On 9 August 2016, the Competition and Markets Authority (CMA) published its long awaited final Report in relation to its market investigation into the personal current account (PCA) and small and medium enterprise (SME) banking markets (the Report). The Report sets out how the CMA will tackle the competition issues it has identified in these markets.

The CMA has identified in the Report that a combination of low customer engagement, a lack of product information, and poor transparency, are barriers that affect customers’ ability and willingness to search and switch between banks; and that customers do not appear to be responding to changes in price and quality – a common warning sign that competition is not working effectively.

The Report listed a number of characteristics which it believes to be causing competition issues in retail banking, including the following:

  • difficulty in accessing and comparing information on PCA and SME charging structures and service quality across different banks and products. This results in a lack of customer understanding as to whether they could get better value and service from another bank or whether an alternative product might be more suitable;
  • particularly complicated charging structures for overdrafts. As a consequence, the customers’ ability to compare banks is further restricted;
  • lack of regular trigger points in personal and business current accounts, which would act as a prompt to customers to search for a better deal with an alternative provider;
  • the incumbent advantage current high street banks have over new entrants in the market. This is primarily caused by inertia amongst customers, but is also a result of the larger incumbents ability to take advantage of economies of scale and scope when gaining new customers; and
  • the correlation between start-up business accounts and owners’ personal accounts, where over half of start-up businesses open their current account at the bank where the business owner has their personal account.

What this means for you

The Report broadly follows the CMA’s provisional findings and provisional remedies decision as detailed in our briefing on the CMA’s Retail Banking Sector Investigation and on Reforming retail banking.

The CMA’s proposed remedies to tackle the identified competition concerns include the following:

  • developing the Application Programming Interfaces (API) banking standard;
  • improving customer engagement;
  • reducing barriers to current account switching;
  • requiring banks to alert customers when they start using an unarranged overdraft on their PCA and ensuring that all customers are automatically enrolled for this alert, in addition to providing customers with a grace period during which they can take action to avoid or reduce all charges that have resulted from an unarranged overdraft; and
  • requiring banks to provide information about loan pricing and eligibility for unsecured loans and overdrafts of up to £25,000 to SME customers, including the publication of charges, terms and eligibility criteria.

All of the proposed remedies are required to be in place by summer 2018, although certain remedies are due to be in place by Q1 2017 (including the first stage of the release of information under the API remedy and the development of comparison services for small businesses.