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Costs of overdrafts to fall as part of UK banks overhaul Costs of overdrafts to fall as part of UK banks overhaul
(35 minutes later)
A package of measures intended to save bank customers £1bn over five years has faced criticism for failing to provide a robust approach to breaking the stranglehold of the “big four” on the high street. A package of measures intended to save bank customers £1bn over five years has been widely criticised for failing to provide a robust approach to breaking the stranglehold of the “big four” on the high street.
Even as the Competition and Markets Authority pledged to halve the £1.2bn customers pay in unauthorised overdraft fees each year, consumer bodies, challenger banks and independent analysts said the measures would do little to crack the 77% combined market share of Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays on current accounts. Even as the Competition and Markets Authority pledged to halve the £1.2bn customers pay in unauthorised overdraft fees each year, consumer bodies, challenger banks and independent analysts said on Tuesday that the measures would do little to crack the 77% market share Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays have on current accounts.
A number of measures were outlined by the CMA, which has spent £5m on an investigation that was announced in July 2014 at a time when the Labour party was promising to create new banks. Through current accounts and small business, the big four generate £14bn of revenue a year.A number of measures were outlined by the CMA, which has spent £5m on an investigation that was announced in July 2014 at a time when the Labour party was promising to create new banks. Through current accounts and small business, the big four generate £14bn of revenue a year.
In a market where it is notoriously difficult to compare the accounts on offer, the CMA wants to encourage customers to switch. This would save up to £153 on average for overdraft users , up from £140 in the October report. In a market where it is notoriously difficult to compare the accounts on offer, the CMA wants to encourage customers to switch. This would save up to £153 on average for overdraft users, up from £140 in the October report.
Alasdair Smith, chair of the CMA’s retail banking investigation, is relying on the use of new technology to crack the competition conundrum that has sparked 10 investigations in the last 20 years. The CMA is ordering the major players to upgrade their IT capabilities by creating an “API” to enable price comparison websites to offer better information on rival products. This has to be done by the end of March 2017. Alasdair Smith, chair of the CMA’s retail banking inquiry, is relying on the use of new technology to crack the competition conundrum that has sparked 10 investigations in the last 20 years. The CMA is ordering the major players to upgrade their IT capabilities by creating an “API” to enable price comparison websites to offer better information on rival products. This has to be done by the end of March 2017.
But, Smith admitted, the proposed saving over five years of £1bn was based on a small increase in the number of customers switching their current accounts each year from 3% to 4% - around an extra 300,000 customers. The CMA estimates that the industry will incur costs of between £75– £110m to implement the changes. But Smith added that the proposed saving over five years of £1bn was based on a small increase in the number of customers switching their current accounts each year from 3% to 4% – about an extra 300,000 customers. The CMA estimates that the industry will incur costs of between £75m– £110m to implement the changes.
The other measures include:The other measures include:
Alex Neill, director of policy and campaigns at consumer body Which?, said: “After 18 months this inquiry achieved little more than to propose basic information measures that the big banks should have introduced years ago. Steps to stimulate switching are welcome but the chance to deliver better banking for call consumers has been missed”. Alex Neill, director of policy and campaigns at consumer body Which?, said: “After 18 months this inquiry achieved little more than to propose basic information measures that the big banks should have introduced years ago. Steps to stimulate switching are welcome but the chance to deliver better banking for call consumers has been missed.”
Smith defended the CMA’s decision to back away from avoiding radical measures such as breaking up banks or demanding account portability, where customers keep their account number, because it could cost up to £10bn. Smith defended the CMA’s decision to back away from avoiding radical measures such as breaking up banks or demanding account portability, whereby customers keep their account number, because it could cost up to £10bn.
Criticised after a preliminary report in October for not taking bold enough measures, the CMA also incurred the wrath of challenger banks by refused to ban “free-if-in-credit” banking accounts, which rival banks say hides the true costs of banking.Criticised after a preliminary report in October for not taking bold enough measures, the CMA also incurred the wrath of challenger banks by refused to ban “free-if-in-credit” banking accounts, which rival banks say hides the true costs of banking.
Paul Pester, chief executive of TSB, spun out of Lloyds, said the CMA had “missed a golden opportunity” by refusing to require banks to issue customers with monthly bills to tackle the hidden costs of free banking.Paul Pester, chief executive of TSB, spun out of Lloyds, said the CMA had “missed a golden opportunity” by refusing to require banks to issue customers with monthly bills to tackle the hidden costs of free banking.
Kohn Lyons, retail and commercial banking leader and partner at PwC, said: “A market which was seen by many as a closed shop despite new entrants looking to make inroads is unlikely to be transformed by the range of proposed remedies published today.”Kohn Lyons, retail and commercial banking leader and partner at PwC, said: “A market which was seen by many as a closed shop despite new entrants looking to make inroads is unlikely to be transformed by the range of proposed remedies published today.”
Customers rarely move their accounts: nearly 60% of personal customers have stayed with the same bank for over 10 years and over 90% of small businesses get their business loans from the bank where they have their current account.Customers rarely move their accounts: nearly 60% of personal customers have stayed with the same bank for over 10 years and over 90% of small businesses get their business loans from the bank where they have their current account.
“There is therefore not going to be a single ‘magic bullet’ that puts everything right,” the CMA’s 400 page report said.“There is therefore not going to be a single ‘magic bullet’ that puts everything right,” the CMA’s 400 page report said.
Smith said: “I don’t accept ... that this is a missed opportunity ... I’d rather do it properly than do it quickly.”Smith said: “I don’t accept ... that this is a missed opportunity ... I’d rather do it properly than do it quickly.”
“For too long, banks have been able to sit back and not work hard enough for their personal and small business customers.“For too long, banks have been able to sit back and not work hard enough for their personal and small business customers.
“We believe the strong and innovative package of measures we are proposing will give customers the information and tools they really need to get a better deal out of the banks. They will also protect those who fall into overdraft from being stung with unexpected fees.”“We believe the strong and innovative package of measures we are proposing will give customers the information and tools they really need to get a better deal out of the banks. They will also protect those who fall into overdraft from being stung with unexpected fees.”