This article is from the source 'guardian' and was first published or seen
on .
It last changed over 40 days ago and won't be checked again for changes.
‘Crunch time’ for Britain’s big four banks as competition inquiry launched
Free banking in the firing line as competition inquiry launches
(about 7 hours later)
Britain’s major banks are to be subjected to an 18-month investigation into how they treat their small business and personal customers in a move welcomed by consumer bodies and new entrants trying to break the stranglehold of the “big four”.
The future of free banking could be on the line after the UK competition watchdog confirmed it was launching a full-scale investigation into the way the “big four” treat their small business and personal customers.
Alex Chisholm, the head of the Competition and Markets Authority (CMA), is to embark on the most detailed analysis of the sector for a decade after concluding that customers are not getting a good enough deal from the major high street players. Major banks could be broken up and it could signal the end of free banking for current accounts.
Alex Chisholm, head of the Competition and Markets Authority (CMA) on Thursday rejected calls from the big banks to stop an investigation which he had first suggested in July. The inquiry will last up to 18 months and could eventually demand that the banks are broken up to force greater competition.
The CMA, only in operation since April, said a previous deal between its predecessor competition body and the industry over the treatment of small business customers – in operation since 2002 – is also to be reviewed.
The decision to press ahead was welcomed by consumer groups and would-be challenger banks which have been attempting to break the stranglehold of the big four – Barclays, HSBC and bailed-out Lloyds Banking Group and Royal Bank of Scotland – which together have a 77% share of personal current accounts and an 85% share of small business banking. These market shares have barely altered over the past 15 years, despite almost a dozen previous investigations .
According to the CMA, the big four – Barclays, HSBC and bailed-out Lloyds Banking Group and Royal Bank of Scotland – have a 77% share of personal current accounts and an 85% share of small business banking, market shares that have barely shifted despite almost a dozen investigations in the past 15 years.
Small business leaders said it was a unique opportunity to force through change and the consumer body Which? said it was a “crunch time” for the banks. The boss of “challenger” bank TSB, Paul Pester, said: “Customers have been crying out for a root-and-branch investigation like this for years. The big four banks have had a stranglehold on the market for too long.”
His investigation into the two areas, which generate £10bn a year in revenue for the banking sector, will not be concluded until after the general election in May 2015 although an interim report is scheduled for the summer.
Experts said it was time to tackle “free banking” for personal current account customers who remain in credit. “The CMA has the perfect opportunity to tackle the elephant in the room – free in-credit banking,” said Omar Ali at accountants EY.
Small business leaders said it was a unique opportunity to force through change and the consumer body Which? said it was “crunch time” for the banks.
Lloyds, the biggest current account provider, also acknowledged the free banking debate in its submission to the CMA, calling for an assessment of “whether more heterogeneous pricing structures would improve comparability and customers engagement”.
Chisholm had signalled his intention to launch the investigation in July but conducted a two-month consultation until mid September before reaching the conclusion that a full-blown investigation was needed.
The review will not be concluded until after the general election in May 2015 with an interim report scheduled for the summer, which prompted some concern about whether the findings would be adopted by a new government. Labour leader Ed Miliband has already called for a break-up of the banks.
“After carefully considering the consultation responses, most of which supported a market investigation, we remain of the view that there should be a full market investigation into the sector,” he said.
Chisholm said the big four had opposed the investigation, as had the Institute of Directors, but most of the other respondents to the two-month consultation supported a review of a market that generates £10bn of revenue a year.
“Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy,” he added.
The big players had tried to convince Chisholm that they were serious about embarking on initiatives to make it easier for customers to compare accounts by setting up a comparison website and setting standards to make it easier for small business customers to switch between banks.
The big players had tried to convince Chisholm that they were serious about embarking on initiatives to make it easier for customers to compare accounts by setting up a comparison website and setting standards to make it easier for small business customers to switch between banks.
But, Chisholm said, he was still concerned about a number of areas such as the low levels of customers shopping around and switching, the difficulties customers faced in making comparisons and complex overdraft charges which left some customers with fees of £400 a year.
They had also warned about the costs associated with breaking them up – but the CMA rejected this saying it needed to keep “all remedy options open”.
The CMA said there were also barriers to entry for would-be challengers – despite attempts by the government to make it easier. Chisholm also said branch networks remained important – even though banks are axing their high street presences as customers increasingly use digital and online methods for their basic banking needs.
Chisholm said he was still concerned about the low levels of customers switching accounts, the difficulties customers faced in making comparisons, and complex overdraft charges which left some customers with fees of £400 a year.
Lloyds and RBS are already being forced to carve out branch networks – TSB and Williams & Glyn respectively – to comply with the terms stipulated by the EU at the time of their taxpayer bailouts, which are intended to create new “challenger banks”.
He also said branch networks remained important – even though banks are axing their high street presences as customers increasingly use digital and online methods for their basic banking needs. Bank shares were little moved on the CMA announcement.
“Customers have been crying out for a root-and-branch investigation like this for years,” said Paul Pester, the boss of TSB, in which Lloyds still has a 50% stake. “The big four banks have had a stranglehold on the market for too long.”
Lloyds and RBS are already being forced to carve out branch networks – TSB and Williams & Glyn respectively – to comply with the terms stipulated by the EU at the time of their taxpayer bailouts, which are intended to create new “challenger banks”. The CMA was doubtful about the impact these “divestments” would have on competition, even once they were completed, which in the case of W&G may not be until the end of 2017.
The CMA was doubtful about the impact these “divestments” would have on competition, even once they were completed, which in the case of W&G may not be until the end of 2017.
Lloyds – which was only created in 2008 when Labour used emergency powers to tear up competition rules to allow the rescue of HBOS – had tried to convince the CMA that it was overlooking the future impact of such new entrants.
Lloyds – which was only created in 2008 when Labour used emergency powers to tear up competition rules to allow the rescue of HBOS – had tried to convince the CMA that it was overlooking the future impact of such new entrants.
The banks did manage to extract some changes: Lloyds convinced the watchdog to define a small business as one with turnover of £25m or less and there was another small change to the terms of reference.
The banks had been expecting a competition review next year – as recommended by Sir John Vickers in his independent commission on banking, which also called for banks to ringfence their high street businesses from their “casino” investment banks. HSBC had argued the threat of a break up should lead to a delay of the Vickers’ ringfencing proposals but the CMA rejected this.
But HSBC failed to convince the regulator that the ring fencing proposals being introduced as a result of the recommendations by the independent commission on banking should be delayed while its investigation was underway.
Andrea Leadsom, the City minister, said she was delighted the review was underway while the shadow chancellor, Ed Balls, maintained Labour’s stance that there should be “at least two new challenger banks and a market share test to ensure the market stays competitive for the long term”.
Andrea Leadsom, City minister, said she was delighted the review was underway while the shadow chancellor, Ed Balls, maintained Labour’s stance that there should be “at least two new challenger banks and a market share test to ensure the market stays competitive for the long term”.
Ian Gordon, analyst at Investec, was sceptical that new facts would be unearthed. He warned: “We suspect that, in any case, the CMA’s eventual report may ultimately be lost in a sea of political gridlock in the aftermath of the UK’s May 2015 general election.”
Ian Gordon, analyst at Investec, was sceptical about the outcome: “We really struggle to identify what new facts they may unearth, but we suspect that, in any case, the CMA’s eventual report may ultimately be lost in a sea of political gridlock in the aftermath of the UK’s May 2015 general election.”
Case studies
Sean Wilkinson: small business banking customer, NatWest
For 47 years Cumbria-based painter and decorator Sean Wilkinson has had his business account with the same bank, NatWest – but for the first time he is considering a move. “My father set up the bank account at a time when there was always a bank manager available and we had a good relationship with him,” he says. “But things have been going downhill in the last few years.” Last week Wilkinson went into his branch to pay some money in and was told he had to do it via a machine and couldn’t see a cashier. “The personal service has completely gone now, including our dedicated business relationship manager,” he says. “My accountant has pushed me more than once to switch banks but so far I have resisted.” So why, like so many others, is Wilkinson sticking with one of the big four banks? “I am quite a loyal person,” he says. “And our family has been banking with NatWest for a long time. Also I do find the idea of switching a bit daunting.” However, he now concedes he may make the leap. “I might have to consider a switch if things don’t improve. I would like to move somewhere where I can talk to a person not a machine.”
Lee Marlow: personal account holder, Lloyds
When Lee Marlow was five years old his primary school started a TSB savings scheme. Those who wanted to take part were given a savings account. “I put 50p per week in that account and queued up at lunchtimes to pay it in,” he says. Fast forward 39 years and, after TSB became Lloyds, Marlow, a feature writer on the Leicester Mercury, is still with the bank, though he admits he doesn’t particularly like it. “The main Lloyds bank in Leicester is always chronically understaffed. I still seem to spend far too many of my dinner hours lined up a in a bank queue, just like I did 39 years ago,” he says. “I change my house insurance, car insurance and energy provider every year and I’ve changed my phone and broadband deal, but not my bank.”Marlow says that he is a bit ashamed about that and doesn’t really know why. “I think, wrongly probably, that all banks are about the same and that switching wouldn’t make much difference.”
James McManus: personal account holder, HSBC
It took two recent incidents of poor customer service to make twenty-eight year old James McManus consider switching his account for the first time. He has had his bank account with HSBC since he was a child. But things started to go wrong when McManus and his fiance, Laura, recently applied for a mortgage and a loan. The bank granted them the loan but with double the advertised interest rate and turned them down for a mortgage. This was despite both having spotless credit records. “We were never given an explanation about the loan rate but were eventually cleared for the mortgage and sent flowers by way of apology,” he says. “But this doesn’t change the fact that the bank was repeatedly rude to us and treated us like criminals first.” In the last week McManus has, for the first time in 15 years, been making calls to rival banks. “It is important for me to be able to talk to people at the banks to get an idea of what they are like, though we are also looking for the best current account.”
