The Competition and Markets Authority (CMA) has decided that the banking industry isn’t competitive enough and should be investigated. Big whoop…
What does this mean? Well, in around 18 months, we’ll be fed a bundle of spiel and headlines which tell us more-or-less what we already know.
Banks frequently use complex terminology to penalise customers, the CMA’s preliminary report said, owing to an uncompetitive market that offers little motivation for banks to change.
The savings market is also particularly weak at the moment. We might have hoped that the introduction of new ISA regulations this month would have prompted a positive response from banks. Instead, we saw the opposite. Banks withdrew accounts and cut rates.
So, even though a majority of people can probably bypass savings tax altogether, the impact of the incentives remains frustratingly muted. The recent rise in inflation reminds us that we cannot rely on low price rises to excuse poor returns on our savings.
One or two banks, like that over-eager schoolkid desperate to impress, think they are taking the initiative by trying to suck up to consumers. Leicester’s buses are currently decked with NatWest’s ‘fairness’ campaign, which involved the bank stripping all bonus-based products from its listings.
In the interests of ‘fairness’, all of its best deals have gone. How does that aid competition or improve conditions for consumers?
Part of the overriding problem has been Government interference. The Funding for Lending Scheme offered banks cheap funds to promote lending, which resulted in a reignited housing market and a savings rates collapse.
The Government withdrew support for residential lending in January to focus on commercial lending instead, but the savings market has struggled to recover.
The other hindrance has been the barriers to entry for new banking entrants. In 2010, Metro Bank became the first new bank to enter the UK high street in over 100 years. Just last week, the Family Building Society became the first new building society to open its doors in over 30 years.
But how much of an impact can these entrants really make? While Metro Bank’s progress has been steady, it is still barely scratching the surface of the big-name banks.
Founder Vernon Hill acknowledged how hard it is for a new bank to enter the market.
“It is hard creating a new bank from scratch,” he said. “The environment is hard what with raising capital, dealing with regulation and having the right IT. We are the only really new bank in the country.”
It remains to be seen whether powerful new players in the current account market, Tesco Bank, the Post Office, and (eventually) Virgin Money, can ruffle any feathers among the status quo.
Given the rate at which branches are closing, it would make sense if the affected minorities turned to the Post Office, whose branch network is unrivalled in the UK. But it’s generally difficult to say. One suspects that most will try and tough it out with their existing bank, no matter how difficult it gets or how poor the service becomes.
Vote with your Fingers: Switch Now!
Part of the solution must be down to us, too. The CMA report revealed that only 3% of us switch banks each year. Compared to the number of us who are prepared to switch our energy or insurance providers, that’s a drop in the ocean.
We have to send banks a message that we matter and that we want change. We can do this by using the tools we’re given to find better alternatives.
Last September, a new £750 million system was launched that allows us to switch our current accounts in just seven days, complete with fail-safes and guarantees.
The response has been pretty underwhelming.
For what it’s worth, though, it has shown that the providers who offer better current account deals are winning customers from rival banks.
(Source: TNS Global)
There’s now talk of a state-backed price comparison system that will offer customers a comprehensive picture of which accounts best suit their needs. This could be up and running within a year.
As consumers, we need to break free of inertia and make use of these hassle-free options.
It’s all very well saying that “all banks are the same” – the CMA may well agree. But they’re all needy for customers too. If people vote with their feet (or fingers), they’ll have to do something about it.
If we fail to make the most of the chances we’re given, we’ll be waiting 18 months for this pitiable inquiry, learn barely anything new from it, and the impact of any changes forced upon the banking industry will be lukewarm at best.