A new financial watchdog has said it could launch a full-blown investigation into high street banks which it believes are strangling competition in the current account market.
The Competition and Markets Authority (CMA) has revealed a full competition inquiry could begin this year after finding essential parts of the UK retail banking sector lack competition and fail to meet the needs of consumers or small businesses.
In particular, the CMA wants to look at the markets for personal current accounts and the banking services provided to small and medium-sized firms (SMEs).
Among the main concerns the CMA has identified are that many customers see little difference between the largest banks in terms of the services they offer, and that levels of shopping around and switching remain low.
The CMA also suggests that limited transparency, together with difficulties for current account customers in making comparisons between banks (particularly for overdraft charges), makes it hard for customers to choose the cheapest or most appropriate accounts for them.
In turn, the CMA says this limits banks' incentives to compete, and may result in higher overdraft charges.
The study also found that the largest four current account providers account for over 77% of the market in the UK, while notable new entrants, such as Metro Bank, Tesco Bank and TSB, have a combined market share of just 5%, of which TSB represents 4.2%.
While acknowledging the new current account switching service seems to be working, the CMA said there had still been relatively little increase in switching in its first nine months, with only 3% of account holders switching bank each year.
Reacting to the announcement, BBA chief executive Anthony Browne said banks would co-operate fully with the review, and any subsequent investigation, adding that "substantial changes" were currently underway to strengthen competition and so improve choice and service for customers.
"Banks are pro-competition – they compete for customers every day," he added. "Last month we published a series of ideas to help new banks set up and smaller players to grow. We hope these suggestions will be taken up by regulators and politicians."
How to switch
If you've never thought about switching your current account, there has probably never been a better time to do so. The introduction of the Current Account Switch Service has made it easier, faster and safer to switch current accounts than ever before.
Once you've found a suitable account and have checked the bank is part of the scheme (those participating will display the Current Account Switch Guarantee Trustmark) you can get things underway.
All you need to do is let the new bank know your intention to switch, provide them with proof of your identity (such as a utility bill, bank statement, passport or driving licence), agree a specific switch date and fill in a couple of forms – a Current Account Switch Agreement form and a Current Account Closure Instruction form – and they'll take it from there.
How long does the switching process take?
Under the new rules, a new current account must be fully operational within seven working days.
Your existing provider is obliged to supply the new bank or building society with any Direct Debit and standing order details, and once the switch has taken place any payments coming in or going out of your old account will be automatically redirected for 13 months. Any money remaining on the switch date will also be automatically transferred to the new account.
Will I have to pay any charges if errors are made?
No. The Current Account Switch Guarantee ensures that, should mistakes be made and penalties incurred (such as charges levied should Direct Debits be taken from your old account), you'll be completely refunded.
The same applies if you suffer from loss of interest or have any other problems during the switching process.
Plan when you'll switch accounts
Although the Current Account Switch Guarantee will cover you if mistakes occur, it'll make things a lot simpler if you plan your switch date according to when regular payments tend to be made.
If, for example, your standing orders and Direct Debits leave your account on a certain date each month, it's a good idea to arrange for the switch to take place shortly after, and your agreed switch date will need to be at least seven working days after your new account officially opens.
Can I switch accounts if I'm overdrawn?
Yes, and your new bank may offer ways to help you pay off your overdraft (subject to usual lending criteria).
Can I change my mind?
Yes, but only up to seven working days before the agreed switch date. After that only certain elements can be cancelled.
Will I have to pay?
No, it's an entirely free service that's been designed by the Payments Council to make switching quick and easy. Why not take advantage of it
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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