Challenger banks warn CMA not to fall for myth of free current accounts

TSB chief executive Paul Pester wants the Current Account Switch Service beefed up

Britain’s biggest challenger banks have called on the competition watchdog to shake up the current accounts market to let them compete fairly with the big high street banks.

“The industry portrays the myth that current account banking is free,” said Paul Pester, the chief executive of TSB. “But we reckon [it] makes £7bn to £8bn a year from current accounts.”

The Competition and Markets Authority (CMA) is in the midst of an investigation into retail banking and is expected to publish its first take next week. Challenger banks have lobbied hard for changes to make it easier for them to compete with the big institutions.

Jayne-Anne Gadhia, the chief executive of Virgin Money, who wrote to the CMA last week, said: “Free banking distorts the market but it would be a courageous politician who was seen to abolish it. Instead the CMA should make banks pay the going rate of interest on current account balances, as we do, which would make more banks think about starting to charge for current accounts.”

TSB’s Mr Pester called for even greater change, saying banks should issue monthly statements telling customers what they have charged for their services.

“The CMA has a golden opportunity to expose UK banking to the full force of competition, putting consumers in control at last,” he said.

Mr Pester also wants to see the Current Account Switch Service, which was launched in 2013, considerably beefed up. He said: “So far only 12 per cent of bank customers have heard of it and just 2 per cent have used it. The target was 75 per cent awareness. It also doesn’t work for the people who would benefit most from switching – those with overdrafts. I want to see a personal credit passport that would allow a customer to approach another bank with their overdraft and get an instant decision on whether they could do a better deal.”

Ms Gadhia has little hope that the Treasury will relent on the new 8 per cent tax surcharge on bank profits being applied to the challenger s: “It sounds pretty fixed to us and we are budgeting for it.”

Virgin Money reported a strong third quarter with gross mortgage lending up 38 per cent to £5.5bn and its mortgage balances 12 per cent higher at £24.5bn.