CMA's report 'a missed opportunity to improve competition in the retail banking sector'
CMA’s final report into the retail banking market is a missed opportunity to create a competitive banking sector that better serves businesses and personal consumers
The Community Investment Coalition (CIC) has described the CMA’s final report on its investigation into the retail banking market as a missed opportunity to improve competition in the retail banking sector and so improve banking services for businesses and consumers.
While some of the CMA’s recommendations are welcome, such as proposing to employ open-API to facilitate easier development of price comparison, such steps are incremental. More substantial measures are needed to create a competitive customer focused banking sector.
CIC reiterates the need for the following measures to be implemented:
Scale up the alternative finance sector targeted at underserved businesses: CIC welcomes the acknowledgement of the critical role the British Business Bank is playing in supporting access to finance for SMEs. However, more can be done to support the sector overall. In the past 10 years, responsible finance providers have lent a total of £1.6 billion to 55,000 business charities and social enterprises, creating 68,000 jobs and helping to protect a further 41,000 jobs at risk. £0.595bn was added to the economy from responsible lending to businesses in 2015. Demand for responsible finance is growing; our research suggests potential annual demand of £6.75 billion.
Empower communities of consumers with access to information: UK data on financial exclusion has been described by the Harvard Kennedy School of Government as “appallingly scarce”. To adequately counteract socio-geographical imbalances in access to financial services, banks must be required to release anonymised data at the postcode level on how they are lending, so underserved areas can be pinpointed.
Make a decision on portable account numbers: The proposed remedies leave the option of portable bank account numbers in limbo but successive enquiries have shown that this would make a significant difference (as happened with the mobile phone industry). It is not clear that the impact on the end user has taken precedence in failing to take action on this issue.
Move to a transparent, paid-for current account system and do away with hidden, unclear and excessive fees: Under the FIIC model, lower income customers will remain more likely to pay towards unarranged overdraft fees, despite the introduction of caps. The most vulnerable customers effectively subsidise the PCA of higher income customers using a borrowing facility with no expressed APR. Additionally, as has been pointed out by others such as Which?, the so-called cap is set by banks themselves, reinforcing a system which relies on punitive charges to be profitable.
Encourage more robust referral schemes from the main high street banks: Those denied access to finance on the high street should be referred to responsible finance providers. While progress has been made it has had limited impact to date.
Jennifer Tankard, Director of CIC, said:
“While there has been some good progress in increasing competition in the retail banking market since the 2008 banking crisis, whole groups of customers such as those on low incomes and small and micro businesses are either under-served by the main retail banks or have no access to affordable and appropriate financial products. While some of the recommendations of the CMA are welcomed, such as better information for customers and alerts to help people more effectively manage their money, these are tinkering around the edges. Portable bank accounts, scaling up the alternative finance sector, such as community development finance institutions and better sign posting to alternatives for customers and businesses who the banks cannot serve would have real impact on creating a truly consumer focused banking sector in the UK.”