UK regulator calls on banks to reduce costs for customers
The UK Competition and Markets Authority (CMA) has unveiled a range of measures designed to save customers £92 per year, following a two-year study of the sector. The watchdog has called for banks to use new technology, such as a digital apps or price comparison websites, to help customers view hidden charges. The CMA has also indicated that the technology behind Google Maps and Uber should be used to promote competition by sharing information between rival banks and customers. Banks will also be required to send alerts to customers going overdrawn and to impose a monthly cap on overdraft charges.

A package of measures intended to help customers save £92 a year by switching their bank accounts has faced criticism for failing to do enough to encourage competition among the high street banks.

After two-year investigation into the sector, the competition watchdog said technological advances that helped the development of Uber and Google Maps would make it easier for customers to compare bank accounts and should encourage customers to shop around.

The £5m investigation by the Competition and Markets Authority – first announced in July 2014 when former Labour leader Ed Miliband was vowing to create new banks – is intended to kickstart competition in a sector where only 3% of personal and 4% of business customers switch to a different bank in any year.

It also tried to tackle the £1.2bn a year the banks make from unarranged overdraft charges, as customers with overdrafts find it more difficult to change accounts. Banks will be required to send alerts to customers going into the red and set a monthly cap on such charges, which some campaigners argue are higher than those levied by payday lenders such as Wonga.

But Alex Neill, director of policy and campaigns at consumer watchdog Which?, said: “It is disappointing that the monthly charge cap is not actually a cap and banks will be allowed to continue to charge exorbitant fees for so-called unauthorised overdrafts, rather than protect those customers that have been identified as among the most vulnerable.”

The CMA stepped back from breaking up the big four – Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays – which control 77% of the current account market and more than 80% of small business accounts.

The key plank of the proposals is the adoption of new technology in 2018 that will enable customers to see hidden charges applied to their accounts, allowing them to shop around for the best deal. This might eventually happen through the creation of a “digital app” or a sophisticated price comparison website – but this “open banking” technology will need to be developed.



Alasdair Smith, who chaired the investigation and has faced criticism in the past for holding back from tough reforms, said: “We are breaking down the barriers which have made it too easy for established banks to hold on to their customers. Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy.”

The CMA said that personal customers could save £92 on average a year by switching provider, with savings of around £80 a year on average available for small businesses. “Larger savings are available for overdraft users – for example, personal customers who are overdrawn for one or two weeks every month could save £180 per year on average,” the CMA said.

The use of free-if-in-credit banking – in which customers do not pay a fee for services if they do not go overdrawn, but do not receive interest on their balances – by the big four is often criticised as impeding competition. This is because it can make it difficult for customers to see how much they are paying for their banking services in hidden charges.



Spanish-owned TSB – once part of Lloyds – wanted customers to be sent monthly bills to tackle this. Paul Pester, chief executive of TSB, said: “The CMA has played right into the hands of the big banks and missed a golden opportunity to enable people across the UK to get a better deal from their banks.”

MPs were also unimpressed. The Treasury select committee will call the CMA to give evidence in the autumn and Andrew Tyrie, the Conservative MP who chairs the committee, said the MPs would not give up on trying to find ways to give customers more choice.

“Until people are able to find out how much their bank charges them for their current account, millions of customers will be denied genuine choice in retail banking. There’s a lot to digest but, based on what I’ve seen so far, I’m not optimistic that the CMA’s remedies will get to the heart of the problem,” said Tyrie.

Rachel Reeves, a Labour MP who sits on the committee, will ask the Financial Conduct Authority to consider measures similar to those imposed on payday lenders to cap charges on overdrafts.

The measures that were rejected

Breaking up banks

The CMA concluded there was insufficient evidence that the current structure of the industry was hurting competition. The separation of TBS from Lloyds Banking Group and the troublesome split of 300 Williams & Glyn branches out of Royal Bank of Scotland were “expensive” and “high disruptive” for customers. Both those divestments were demanded by the EU as a result of the taxpayer bailouts.

Ending free-if-in-credit banking

The CMA concludes this works well for many customers. The real problem is whether customers can work out if they are getting the best deal.

Easing capital requirements for mortgages

New banks need to hold more capital for lending than established players. Two members of the inquiry group thought this could be a barrier to entry but it was rejected on the grounds that it was not appropriate to create “regulatory uncertainty” given work already being undertaken by the Bank of England.