Free banking in the firing line as competition inquiry launches
Consumer
groups and challengers welcome ‘full-scale’ Competition and Markets
Authority inquiry into banking and how customers are treated
The future of free banking could be on the line after the
UK competition watchdog confirmed it was launching a full-scale
investigation into the way the “big four” treat their small business and
personal customers.
Alex Chisholm, head of the Competition and Markets Authority (CMA) on Thursday rejected calls from the big banks to stop an investigation which he had first suggested in July. The inquiry will last up to 18 months and could eventually demand that the banks are broken up to force greater competition.
The decision to press ahead was welcomed by consumer groups and would-be challenger banks which have been attempting to break the stranglehold of the big four – Barclays, HSBC and bailed-out Lloyds Banking Group and Royal Bank of Scotland – which together have a 77% share of personal current accounts and an 85% share of small business banking. These market shares have barely altered over the past 15 years, despite almost a dozen previous investigations .
Small business leaders said it was a unique opportunity to force through change and the consumer body Which? said it was a “crunch time” for the banks. The boss of “challenger” bank TSB, Paul Pester, said: “Customers have been crying out for a root-and-branch investigation like this for years. The big four banks have had a stranglehold on the market for too long.”
Experts said it was time to tackle “free banking” for personal current account customers who remain in credit. “The CMA has the perfect opportunity to tackle the elephant in the room – free in-credit banking,” said Omar Ali at accountants EY.
Lloyds, the biggest current account provider, also acknowledged the free banking debate in its submission to the CMA, calling for an assessment of “whether more heterogeneous pricing structures would improve comparability and customers engagement”.
The review will not be concluded until after the general election in May 2015 with an interim report scheduled for the summer, which prompted some concern about whether the findings would be adopted by a new government. Labour leader Ed Miliband has already called for a break-up of the banks.
Chisholm said the big four had opposed the investigation, as had the Institute of Directors, but most of the other respondents to the two-month consultation supported a review of a market that generates £10bn of revenue a year.
The big players had tried to convince Chisholm that they were serious about embarking on initiatives to make it easier for customers to compare accounts by setting up a comparison website and setting standards to make it easier for small business customers to switch between banks.
They had also warned about the costs associated with breaking them up – but the CMA rejected this saying it needed to keep “all remedy options open”.
Chisholm said he was still concerned about the low levels of customers switching accounts, the difficulties customers faced in making comparisons, and complex overdraft charges which left some customers with fees of £400 a year.
He also said branch networks remained important – even though banks are axing their high street presences as customers increasingly use digital and online methods for their basic banking needs. Bank shares were little moved on the CMA announcement.
Lloyds and RBS are already being forced to carve out branch networks – TSB and Williams & Glyn respectively – to comply with the terms stipulated by the EU at the time of their taxpayer bailouts, which are intended to create new “challenger banks”. The CMA was doubtful about the impact these “divestments” would have on competition, even once they were completed, which in the case of W&G may not be until the end of 2017.
Lloyds – which was only created in 2008 when Labour used emergency powers to tear up competition rules to allow the rescue of HBOS – had tried to convince the CMA that it was overlooking the future impact of such new entrants.
The banks had been expecting a competition review next year – as recommended by Sir John Vickers in his independent commission on banking, which also called for banks to ringfence their high street businesses from their “casino” investment banks. HSBC had argued the threat of a break up should lead to a delay of the Vickers’ ringfencing proposals but the CMA rejected this.
Andrea Leadsom, the City minister, said she was delighted the review was underway while the shadow chancellor, Ed Balls, maintained Labour’s stance that there should be “at least two new challenger banks and a market share test to ensure the market stays competitive for the long term”.
Ian Gordon, analyst at Investec, was sceptical that new facts would be unearthed. He warned: “We suspect that, in any case, the CMA’s eventual report may ultimately be lost in a sea of political gridlock in the aftermath of the UK’s May 2015 general election.”
Alex Chisholm, head of the Competition and Markets Authority (CMA) on Thursday rejected calls from the big banks to stop an investigation which he had first suggested in July. The inquiry will last up to 18 months and could eventually demand that the banks are broken up to force greater competition.
The decision to press ahead was welcomed by consumer groups and would-be challenger banks which have been attempting to break the stranglehold of the big four – Barclays, HSBC and bailed-out Lloyds Banking Group and Royal Bank of Scotland – which together have a 77% share of personal current accounts and an 85% share of small business banking. These market shares have barely altered over the past 15 years, despite almost a dozen previous investigations .
Small business leaders said it was a unique opportunity to force through change and the consumer body Which? said it was a “crunch time” for the banks. The boss of “challenger” bank TSB, Paul Pester, said: “Customers have been crying out for a root-and-branch investigation like this for years. The big four banks have had a stranglehold on the market for too long.”
Experts said it was time to tackle “free banking” for personal current account customers who remain in credit. “The CMA has the perfect opportunity to tackle the elephant in the room – free in-credit banking,” said Omar Ali at accountants EY.
Lloyds, the biggest current account provider, also acknowledged the free banking debate in its submission to the CMA, calling for an assessment of “whether more heterogeneous pricing structures would improve comparability and customers engagement”.
The review will not be concluded until after the general election in May 2015 with an interim report scheduled for the summer, which prompted some concern about whether the findings would be adopted by a new government. Labour leader Ed Miliband has already called for a break-up of the banks.
Chisholm said the big four had opposed the investigation, as had the Institute of Directors, but most of the other respondents to the two-month consultation supported a review of a market that generates £10bn of revenue a year.
The big players had tried to convince Chisholm that they were serious about embarking on initiatives to make it easier for customers to compare accounts by setting up a comparison website and setting standards to make it easier for small business customers to switch between banks.
They had also warned about the costs associated with breaking them up – but the CMA rejected this saying it needed to keep “all remedy options open”.
Chisholm said he was still concerned about the low levels of customers switching accounts, the difficulties customers faced in making comparisons, and complex overdraft charges which left some customers with fees of £400 a year.
He also said branch networks remained important – even though banks are axing their high street presences as customers increasingly use digital and online methods for their basic banking needs. Bank shares were little moved on the CMA announcement.
Lloyds and RBS are already being forced to carve out branch networks – TSB and Williams & Glyn respectively – to comply with the terms stipulated by the EU at the time of their taxpayer bailouts, which are intended to create new “challenger banks”. The CMA was doubtful about the impact these “divestments” would have on competition, even once they were completed, which in the case of W&G may not be until the end of 2017.
Lloyds – which was only created in 2008 when Labour used emergency powers to tear up competition rules to allow the rescue of HBOS – had tried to convince the CMA that it was overlooking the future impact of such new entrants.
The banks had been expecting a competition review next year – as recommended by Sir John Vickers in his independent commission on banking, which also called for banks to ringfence their high street businesses from their “casino” investment banks. HSBC had argued the threat of a break up should lead to a delay of the Vickers’ ringfencing proposals but the CMA rejected this.
Andrea Leadsom, the City minister, said she was delighted the review was underway while the shadow chancellor, Ed Balls, maintained Labour’s stance that there should be “at least two new challenger banks and a market share test to ensure the market stays competitive for the long term”.
Ian Gordon, analyst at Investec, was sceptical that new facts would be unearthed. He warned: “We suspect that, in any case, the CMA’s eventual report may ultimately be lost in a sea of political gridlock in the aftermath of the UK’s May 2015 general election.”
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