Martin Flanagan: CMA opts for softer banking remedies

Small earthquake, not many dead. There is nothing in the provisional findings of the Competition & Markets Authority (CMA) investigation into competition in the current account and small business banking markets that will have the big banks holding their heads in their hands.

Martin Flanagan. Picture: Fiona Hanson

No suggestion that the major players should be broken up (always a long shot) or forced to ditch free-in-credit current accounts in order to stimulate more competition and switching of accounts.

The CMA found no evidence of profiteering in the sector, and has not recommended any enforced business divestments that might have helped fuel the growth of Britain’s new challenger banks including Tesco Bank, Metro, TSB, Virgin Money and Aldermore.

Instead, the regulator is so far opting for softer remedies, such as banks being made to remind customers they can review the service they receive at certain “trigger points”. This could include a major computer glitch, closure of a local branch, unarranged overdraft charges or a change in the terms and conditions of their account.

In the case of small businesses, that trigger point could be at the end of free banking periods. The CMA does say it remains difficult and far from transparent for individuals and small businesses to compare bank products, and suggests upgrading Midata, a government-supported online tool that allows such comparisons.

The CMA also wants banks to plough more money into advertising campaigns to alter the near-phobic mindset of many customers who dread the complexity and pitfalls of switching banks.

All good, practical stuff, but definitely carrying a whiff of the incremental rather than the radical. You wonder whether what is proposed will meaningfully change the minuscule ratios of bank customers, individual and business, who change banks despite the seven-day current account switching service launched by the authorities in 2013.

The CMA found that well over one in two consumers have been with their account provider for more than a decade; well over one in three customers for more than 20 years.

The inertia factor remains strong. For the same reason most people don’t wake up on a splendidly sunny day off work and think “I really must take out an insurance policy”, they do not tend to think they just must go online and compare various rival bank offerings with the one they have got. Particularly if the bank websites resemble a Rubik’s cube.

Some challenger banks and consumer groups have already said the CMA probe has been a missed opportunity and its “remedies”, ahead of its definitive findings next year, do not go far enough.

They believe the CMA has done little more at this stage than nudge the pinball machine rather than open it up and fiddle around inside, that the regulator is playing at the margins of the problem of switch-aversion.

Ending free, though opaque, free banking, and laying down firm guidelines on the way overdrafts are handled when customers switch banks to ensure a better deal for consumers, were regarded by many as true touchstones of the CMA probe’s effectiveness.

Their pleadings have been denied.