The Competition and Markets Authority wants to prod both customers and banks into action
Since the financial crisis Britain’s banks have taken some hits—deservedly, many would say. They have paid billions in fines for mis-selling loan insurance; they have been forced to pay extra taxes (the “bank levy”) into the Treasury’s coffers; some were punished for fixing Libor, a key interest rate. But now their retail customers may grumble that the country’s competition watchdog has spared them a mauling.
On May 17th, after a two-year investigation, the Competition and Markets Authority (CMA) published its proposals on how to improve retail banking. It concluded that, although competition in the market for personal customers and small businesses is poor, the remedy lies less with rattling the banks than with rousing their befuddled clients. The thrust of its provisional remedies (the final version is due in August), set out in a 405-page report, is that clearer information—aided by new technology—is what the market is missing.
The CMA reckons that four groups (Barclays, HSBC, Lloyds and Royal Bank of Scotland) control 77% of personal current accounts and 85% of business accounts. But it believes that the banks’ size and number are not the problem. Besides, recent efforts to break up the banks suggest that “divestitures are prolonged and expensive”: one competitor, TSB, has been spun out of Lloyds; the splitting of another, Williams & Glyn, from RBS, has been delayed. And several “challenger” banks have sprung up and are growing fast, although their share remains small.
The trouble, according to the CMA, is that Britons don’t shop around: 57% of personal customers have had their main current account for more than ten years; only about 3% switched banks in 2014. Those who use overdrafts, who have most to gain, are least likely to move. (Britons who stay in credit generally pay nothing, but receive no interest either.) So banks do not have to fight to keep them. One reason, the CMA says, is complicated charges, especially for overdrafts. Another is a lack of “trigger points”, when people might think of changing banks. Policies for insuring cars and homes, by contrast, are renewed annually. Owners of small businesses often choose banks where they already have personal accounts.
All this means that customers have little idea of whether they might be better served elsewhere. The CMA thinks technology can help. It wants to oblige the eight biggest banks to create a common online system to allow customers to compare services. If people are willing to supply transaction data to the system, they could be given tailored recommendations. For businesses, it wants a souped-up version: Nesta, a charity, is planning a competition to find possible answers.
The watchdog also says banks should prompt customers to shop around. On overdraft charges it proposes more straightforward measures: banks should warn customers when their account is about to go into the red without permission; and they should set monthly limits on unauthorised overdraft charges.
The CMA reckons that its measures will save Britons around £1 billion ($1.5 billion) over the next five years. That depends on whether customers act as the watchdog hopes. But they may not. People may be understandably wary of supplying data to the industry’s online system, however secure it is. Price-comparison websites have been around for years without setting off a wave of pecuniary promiscuity. Breaking up the banks may have been hard to do. Shaking them (and their customers) up will not be much easier.
Source: The Economist
