Banks ‘not working well for customers’ says CMA

Major high street lenders are facing a full-scale competition probe over personal accounts and small business banking under plans set out by the watchdog today.

The Competition & Markets Authority (CMA) said customers had not seen enough benefit from efforts to open up the £10 billion market for personal and SME banking.

It said it was minded to launch a full-scale market investigation but has given the “big four” banks – Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland – the chance to come up with their own solutions before a formal decision in the autumn.

The CMA said newer and smaller banks face “significant” barriers when trying to break into a concentrated market, and many customers see little difference between the largest banks in terms of the services they offer.

The watchdog added that levels of shopping around and switching between banks remain low, so very limited market share gains have been made in recent years by those banks with the highest levels of customer satisfaction – “not what would normally be expected in well-functioning competitive markets”.

CMA chief executive Alex Chisholm said: “Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy.

“However, our studies have found that despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks.”

Christopher Woolard, director of policy, risk and research at the Financial Conduct Authority, said:“Whilst there have been some recent improvements, for small businesses, competition in the banking system isn’t working as it should.

“Small businesses are the lifeblood of the British economy, employing more than half of those in work in the private sector, which is why it is vital that they have access to a banking market that works for them.”

John Allan, national chairman of the Federation of Small Businesses, said: “With more competition comes better choice for customers, and the most important customers of the banks are thousands of economically vital SMEs.

“Unfortunately many find it hard to differentiate between banks, and are unable to shop around to find the lender best suited to their needs due to limited information.”