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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
(about 3 hours later)
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. Banks will be forced to publish their maximum overdraft charges as part of measures intended to save customers £1bn over five years, by encouraging switching and 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 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. But even as the Competition and Markets Authority pledged the measures would halve the £1.2bn customers pay in unauthorised overdraft fees each year, consumer bodies, challenger banks and independent analysts said they 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. The competition watchdog has spent £5m on its investigation, first announced in July 2014 at a time when the Labour party was promising to create new banks. The banking industry generates £14bn of revenue a year from current accounts and small businesses, and the watchdog calculated overdraft users could save up to £153 on average by switching accounts.
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 inquiry, is relying on the use of new technology to crack a 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 online system that would 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 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.” Smith said the proposed saving to customers over five years of £1bn was based on an increase in the number of customers switching their current accounts each year from 3% to 4%.
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. The move on overdraft charges was welcomed by Gillian Guy, chief executive of Citizens Advice, who said the charity helped with 55,000 overdraft problems a year, where in some cases consumers are charged more than they would be for a payday loan.
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. But 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 all consumers has been missed.”
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. 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 have cost up to £10bn.
Criticised after its preliminary report in October for not taking bold enough measures, the CMA also incurred the wrath of challenger banks by refusing to ban “free-if-in-credit” banking accounts, which rival banks say hide 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.
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. Banks analyst Sandy Chen at Cenkos said Lloyds had most to lose because of its high share of current accounts at around 25% and its reliance on them for generating income.
“There is therefore not going to be a single ‘magic bullet’ that puts everything right,” the CMA’s 400 page report said. Customers rarely move their accounts: nearly 60% of personal customers have stayed with the same bank for more than 10 years. More than 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.
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.”
The CMA estimates that the industry will incur costs of £75m– £110m to implement the changes. A consultation runs until 7 June before the final report on 12 August.
Harriett Baldwin, the Treasury minister, said the report was “an important piece of work and we stand ready to take action once the final report is published in the summer”.