Its provisional report on an 18-month investigation of the market concludes that “weak” competitive pressures mean that “banks do not need to work hard enough on price or quality of service”. Charges are opaque and it’s virtually impossible to work out if you’re getting any value from your account, it adds.
Nothing new there, but it’s pretty serious stuff all the same. So how does the CMA propose to use its considerable powers to make the market more competitive?
Did it suggest to the government that the biggest banks are broken up? That the free banking model is no longer fit for purpose and should be scrapped? That customers should be given portable account numbers to make them far more willing to switch?
Nope. The banks simply need to give customers “more information” to make it easier to switch, according to the CMA.
Having more and smaller banks wouldn’t work, said the CMA, because people still couldn’t easily choose between them because of “a lack of transparency on fees and charges”.
So the competition regulator thinks there’s no point taking radical action because of poor transparency. But why is transparency a problem? Because the cross-subsidisation at the heart of the “free if in credit” (Fiic) model makes it impossible to work out if you’re getting a fair deal from your current account. It’s become glaringly obvious to everyone else that the “free if in credit” model is a barrier to competition, but the CMA doesn’t see it that way.
The CMA has missed an opportunity to dig deeper into cross-subsidies and build a fuller picture of the actual cost of banking to consumers. Instead, it acknowledges that the market isn’t working properly, but has decided the real problem is “a lack of customer engagement”.
That’s why it insists it will “transform” the market by making banks provide customers with “the right information” so they can easily work out the provider and account that best suits them. Yes, it did use the word “transform”.
The chasm between its diagnosis of the problems and its solutions is so wide that you can only conclude that the CMA has decided it’s unbridgeable.
This is the point at which it’s worth remembering that the current account market is not only massive, but it’s also absolutely central to the strategies of the high street banks. In the post-PPI era the current account is what facilitates the sizeable gains from cross-subsidisation.
Any radical proposals that might threaten this model will have met with a very forceful push-back at a time when the banks are getting a very sympathetic hearing in the places where it matters. Their wishes for a PPI complaints deadline will very soon be granted, for the same reason the banking culture review was scrapped – because the government has made it very clear it will be sympathetic to the industry’s interests.
The case for genuine reform in the banking market is overwhelming, as even the CMA acknowledges. Unless the final reports produces some big surprises, however, a golden opportunity will have been missed. Back to the drawing board we go.