The UK’s banking sector faces a full inquiry by the Competition and Markets Authority (CMA) due to a lack of competition between its main players.
The inquiry is a result of growing mistrust and frustration from MPs, customers and small businesses at the lack of options that define any real difference between the UK’s big four banks.
The investigation will include lending to small businesses, as well as personal and business current accounts – which generate £10 billion in total of UK banks annual revenues.
With current accounts, transparency on overdraft charges in particular has made it difficult for consumers to be able to choose the cheapest option – which does not encourage genuine competition. This makes it easy for banks to retain high charges on account infringements, limiting any real chance of the consumer getting a better deal.
Consumers are also hard pressed to define any real differences between the top four banks, which reflects the very little movement in market share between them. This dominance also prevents smaller banks from making any gains into the industry.
A CMA spokesperson said, “essential parts of the UK retail banking sector lack effective competition and do not meet the needs of personal consumers or small and medium-sized enterprises (SMEs)”.
The CMA will launch its full inquiry this autumn, which is expected to last 18 months. The Royal Bank of Scotland, Lloyds Banking Group, Barclays and HSBC could face a varying degree of measures that could involve enforced transparency, divesting parts of their businesses or sharing more data.
Smaller banks, such as Tesco Bank, Metro Bank and TSB only account for 5% of the market share – which is primarily dominated by TSB. Even though these smaller banks retain higher levels of customer satisfaction than the top four, the industry leaders still account for the largest portion, and this has remained stable – regardless of a 60% customer satisfaction level.
This move by the CMA has been encouraged by the Labour Party Leader Ed Miliband, who had threatened the authority previously over the lack of competition in the banking industry. He announced in January that he wanted the CMA to report back in six months on how to introduce two new sizable high street banks to challenge the current market.
Ed Balls, Labour’s shadow chancellor, said, “Ed Miliband and I have repeatedly called for an inquiry into bank competition, so it’s welcome that the Competition and Markets Authority is now set to start this work later this year.”
Photo source: Garry Knight via Flickr
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