Back in December 2015 I wrote here that it was time for the Competition and Markets Authority (CMA), as part of its investigation into the personal current account and SME banking sectors, to show some teeth, level the playing field and open UK retail banking up to the full force of true competition to benefit consumers.
Since then, the CMA has made it clear that they believe retail banking is hugely important to consumers and to the UK economy as a whole and that banks don’t have to work nearly hard enough to compete for customers.
I agree with those sentiments.
However, along with many others, I believe that the CMA’s provisional remedies, as they currently stand, simply do not get to the heart of how to create a truly competitive market capable of delivering innovative new banking services.
New online comparison tools, improving the current account switching service (CASS), prompts for customers and maximum monthly charges for unauthorised overdrafts are all positive moves – but they are simply not enough to be transformative for the market.
Market concentration has increased and the risk of the large providers losing customers has not improved. The large incumbent banks know they can get away with treating both personal and SME customers badly.
The Treasury Select Committee (TSC) heard this week that the CMA should drop its focus on making it easier for customers to switch and that the responsibility should fall on banks to better serve loyal customers.
Of course all banks should treat their customers well.
If a customer is unhappy with their current bank, or feels their loyalty is not being rewarded – they should be able to switch easily and readily.
If a customer sees a bank offering innovative products and services or a deal that meets their needs – they should be able to grab that deal effortlessly and quickly.
At this week’s TSC, Professor Diane Coyle, founder of consultancy Enlightenment Economics, said people would be “mad” to switch when they have various accounts tied together and because there is no obvious difference between banks’ offerings.
There is no obvious difference between the large incumbent bank offerings because they know they don’t need to innovate to compete.
They know customers will stay, even if they don’t have a great deal, or if service is poor, because customers believe it is difficult to move.
Account number portability (ANP), like mobile phone number portability, would do so much more than CASS to overcome consumers’ concerns about switching. And only ANP will drive innovation and differentiation between banks.
Free banking is a falsehood
Professor Coyle is of course right in one sense – the four dominant banks look and feel very similar to each other and that, together with the myth of ‘free banking’, leads directly to a lack of customer engagement and low switching.
The complexity of pricing under the ‘free’ model makes it very hard for customers to understand the true cost of their banking and the market will not function effectively for consumers until there is transparent headline pricing.
The CMA should have gone much further in addressing the issue of the free-if-in-credit banking – because it is not free. For lots of customers it is a rip-off.
The remedies suggested so far will not be enough to create an environment in which competition and innovation is truly driven by consumers.
Ultimately, too much of the UK retail banking market is in the hands of too few banks. The CMA has missed the opportunity to be brave and to shake up the sector for the good of customers everywhere – for today and for the future.
But banks like Virgin Money won’t give up. We aim to give customers better deals, great service and transparent pricing – day in, day out. The stranglehold of the big banks may slow us down – but it won’t stop us – however long it takes.