Account switching system needs competition to be justified

The Competition and Markets Authority (CMA) is to probe the retail banking sector to understand why there is a lack of competition

The Competition and Markets Authority (CMA) is to probe the retail banking sector to understand why there is a lack of competition in the current account market.

Despite a state-of-the-art IT system implemented in October, to make it easy for consumers to switch current account providers, there has been no increase in people switching accounts. 

The Payments Council said that if the number of people switching accounts in the second half of this year matches the number for the first half, there would be fewer switches in 2014 than 2012.

The arrival last year of a current account switching service has failed to make a significant change to the number of people moving providers, says the CMA. 

With many customers seeing little difference between the services on offer, just 3% switch each year, despite satisfaction levels with the big four floundering below 60%.

The CMA is conducting an in-depth market investigation into the £8bn personal current account market and the £2bn SME business current account sectors.

“The CMA and FCA have carefully considered a wide range of recent regulatory initiatives and other developments designed to improve competition. These include initiatives to make the authorisation regime for new banks simpler and faster, to make switching easier and also to improve transparency. 

"However, despite these important developments, and evidence of new entry, the market studies have identified a number of common concerns, together with evidence that competition is not effectively serving the interests of SMEs or current account customers.”

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The CMA said there is little change in the market share of the largest banks, apart from when there are mergers and acquisitions.

It said there are barriers to entry and expansion for newer and smaller banks and little incentives to switch current account suppliers, because customers see little difference between services offered by major banks.

Alex Chisholm, CMA CEO, said competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy. "However, our studies have found that despite some positive developments, significant competition concerns remain, which mean customers may not be getting consistently good service and value from their banks.

"Our provisional view is that a full market investigation by an independent, expert CMA group is necessary to look at this market in detail and identify appropriate measures if competition concerns are found. However, we welcome views, which we will carefully consider, before taking a final decision."

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