Britainís high street banks have come under fresh pressure from the regulator, as it declares its intention to initiate a comprehensive investigation into the multi-billion pound sector.
The Competition and Markets Authority (CMA), appointed in April to replace the former competition watchdogs, has already surpassed its antecedents’ efforts; the previously recognised regulatory bodies said they would wait until 2015 before deliberating such a radical move. However, the CMA has set out a period of consultation stretching until September, in which the regulator will scrutinise its initial conclusion which suggested both small business & personal current account customers were not receiving worthy service from their banks.
Comprising of Lloyds Banking Group, RBS, HSBC and Barclays, the Big Four oversee 77% of current accounts and 85% of small business current accounts. The CMA highlighted the difficulties faced by small lenders and other minor players within the industry when seeking to keep afloat. Rather, the watchdog noted that many savers do not see the difference between the big names in the banking industry, implying the existence of a monopolistic culture within the sector.
“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 that customers may not be getting consistently good service and value from their banks,” said Alex Chisholm, chief executive of the CMA
The CMAís actions coincide with an intensification of political clamour surrounding the banking sector. The leader of the Opposition, Ed Miliband, promised to investigate the industry if elected, whilst his shadow chancellor, Ed Balls, has called for ìat least two new challenger banksî in order to increase competition.
If the new investigation is ploughed ahead with come September, it will continue beyond the next election. It comes as the government attempts to flog shares in Lloyds to the public, which the taxpayer already possesses a 24% stake in. The ramifications of this are unclear and yet to be seen.
Since the 2011 Vickers Report, Banks have been wary of the danger of a competition investigation and have proposed various measures in an attempt to ward off the CMAís investigation. However, the watchdog dismissed these ideas, which included:
ï Simplifying the switching process, between banks, for customers
ï Initiating a comparison website to increase transparency
ï Establishing various new protocols to enhance customer
“We note, in particular, that the larger banks, with relatively lower satisfaction levels, have not significantly lost market share, while banks with higher satisfaction levels have not been able to gain significant market share, which is not what one would normally expect to find in well-functioning, competitive markets,” the CMA said.
The CMA said it could focus on structural reforms, such as forcing banks to form new branch networks or spur them to be more transparent with covert costs. Measures such as sending text alerts to customers when they become overdrawn, are firmly in the regulatorís mind-set. Such ìbehaviouralî charges would combat any potential duplicity in customer relations on the big fourís part.
Lloyds and RBS are already in the midst of re-vamping their branch networks due to the state-aid terms forced upon them by the EU during their respective bailouts. Lloyds is floating TSB on the stock market and RBS are compelled to break out 314 branches targeted at small business customers.
Metro bank was the only noticeable new participant in small business banking.
John Allan, national chairman of the Federation of Small Businesses, said: “Since Cruickshank’s report, a few very large banks have dominated the market for small business accounts, which suggests that competition has remained limited. In addition, there continue to be a range of barriers to entry that either potentially deter entry to the market or block new entrants’ growth.
“This means small firms have not seen the full benefits of reduced costs, increased choice and better access to finance had these structural issues not been in place.î