There was more bad news for banks this morning after the Competition and Markets Authority confirmed that a full competition enquiry will be launched into current account and small business banking markets.
The investigation had been mooted in July, so today's announcement came as little surprise.
It will look into the difficulties customers face in switching banks, and the lack of smaller competitors to the "big four" High Street names.
The CMA confirmed it has launched a full enquiry into current accounts because of low levels of switching, limited transparency, and barriers to entry. But, crucially, the CMA says there's been very little movement over time in the market shares of the 4 largest banks.
Alex Chisholm, CMA chief executive, said: "Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy.
"After carefully considering the consultation responses, most of which supported a market investigation, we remain of the view that there should be a full market investigation into the sector, conducted by a Market Reference Group drawn from the CMA's expert panel of independent CMA members.
"The Market Reference Group will investigate in detail and decide what action, if any, may be needed to improve competition for the benefit of personal and small business customers."
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The authority also said it would review the 2002 report by its predecessor, the Competition Commission, to see if its findings were still relevant.
The move was widely welcomed this morning. Richard Lloyd, Which? executive director, said: “Today’s decision means it’s now crunch time for the biggest banks that dominate a market blighted by a lack of trust and poor customer service.
“We want the Competition and Markets Authority to expose the cost to consumers of a lack of competition in the current account market and to pave the way for reform. In the meantime the banks should seize the opportunity to demonstrate that they can put their customers’ interests back at the heart of their business, whatever the outcome of this inquiry.”
David Mann, head of money at uSwitch.com, said: “This is an important first step towards fixing the many ailments of Britain’s broken banking sector. True competition is needed to break the big four’s oligopoly over our bank accounts. However, the two years that a full investigation is likely to take is too slow and more needs to be done to help consumers in the here and now.
“The iron grip held on the current account market by the big four banks has bred a culture of complacency. Consumers can see virtually no difference between the services offered by different banks and, as a result, dissatisfaction levels are running high. We will only know that competition is working effectively when banks start putting customers at the heart of their business strategy."
John Allan, national chairman of the Federation of Small Businesses, welcomed the fact that the probe will include SME banking.
“The CMA is right to put business banking under the microscope," he said. "As the CMA's initial report showed, the market has a number of unwelcome features. It remains worryingly concentrated, with just four banks controlling 85 per cent of business current accounts, with low levels of switching between providers compounded by a lack of price transparency.
“There are a range of structural issues that have long been identified that potentially restrict competition and choice for small firms seeking much needed finance and other banking services. While we recognise there are some initiatives in place to address some of these issues, this is the opportunity to resolve any outstanding issues once and for all, and put in place the conditions for a thriving, dynamic banking sector fit for the 21st century."Reuse content