Finance · 23 October 2015

Challenger banks and Which? criticise CMA’s banking report for not doing enough

HSBC, Barclays, Lloyds Banking Group and RBS have a 70 per cent share of current accounts
HSBC, Barclays, Lloyds Banking Group and RBS have a 70 per cent share of current accounts

Which? and British Chambers of Commerce have criticised the banking watchdog’s account-switching proposals, saying they are insufficient responses to the ongoing dominance of the “big four” banks.

Although the Competition and Markets Authority set out ideas to force banks to prompt customers to shop around, it faced scrutiny as to whether the measures went far enough. The watchdog said forcing the big banks to break up would be too costly and wouldn’t bring an end to their era of dominance.

The tenth investigation in the sector in 15 years confirmed there was a competition problem in an industry where Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC have a 70 per cent share of current accounts.

Newcomers like Metro Bank and Aldermore have picked up a five per cent share over the course of ten years. This in spite of the fact customers could save an average of £70 a year by switching their current accounts to another provider.

Some banks welcomed the report, reiterating that the industry was pro-competition, but Which?, British Chambers of Commerce and some challenger names like OakNorth have said they were disappointed with the findings.

Richard Lloyd, executive director for the consumer body Which? Said the CMA “has to bring about better banking, but these proposals don’t go far enough”.

Similarly, the British Chambers of Commerce, representing the small firms covered by the review, criticised the report for pulling “many of its punches”.

The preliminary findings – to be finalised next May – centred around ways to encourage customers to switch providers. It suggested text messages be sent to customers warning if they were going overdrawn and prompting them to consider better offers. Banks that make mistakes could also be forced to suggest their customers look around for better deals.

Alasdair Smith, who was chairing the investigation, said: “Banking is a sector of huge importance that affects every household and business in the country. We think customers need to be put in charge of their banking.”

The report concluded that creating new banks, such as TSB from Lloyds, hadn’t resulted in more widespread competition.

Rishi Khosla, CEO of OakNorth bank, however, said the CMA remedies needed to create “a real and tangible change, not just a PR campaign” to ensure small businesses were fully aware of their options and to encourage people to shop around.

He expressed scepticism over the outlined proposals doing so, pointing to the “habit of borrowing form your day-to-day business bank” as being “deep-seated,” and “stubborn”.

Khosla said small and medium-sized firms in the UK borrowed half as much as their counterparts in the US and Germany – meaning less investment and less growth. “The main restriction in supply is in tailored loans, which involve detailed consideration of the customer’s business,” he said. He was concerned that these couldn’t be accurately reflected in a price comparison website “as there are too many variables, and attempts to do so could actually distort the market towards generic, one-size-fits-all lending that we want to avoid”.

He is one of several challenger banks urging the Treasury address the unintended consequences of the surcharge on banking profits, which will reduce banks’ capacity to invest and lend to small firms.

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Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.