-called ‘big four’ - Lloyds, HSBC Barclays and Royal Bank of Scotland.
In a move which could prove less popular with consumers, the CMA has also suggested that free personal accounts which banks pay for through income generated elsewhere may distort competition and introducing charging could improve transparency.
CMA chief executive Alex Chisholm said: “Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy.
“However, our studies have found that, despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks.”
Two studies published by the CMA found that it is difficult for new banks to enter the market, there is little shopping around by consumers, customers find it hard to compare banks and there is little change in banks’ market share.
The largest four banks account for 77 per cent of personal current accounts, 85 per cent of business current accounts and 90 per cent of business loans in the UK.
Richard Lloyd, executive director of consumer group Which?, said: “For too long customers have been getting a raw deal from the biggest high street banks, so a full inquiry into the current account market is welcome, if long overdue.
“While there have been encouraging signs of change from some banks, we need to see a revolution in customer service and much better, easily comparable products if more people are to be convinced that it’s worth switching accounts.”
Labour has previously promised to break up the big four to create new “challenger” banks.
Shadow Chancellor Ed Balls said: “Ed Miliband and I have repeatedly called for an inquiry into bank competition, so it’s welcome that the Competition and Markets Authority is now set to start this work later this year.
“Ministers claim there is no problem to solve, but everyone else recognises that we have a lack of competition in our banking sector.”
The announcement was also welcomed by the Government.
Business Secretary Vince Cable said: “This is an issue that really matters for the real economy - constraints on banking competition mean less choice for both consumers and small businesses seeking finance to grow.”
The CMA has now begun a consultation ahead of launching a full-scale inquiry into the banking sector.
Anthony Browne, chief executive of the British Bankers Association, said: “There are substantial changes currently under way across the banking industry to strengthen competition - which improves choice and service for customers.
“Banks are pro-competition - they compete for customers every day. Last month we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians.”