There are few things more certain in life than a competition report into the British banking industry. In the past two decades, the authorities have published nearly 20 such papers, each of them duly finding causes for concern.
Any hope that the latest effort — from the Competition and Markets Authority — might somehow staunch the flow by actually finding remedies always seemed like wishful thinking.
And so it has proved. After a two-year investigation into the £16bn personal current account and small business banking market, the CMA’s report unearths a fairly familiar litany of concerns. There is too little choice because of the 80 per cent share held by the so-called “big four” of Lloyds Banking Group, HSBC, Barclays and Royal Bank of Scotland.
Opaque and sometimes exorbitant charges — the product of Britain’s continuing obsession with free in-credit banking — make it difficult for customers to know whether their account is best for them. Switching remains pitifully infrequent. According to the CMA, almost 60 per cent of Britons have been with their current account provider for more than a decade, with the average bank relationship lasting 16 years. That is nearly 50 per cent longer than the average marriage in the UK.
Yet, when you turn to the proposed remedies, these also have a predictable — and tentative — ring. Having rejected any radical reform of the supply side, such as the break-up of existing groups, the CMA puts its faith in new technology that will enable customers to identify hidden charges and sniff out the best account.
The snag is that this will require the banks to adopt an industry-wide digital standard and for customers to agree to their banking information being released — potentially to third-party fintech websites. This will take time at best. And given the consents and safeguards needed, it may never happen at all.
As for the question of the charges banks levy, the CMA wants them to text customers when they are falling into unauthorised overdrafts that might result in hefty fees and penalties. This rather ducks the question of whether those charges are unreasonable and exploitative, and should be replaced by more transparent fees related to the banking services that customers actually receive. Meanwhile, a proposed cap on charges can be set at whatever level banks choose and will do little to prevent them bearing down on those who are too poor or improvident to stay out of unplanned debt.
The report betrays a fashionable faith in the psychology of nudging consumers towards more meritorious conduct. This may have some benefit at the margins of competition. There are, for instance, signs that the spread of fintech is slowly encouraging consumers to be more promiscuous in the choice of financial services they consume.
But none of this will ultimately transform the picture unless customers perceive clear differences between the providers of core banking services. That can only happen when banks abandon the fiction of “free” accounts, which are in reality riddled with hidden fees, in favour of upfront charges applicable to everyone. The CMA would do the public more of a service if it made it ever harder for banks to charge in this manner. That gauntlet has yet to be picked up. In the meantime, it is on to the next report.
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