The investigation will be conducted by a Market Reference Group drawn from the Competition and Markets Authority's panel of independent members.
Following the announcement in July, the CMA embarked on a consultation regarding its provisional decision to launch a market investigation. Most respondents agreed that there should be a market investigation. Having carefully considered the consultation responses, the CMA continues to have concerns about the effectiveness of competition in these sectors and has decided to make a market investigation reference. These concerns include:
- Low levels of customers shopping around and switching.
- Limited transparency, and difficulties for customers in making comparisons between banks, particularly for complex overdraft charges on personal current accounts.
- Continuing barriers to entry and expansion into the sector, limiting the ability of smaller and newer providers to develop their businesses.
- Very little movement over time in the market shares of the 4 largest banks, which provide over three-quarters of personal and business current accounts.
Alex Chisholm, CMA Chief Executive, said:
"Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy.
"After 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 CMA's expert panel of independent CMA members.
"The Market Reference Group will investigate in detail and decide what action, if any, may be needed to improve competition for the benefit of personal and small business customers."
The group will be appointed shortly and will publish a timetable for the various stages of the investigation and develop and consult on an issues statement, which will set out the investigation's proposed focus.
The CMA has also decided to conduct a review of the competition undertakings put in place following the Competition Commission's report in 2002 into small and medium sized enterprise banking, in order to examine whether any change of circumstances since then warrant their being varied or terminated. This review will be conducted alongside the market investigation by a group composed of the same panel members as those conducting the market investigation.
Commenting on the announcement, Craig Donaldson, CEO, Metro Bank said:
“We support the CMA’s decision to launch an investigation into personal current accounts and SME banking. The CMA’s assessment identifies a serious competitive issue in the market and this is something with which we strongly agree; competition in the UK banking sector is heavily distorted. No market where such a small number of players hold such a large percentage of the market share should be described as efficient or competitive.
“We need a level playing field in banking, where all banks can compete in a transparent and innovative market. Without a level playing field, innovation and competition are stifled, and consumer choice will continue to be limited. We applaud the CMA for recognising this, and look forward to assisting them with their investigations.”
Paul Pester, CEO of TSB Bank, said:
“Consumers have been crying out for a root and branch investigation like this for years and we have previously said the CMA would be uniquely placed to carry out this complete review of the market. The Big Four banks have had a stranglehold on the market for far too long.
“TSB was established to bring competition to the UK and with our full ‘bricks and clicks’ capability, we are already having an impact as the challenger with the sharpest teeth. Customers are voting with their feet – with one in every 10 opening a new bank account choosing TSB.
“TSB believes the CMA investigation should focus on achieving greater transparency in banking along with more choice and competition, so consumers get a better deal.”
Aldermore Deputy CEO and Group Commercial Director Mark Stephens said:
“We are pleased that the CMA is opening a wider inquiry into competition in the SME lending market. It is imperative that we identify why the market is not working in the best interests of customers at present and this inquiry will be key to ascertaining the challenges and potential solutions to this issue.
“It is highly concerning that the barriers to entry and expansion for newer and smaller banks remain significant and that the dominance of the big four continues, despite there being little difference in terms of the services they offer. Aldermore’s net lending has increased rapidly year-on-year at a time when business lending has been severely constrained, and more needs to be done to enable new entrant banks to deliver for SMEs where traditional banks are letting them down.
“Further changes remain necessary to reduce the grip that traditional lenders still have on the market through platforms such as the payments system, and in enhancing transparency and simplicity in banking for consumers.”
