Antitrust Law Daily Wrap Up, ANTITRUST NEWS: CMA investigation finds lack of competitive pressure in retail banking market, (Oct 26, 2015)

By Linda O’Brien, J.D., LL.M.

The U.K. Competition and Markets Authority (CMA) has published its provisional findings as part of its in-depth investigation into the £16 billion current account and business banking sectors and found insufficient competition among banks for customers, the agency announced on October 22.

The U.K. banking industry has been subject to many reviews, several of which have raised concerns regarding competition in retail banking. In November 2014, the CMA board launched a market investigation into the supply of retail banking services to personal current account (PCA) customers and to small and medium-sized enterprises (SMEs) in the United Kingdom.

The investigation identified a number of competition concerns in both the PCA and SME banking markets. Low levels of customer switching demonstrated that banks are not put under enough competitive pressure, and new products and new banks do not attract customers quickly enough.

According to the provisional findings, 57 percent of consumers have been with their PCA provider for more than 10 years, and 37 percent for more than 20 years. Customers with current accounts are faced with complex overdraft charges and limited information on product and service quality, which, along with limited effective comparison tools, makes it very difficult for customers to know what they are paying and to compare banks and products. Bank customers fear that switching their current account to a new bank will be complicated, time-consuming and risky.

The investigation also discovered that accounts which are more expensive and below average quality are not losing customers to cheaper and better alternatives at the rate that would be expected in a well-functioning market.

The CMA investigation found a number of positive developments: new entrants into both PCA and SME banking, innovative products becoming available, the digital innovations associated with online and mobile banking, and new tools like Midata and Current Account Switch Service (CASS), which have the potential to increase searching and switching. Despite these encouraging developments, the CMA found that banks did not have strong enough incentives to work hard to compete for customers through better products or cheaper prices, and smaller or better banks found it hard to gain a foothold because too few customers are switching.

The CMA has published an initial list of remedies, which sets out possible measures aimed at addressing these issues by increasing competition and securing a better deal for customers.

Potential remedies include: (1) requiring banks to prompt customers to review the service they receive from their bank through receiving individual messages at certain “trigger points”; (2) making it easier for consumers and businesses to compare bank products by upgrading Midata, an industry online tool that gives consumers access to their banking history at the touch of a button; (3) requiring the creation of a new price comparison website for SMEs; (4) requiring banks to help raise public awareness of, and confidence in, switching bank accounts, through increasing their funding for a widespread and sustained advertising campaign promoting CASS and improving the service it offers; and (5) requiring better sharing of information with credit reference agencies, banks and financial advisers, which would make it easier for SMEs to shop around for loans and cutting out the need for multiple application form filling.

The CMA will now consult and hold detailed discussions with all interested parties on the findings and possible remedies before publishing its final report in May 2016.

The CMA has invited comments in response to the provisional findings and notice of possible remedies. Comments must be received in writing by November 20, and can be submitted either by email to retailbanking@cma.gsi.gov.uk or by mail to:

Retail banking market investigation Competition and Markets Authority Victoria House Southampton Row London WC1B 4AD

News: Antitrust