The CMA has published its provisional findings in its review of personal current accounts and SME banking, provisionally finding that that low customer engagement, barriers to switching and search and incumbency advantages were leading to adverse effects on competition (AECs) in both markets. Product linkages (i.e. bundling) were found also to be creating AECs for SMEs.
What is striking about the proposed remedies is that they will require the banks to cooperate and coordinate their behaviour in order to facilitate competition. The remedies that the CMA is seeking views on include:
- improving existing Midata and CASS (Current Account Switch Service) systems for comparison and switching: it appears to recognise that lack of awareness of these systems is also a factor, and suggests banks could be required to raise awareness of and confidence in CASS;
- requiring the creation of a new price comparison website for SMEs; and
- requiring better sharing of information with credit reference agencies, banks and financial advisers.
One AEC (and logically following remedy) noticeable by its absence is the lack of concern expressed by the CMA over the concentrated nature of the markets being reviewed. Despite the big four banking groups having around 80 per cent of the business current account market and similar shares of the personal current account market, the CMA found insufficient evidence that these market shares were having an AEC. Divestments have, therefore, not been proposed. It is worth noting here that the recent creation of TSB was mandated by the European Commission as a condition of authorising the State aid granted to Lloyds Bank as a result of its takeover of HBOS, in order to resolve the potential distortion of competition created by the state-backed takeover and the resulting high level of concentration in the market. The lack of an AEC in the proposed finding has therefore been a surprise to some and a disappointment to some of the so-called "challenger" banks.
The creation of a price comparison website follows similar recent orders by the UK competition authorities: comparison websites were recommended by both the payday lending market investigation and extended warranties market study. It should be noted that, ironically, Ofgem (which has concurrent powers to enforce competition law in the energy sector) announced in October 2015 that it was investigating certain price comparison websites for allegedly breaching competition law through their placement of paid online search advertising.
The CMA discovered that both SMEs and personal customers were likely to have been with their bank for many years and tended not to shop around. The provisional findings claim that "average" personal current account customers could save £70 per year from switching current accounts, while "heavy" overdraft users could save on average £260 per year. For most customers, these savings tend to accrue gradually (e.g. through interest payments), rather than in lump sums (e.g. through bank charges) and so the benefits of switching are less visible than the costs in terms of time and risks of disruption in doing so.
The CMA's proposed remedies are intended to make shopping around quicker and easier. Certain of the remedies slot in to each stage of the process of shopping around:
- the improvements in Midata would mean that customers would be able to obtain information on their current and business account costs quickly from their bank;
- the mandated price comparison website would take the data and be able to show customers a clear counterfactual for what they would have saved had they used a different bank account; and
- customers would have confidence that CASS and the guarantees that stood behind it would make the switching process hassle-free.
There is however one barrier to customer switching that the CMA is powerless to do anything about: anti-money laundering and know your customer checks. The provisional findings note that the compliance process can be "lengthy and onerous", but go no further. While the CMA was not in a position to recommend amendments to the anti-money laundering directives and cannot be criticised for not doing so, it could have recommended ways in which the process could be made easier for customers - for example through providing better training to staff on the requirements and assisting customers in providing the information.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.