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The CMA: are the banks working for you?

A build your own bank kit

The Competition and Markets Authority recently recommended a competition inquiry into the banks. In this guest post, the CMA’s Alex Chisholm asks whether you think the industry should face a full inquiry.

Last week we announced the findings of two major studies into retail banking, both of which gave us cause for concern. We found that in two key areas – personal current accounts and small and medium size business (SMEs) banking – the market doesn’t appear to be working well and that the banks are not meeting the needs of their customers.

The banking sector is of critical importance to the UK economy. It affects virtually every household and small business in the country, with over 65m active personal current accounts holders and SMEs employing nearly 60% of the UK private sector workforce.

Retail banking concerns

Yet, despite a number of recent initiatives to make banking easier and faster, our studies have still identified a number of concerns, including:

Low satisfaction levels. We found that consumers are less satisfied with the ‘big four’ banks than they are with the smaller providers. Indeed, recent research from Which? showed that satisfaction levels with the ‘big four’ was less than 60%.

Yet despite this lower satisfaction, people aren’t shopping around and switching. The new seven-day switching service was launched in September last year making it easier and faster to switch, but only around 3% of personalcurrent account customers switched in the last year – even though this could result in significant savings for users of overdrafts.

People find it difficult to compare products and services offered by banks, particularly overdraft charges which are very complex. This makes it hard to choose the cheapest or most appropriate account. This is significant when 25m of us have overdrafts, of which we estimate 2m consumers pay over £400pa in costs

Challenging the ‘big four’: Banks still find they need an extensive branch network to be seen as a ‘proper bank’ for most customers, despite the undoubted growth in mobile/online banking.

As a result of all this and more, the retail market has remained largely static, with the ‘big four’ accounting for over 77% of the personal current account market.

Competition in the banking industry

We‘re now consulting on our provisional decision to launch an in-depth market investigation. Any such investigation would be carried out by an independent group of CMA panel members who would have order-making powers to remedy adverse effects on competition identified. We believe this would help to ensure that both you and SME businesses will benefit fully from really effective competition between banks.

Do you think the banking industry should face a full competition inquiry? If so, why? Submit responses to our consultation at retailbanking@cma.gsi.gov.uk before it closes on 17 September, and share your views below.

Which? Conversation provides guest spots to external contributors. This is from Alex Chisholm, chief executive of the new Competition and Markets Authority. All opinions expressed here are his own, not necessarily those of Which?.


In my experience of the banking industry most people are quite content with the status quo on the not unreasonable proposition “better the devil you know” rather than run any risk in moving to another Bank only to find that the special offer or the attractive tariff is chained shortly thereafter.

Perhaps more tellingly; whilst the gross amount of “savings” for the population to move accounts can be calculated in the multi-millions the benefit per account moved may well be trivial for the vast amount of customers.

Telling me 2m customers pay charges of over £400pa in costs is actually not very useful at all. If they move accounts will they only pay £380 in charges. I myself pay £300 a year in service charges – but then I choose to pay it for the services of a private banker. Does that suggest that I am unfortunate mug or that I want a level of service. Of course the bank I pay the service charge to also is the one where I have a mortgage at 0.38% OBR. Swings and roundabouts?

The SME market is indeed ripe for review however I am not sure the solution is in the remit of the CMA. The SME arena suffers because unlike our Continental cousins Bankers did not take a long term interest in the companies they offer banking facilities to. The German banking system could very usefully be studied on how to make SME much more effective in growing businesses.

The existence of a more blood-sucking City based route for growing SME’s is a major drawback compared to the German model. I speak as someone who has EIS interests and been in a companies raising finance through the City,

I note:
“We ensure that companies’ plans to merge don’t lead to significant reductions in competition.” I always like the word “ensure” as it promises so much. Any merger in any industry surely must be partly for the benefits of consolidating overlapping ranges. I suppose the word “significant” is the word that must be defined..

I have been following a conversation generated by Which? research on the wide variation in the costs of using different bank accounts. Banks were asked to cost a number of scenarios derived from actual account details. Two problems with that. First it is easy to be wise after the event. Second, would customers have been able to make those comparisons themselves? Far to difficult. Would mi data make it any easier? Many of those who incurred charges did not intend to. For others the alternative might have been a payday loan. Earlier OFT work indicated that charges were paid by the financially stressed. Could those customers switch accounts? NB these same customers would also have problems switching telecoms or energy suppliers. Recall a report by Claire Whyley (http://www.zoominfo.com/p/Claire-Whyley/56933698) for the erstwhile National Consumer Council “the poor pay more, get less”.