If banking ain't broke...

Research suggests people are happy with their banks, so why are we determined to reform the current account market?

by Adam Gale
Last Updated: 15 Feb 2016

When it comes to banking, there’s been a bee in the British bonnet since the sector crashed the economy in 2008-9. Mostly, the public’s and the government’s ire has fallen on investment bankers, whose erstwhile recklessness and vast bonuses seemed an unjust combination.

Retail banking has been in the firing line too, of course, for being uncompetitive. The big banks are too big and customers aren’t getting a good deal, or so we’re told. As part of its review into the personal current account (PCA) market, the Competition and Markets Authority (CMA - last acronym, sorry) commissioned German market researchers GfK to look into consumer attitudes and behaviour.

Taking responses from just over 4,500 people, GfK found that only 3% of customers switched their main PCA last year. Four-fifths didn’t even look for another account, and a similar proportion said they were very or fairly satisfied with their current provider. Not exactly damning evidence on the state of high street banking.

The CMA did say that there were other ways of measuring satisfaction and that satisfaction itself depends on your expectations. If you expect your PC to crash every day, for instance, then if it only crashes every two days you might not be all that unhappy.

Furthermore, the CMA pointed out that ‘there may be better offers at least for some segments of consumers, i.e. there are benefits from switching’.

That’s all very well, but where’s the evidence that the system’s broken and needs fixing? The CMA’s review, testing its three ‘theories of harm’ – that an inability to shop around, high levels of market concentration and barriers to entry respectively hurt customers on price and innovation – is ongoing.

The preliminary research, however, seems to suggest that people don’t think they are getting a bad deal, even though maybe they could be getting a better deal. In particular, the predominant model of PCA - ‘free-if-in-credit’ – is arguably deceptive because customers forgo higher interest payments instead of fees (so it’s not actually free).

Reforming a market even if people don’t realise it’s failing may be important from an economics points of view, but it’s a hard sell politically, especially while interest rates remain so low. ‘Your tiny interest payments could be slightly less tiny if you endure the hassle of changing your bank account’ (our words) isn’t exactly a slogan for the ages.

What the CMA will suggest to make it easier to switch accounts or open the market to more players when it publishes its provisional market review in September remains to be seen, but without the political imperative there may not be enough momentum to see them through.

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