Will a banking investigation prove crunch time for the banks?

We’ve strongly supported the need for a full investigation into personal current accounts and have provided the CMA with evidence to show how retail banking is not working in the best interests of consumers leading to a lack of trust in the industry.

One of the strong indicators of poor competition is the historically low level of current account switching. The CMA used our customer satisfaction survey results to show that the banks which exhibit the highest levels of satisfaction ‘do not appear to be gaining significant market share – and, conversely, that those with relatively low levels of customer satisfaction have not significantly lost market share as a result.’ This is despite the introduction of the faster switching through the Current Account Switching Service more than 12 months ago.

We think that this is because people find it incredibly difficult to properly compare current accounts. The cost of each account very much depends on how you use it. And we know from our research that due to the confusing nature of overdraft pricing, people are unable to easily and accurately compare the costs based on their own personal use and may not be selecting the best account for their needs.

18-month banking investigation

The CMA will shortly appoint a group of independent members who will have 18 months to complete the investigation. During this time, we’ll be working to ensure that the CMA exposes the cost to consumers of a lack of competition in the market, and pave the way for reform.

To improve competition, we want the CMA to work with the other banking regulators (including the Financial Conduct Authority, and the new Payment Systems Regulator) to find ways to ensure banks improve customer service, and provide you with better quality products.

This includes making sure that new providers are able to drive innovation and competitive pressure. We also want current account comparison to be easier and clearer so better switching decisions can be made, as well as ways to help people control their overdraft usage. The CMA should also look at how ‘real consumers’ behave to understand what needs to be changed to make sure banking better serves its customers.

The end of ‘free’ banking

Lastly, some argue this investigation could result in the end of ‘free’ banking in the UK. We strongly disagree. Banking is not free for overdraft users and those with positive balances who potentially forgo interest that could have been earned in a savings account. The CMA’s analysis showed that banks earn £8.1 bn per year, or about £125 per personal current account. We believe that the introduction of an upfront fee would not necessarily result in greater transparency in charging, and might actually make it more difficult to compare accounts.

In the meantime, we’re also calling on banks to act now and seize the opportunity to put their customers’ interests at the heart of their business, whatever the outcome of this inquiry. They should aspire to meet consumer needs now and in future, innovate and improve service that exceeds expectations, and truly deliver a market that works for consumers. This will be crucial for trust to be rebuilt in banking.