Martin Flanagan: Banking inertia hard to overcome

Royal Bank of Scotland, Lloyds, Barclays and HSBC have a stranglehold on current accounts and business loans '“ 70 per cent of the former and 80 per cent of the latter.

Inertia remains a powerful factor in the banking market. Picture: Ian Rutherford

The Competition & Markets Authority (CMA) has decided the way to address this is with a new app.

An over-simplification, but the disgruntlement of the challenger banks to the CMA’s findings after its £5 million, two-year investigation of the retail and small business lending sector is not just hyperbole.

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Reading the mild suggestions the regulator has come up with to encourage competition in UK banking, one is left with the conclusion that if this was meant to be a seismic event in the sector it is an earthquake with very few dead or injured.

I just can’t see millions of punters comparing their charges on the new Open Banking app, and many are probably not going to switch banks as a result. Inertia remains a powerful factor.

As a sceptical Andrew Tyrie, chairman of the Treasury select committee, said yesterday: “The CMA is relying on the rolling out of new technology to do the heavy lifting on competition. But many customers will not have the tools or skills to do this. ”

Other measures include requiring banks to publish “trustworthy and objective” information on quality of services in branches and on their websites for customers to see, and “prompts” sent out to customers on the closure of a local branch or an increase in charges to allow them to review the service they are getting. Alerts should also be sent to customers in danger of going into costly unarranged overdraft, a nice little earner for the big banks.

But the challengers are right that the elephant in the room has not been disturbed. To really encourage competition the CMA needed to have lobbied for big reductions in the unfairly high capital requirements placed on challengers to back their loans.

It has been estimated that the big banks sometimes have to hold ten times less capital for the same loans, so it is a self-perpetuating advantage.

The big boys don’t need to hold so much unused capital because their very scale means they are seen as more financially reliable, and that freed up capital gives them a big advantange over the smaller players.

That has been left in place and it is a fundamental flaw.