The Competition and Markets Authority (CMA) has published its final report following its market investigation into the retail banking market.  The report sets out the CMA’s analysis of the shortcomings of competition in the markets for current accounts for personal customers and for banking services to small businesses.  It also sets out the actions to be taken to fix the problems identified. It is important to understand that despite its title the report also has key implications for an institution dealing with its business customers.

The key issues are:

  • Current accounts for both personal and business customers have complicated charging structures and the actual cost to the customer depends on how they use the account.  Customers generally know very little about the charges and service quality provided by other banks.  It is therefore hard for customers to know whether they could get better value and service from another bank or a different product with the same bank.
  • Personal and business current account relationships are open-ended and do not have regular trigger points when customers might be prompted to ask themselves whether they could be getting a better deal elsewhere on their current account.
  • The Current Account Switch Service (CASS) is not widely known and does not command as much confidence as it deserves which may prevent customers from switching.
  • Charging structures for overdrafts are particularly complicated, making it even harder to compare providers.  Customers worry that if they switch they might not get the same overdraft from their new bank.  Moreover, the CMA found that many customers underestimate their overdraft use.
  • Over half of start-up businesses open their current account at the bank where the business owner has their personal account.  There is also a strong link between business current account and lending.  It is hard for small businesses to find out who is the best lender for them.  As their existing bank already knows a great deal about them, it is usually easier and quicker to get a loan from their existing bank and harder for potential lenders to accurately assess and price lending.
  • Getting new customers is difficult and costly for banks.  This means that banks which have been around for a long time have advantages over new entrants and smaller banks wishing to expand.

In an attempt to tackle the problems it has found, the CMA plans to introduce an integrated package of remedies.  The CMA’s remedies package is split into the following elements:

  • Foundation measures – these will underpin increased competition in all the markets it has examined.  The remedies in this category include, the open banking standard, service quality information and customer prompts. As part of the open banking standard, the largest retail banks are to develop an application programming interface (API) banking standard, this will be used to share a range of information types such as location of local branches and product terms and conditions. Banks must adopt an API standard for the least sensitive information by March 2017, the remaining aspects of the API standard must be completed by the first quarter of 2018.
  • Current account switching measures – the remedies in this category include, better governance of the guaranteed switching service, extended redirection of payments following switching, customer access to transactions history and customer awareness and confidence.
  • Personal current account overdraft measures – the remedies in this category include, overdraft alerts with grace periods, a monthly maximum charge and improved account opening and switching process.
  • Additional banking measures for small businesses – the remedies in this category include (among other things), competition to develop comparison tools and sharing of SME information.

Now that the CMA has published its final report it explains that its focus is on putting in place the remedies.  The timetable for setting out each of the remedies is set out in the report.  It will take until summer 2018 for all elements of the remedy package to come into force, however some remedies will be put in place within months.

For further information on the retail banking market investigation, please refer to our previous briefing, CMA's Retail Banking Sector Investigation - Update, published in November 2015 following the CMA’s publication of its provisional findings and also our Reforming retail banking briefing, published in June 2016 following the CMA’s publication of its provisional decision on remedies.