The Competition and Markets Authority (CMA) has issued proposals for a major reform of the retail banking industry and claimed that, if adopted, its package of measures to improve competition ‘could bring benefits to bank customers to the tune of £1 billion over 5 years’.
The provisional conclusions of the CMA’s 18-month study focus on increasing competition between banks in personal current accounts and in banking services for small and medium-sized enterprises (SMEs), and on creating new protections for overdraft users.
Alasdair Smith, Chair of the CMA’s Retail Banking Investigation, said: ‘For too long, banks have been able to sit back and not work hard enough for their personal and small business customers. We believe the strong and innovative package of measures we are proposing will give customers the information and tools they really need to get a better deal out of the banks. They will also protect those who fall into overdraft from being stung with unexpected fees.’
The CMA suggests that banks should be required to set a monthly maximum charge for unarranged overdrafts on personal current accounts, and ensure that customers are automatically signed up for text alerts warning that they are about to go overdrawn, so giving them time to pay money in.
Proposals to increase competition in the industry include:
- a requirement for banks to prompt customers regularly to check that they are getting good value – for example, if interest rates change
- introducing a simple app to help customers compare and switch accounts
- making the price of loans more transparent, to help business customers.
The CMA stopped short of recommending that the largest banks should be broken up, on the grounds that this would not address ‘the fundamental competition problems’ of ‘a lack of transparency on fees and charges’.
Alasdair Smith added: ‘New entrants into a market are an important source of competition and innovation, and we are well aware of the current barriers to challenger banks in UK retail banking.
‘What’s really holding them back is their ability to highlight to customers how new offerings compare with their current deal. Our package of banking reforms will help new competitors get a stronger foothold in a market which is of vital importance to the whole economy.’
The CMA will publish its final report on the retail banking market investigation by 12 August 2016.