How far should the state go in making banks more competitive? Some would like to see RBS, Lloyds, HSBC and Barclays broken up, but the Competition and Markets Authority stopped short of that with its new recommendations for the sector, published today.
That's not to say it isnt concerned by a lack of competition in the market. A majority (57%) of consumers have been with their current account provider for more than 10 years, and 37% for more than 20 years, the report said, meaning that 'banks do not have strong enough incentives to work hard to compete for customers through better products or cheaper prices.' That's despite the impact of the Current Account Switch Service, launched two years ago to make it easier to change banks.
The lack of switching could be because there isn't enough choice, of course, but the new breed of challengers like Metro Bank and the spinning out of TSB from Lloyds & Williams and Glynn from RBS (coming next year) means that the number of options is increasing. So rather than breaking them apart, the CMA is proposing that the banks be forced to encourage more switching.
'Despite some encouraging developments, particularly in the shape of challengers that have entered the market in recent years, for too long banks have been able to sit back and take their existing customers for granted,' said Alasdair Smith, chairman of the investigation. 'We don’t think that customers will truly benefit from a more competitive marketplace until they can compare accounts more easily and feel confident that they can switch without risk.'
The report suggests making banks remind their customers they have the option to switch after certain 'trigger points', like a loss of online service, closure of their local branch or a change in their terms and conditions. That seems sensible, but will be hard to enforce. Obviously banks won't want to actively encourage their customers to leave, and will do everything they can to make sure such reminders are as unattractive as possible - whilst sticking to the letter of the law, of course...
Other proposals, including increased funding from the banks for a more prominent promotional campaign for CASS, a comparison site for small business accounts, and making it easier to compare accounts based on a customers' precise circumstances, could certainly force the banks to up their game somewhat.
Ultimately though, it's all a question of whether consumers are actually all that fussed. The difference between a current account offered by HSBC, one offered by Natwest and even one offered by Metro Bank remains marginal, so it tends to only be because of a particularly bad experience that people decide to move on. The CMA can lead consumers to the water, but it cannot make them switch drinks.