Britainís top banks must steel themselves for a fully-fledged inquiry into their conduct vis-‡-vis current account offerings and small business lending, in a move centred on breaking the ëBig Fourí lendersí vicelike grip on the market and inspiring competition within the sector.
The Competition & Markets Authority (CMA) declared today that lethargic switching, vague and convoluted overdraft charges and a general abuse of their dominant position in the high street lending market has made it clear to the regulatory body that intervention is needed in order for consumers to be afforded the value they warrant.
The announcement of the investigation comes after the conclusion of a 2 month period of consultation, which commenced in July when Alex Chisholm, chief executive, stated his intent to go through with a sweeping investigation into the much maligned banking sector.
ìEffective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy:î said Mr Chisholm
ìAfter carefully considering the consultation responses, most of which supported a market investigation, we remain of the view that there should be a full market investigation into the sector, conducted by a market reference group drawn from the CMAís expert panel of independent members. The group will investigate in detail what action, if any, may be needed to improve competition for the benefit of personal and small business customers.î
Given that the so-called ëBig Fourí ñ Lloyds Banking Group, Barclays, HSBC and RBS ñ currently consume 77% of the personal current account market and a stifling 85% of small business lending, clamour for a meaningful change is certainly justified, especially when over 10 inquiries have come and gone in the past 2 decades with the aforementioned banks continuing to marginalise the competition.
To that note, the CMA said they intend to reconsider an accord struck in 2002 between banks and its predecessor, the Competition Comission, entailing potentially dubious conditions over how to handle small business lending.
The Payments Council recently released figures revealing that 1.2m switches occurred between the start of October 2013 and the end of this yearís September, representing a 22% increase on the previous 12 months and a success for the governmentís current account switching service designed to increase flexibility and consumer confidence in the switching process.
Measures entailed within the switching service include the slashing of the amount of time it takes to switch from 30 days to 7 days and the automatic transferral of direct debits and other incomings and outgoings to further boost expediency for savers.
However, this can be viewed as merely a step in the right direction, rather than a comprehensive solution as 1.2m switches is a trifling proportion of the 46m current accounts in operation in the UK.
The ëBig Fourí did not resign themselves to an inquiry over the past 2 months, persistently lobbying the CMA with proposals to implement consumer-orientated switching initiatives such as a comparison website and an overhaul on their regulations on small business lending. However, Mr Chisholm remained resolute, dismissing the majority of the banks decisions.
However, Lloyds did succeed in convincing the regulator that a small business can only be defined as such if it has a turnover of under £25m.
The move was mostly met with widespread acclaim, with Paul Pester, TSBís chief executive, recently noted for somewhat audaciously increasing TSBís high street market share despite a demonstrable shift toward digital banking by its competitors, stating that: ìThe Big Four banks have had a stranglehold on the market for far too long.î
John Longworth, director general at the British Chambers of Commerce, lauded the impact the CMAís inquiry could have on small business lending.
ìFor many years Britainís dysfunctional banking sector has struggled to meet the needs of SMEs, impeding the growth prospects of some of our most promising young companies,î he said.
ìThis investigation represents a unique opportunity which must be seized, in order to deliver real change in the banking sector. We call on the government to commit to implementing the findings of the CMAís investigation to restore trust, transparency and relationships between lenders and businesses.î
Ed Balls, commended the decision but somewhat begrudgingly noted that the Labour party had called for an inquiry into the banking sector for eons, implying any credit ought not to go solely to a ëright place, right timeí government.
ìEd Miliband and I have repeatedly called for an inquiry into bank competition, so we welcome this announcement from the CMA. Ministers claim there is no problem to solve, but everyone else recognises that we have a lack of competition in our banking sector:î said Mr Balls
ìAs we said earlier this year, in the next parliament we need to see at least two new challenger banks and a market share test to ensure the market stays competitive for the long term, which is why we now welcome this independent CMA inquiry.î
Consumers can only hope that the CMAís inquiry does level the playing field and does not get shrouded in a cloud of political contention, with the general election just round the corner.
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