Activity in the current account sector has been ramping up over the last few months, but there are concerns that it isn't working in the interests of consumers as much as it should. That's why the regulators have stepped in – the Competition and Markets Authority (CMA) has announced a full-scale investigation into the current account sector, and it's hoped that competition, transparency and switching will improve as a result.
The CMA confirmed its intention to investigate the sector in July, after which a consultation was launched with the industry. It was widely agreed that a review should take place, but just what's wrong with the market? Well, the key issues include the fact that competition is still largely confined to the big high street names, with a distinct lack of smaller competitors.
There's been very little movement regarding the market share of these big banks, with the UK's four largest providing over three-quarters of personal and business current accounts. Then there's the fact that switching numbers are still relatively low – they may have risen since the Switch Guarantee Service was launched, but it still equates to only a few percent of the UK's current account holders – suggesting that it's difficult for consumers to shop around and make accurate comparisons.
This is compounded by limited transparency, while the complexity of things like overdraft charges can make it even harder for consumers to compare accounts. Overall, there's a general consensus that the sector "could do better", and the investigation – set to be conducted by a Market Reference Group drawn from independent CMA members – will hopefully address the concerns.
Alex Chisholm, CMA chief executive, said: "Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy. We remain of the view that there should be a full market investigation into the sector… The Market Reference Group will investigate in detail and decide what action, if any, may be needed to improve competition for the benefit of personal and small business customers."
Essentially, it means that competition should hopefully improve following the investigation – and that can only be a good thing for consumers. Improved competition (ideally with the inclusion of smaller challenger banks) will mean customers have more high-level products to choose from, and this should give them better service and account features as a result.
The ability to make accurate comparisons will be another clear bonus, as we all know how difficult it can be to muddle through the terms and conditions of accounts. Overall, it's hoped that the investigation will reduce the big four's stronghold on the current account sector, opening up the market to better products, better service and a better deal for consumers.
Sylvia Waycot, editor at Moneyfacts.co.uk, commented:
"The CMA announcement of an investigation into competition in personal current accounts must be seen as good news for consumers. Over recent months, Moneyfacts has seen first hand how, in a bid to be innovative, many current account providers have introduced widely varying overdraft charging structures that at first glance seem to be great deals, but upon closer investigation prove to be far from the bargains they first appeared.
"It is unfair to expect the consumer to judge the cost impact of an overdraft with a daily charge compared with a percentage interest rate as the calculation has too many variants, and is therefore hindering true competition. We should celebrate the many new providers that have joined the current account market but more are needed to maintain healthy competition, and allow us to feel like valued customers and not just sales prospects."
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