The Competition and Markets Authority publishes final report in its retail banking market investigation

On 19 August 2016, the CMA published its final report following its investigation into the retail banking market.

The CMA found that “the older and larger banks do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow. This means that may people are paying more than they should and are not benefiting from new services.

In particular, the CMA identified the following issues in the retail banking sector:

  • complicated charging structures for current accounts;
  • a lack of trigger points for switching;
  • the Current Account Switch Service (“CASS”) is not widely known about;
  • a strong link between business current accounts and lending; 
  • it is therefore difficult and costly for banks to get new customers, which means that older banks have advantages over new entrants and smaller banks wishing to expand. 

The CMA has proposed the following package of remedies:

  • The ‘foundation’ remedies, which include: 
    • the development and implementation of an open Application Programming Interface (“API”) standard for banking, which will permit authorised intermediaries to access information about bank services, prices and service quality and customer usage. This will allow new services to be delivered, for example, allowing customers to manage accounts with several providers through a single application;
    • requiring banks to publish service quality information in order to allow customers to form an accurate view of how different banks perform relative to each other;
    • requiring banks to send occasional reminders or prompts to customers to encourage them to review their banking arrangements.
  • Measures intended to encourage current account switching measures, which include:
    • better governance of CASS to increase awareness of it and confidence in it;
    • increasing scope of services offered by CASS, for example, extended redirection of payments following switching;
    • requiring that customers of all current account providers are able to get a copy of their transaction history after account closure.
  • Measures to enable personal current account customers to take control of overdraft services, as well as improving the switching process for these customers. These measures include:
    • requiring banks to alert their customers, for example by sending a text message, when they are going into unarranged overdraft, and informing them of a grace period during which they will not be charged;
    • requiring banks to set a monthly maximum charge in relation to overdrafts, which must be disclosed in order to allow customers to compare providers;
    • measures to improve the account opening and switching processes.
  • Additional banking measures for small businesses, which include:
    • competition to enable the development and delivery of  comparison services;
    • improving the information available on loan prices and eligibility;
    • requiring banks to adopt standardised business account opening information requirements.

The measures are intended to allow customers to benefit from technological advances as well as to enable new entrants and smaller providers to compete with the older and larger providers.

Some of the ‘challenger’ banks have complained that the CMA has not gone far enough, for example the maximum monthly overdraft charge is not a cap and banks will not be required to publish charges associated with ‘free-when-in-credit’ accounts. Some smaller institutions had advocated breaking up the larger banks but the CMA has not chosen that option.

Nevertheless, the CMA’s proposals have the potential to significantly change the retail banking industry. 

Contact our experts for further advice

Gustaf Duhs, Maliha Carey

Search our site