YESTERDAY, the Competition and Markets Authority (CMA) announced that it will be launching far-reaching investigations into the state of competition in the personal current account and smaller business banking markets.
This is an extremely significant development, and one that the government welcomes. It is exactly why we created the CMA. A key part of our long-term economic plan is to inject much more competition into the UK banking sector, and the CMA’s decision represents an important next step towards achieving this.
It means that, having conducted an initial investigation of the market, the CMA has significant concerns. It also means that the solutions it might ultimately impose could have big implications for the banks, up to and including requiring them to sell off parts of their businesses to improve competition.
The government backs the CMA’s action here because competition is the fuel that drives the engine of economic growth. Where markets exhibit strong competition, it keeps firms honest, drives them to innovate, and makes them work harder to provide the best possible products and services for their customers.
But for too long, we have had a banking sector where competition has not been as vigorous as we would want. When it comes down to it, lack of competition means the customer loses out.
So what has the government done about it? To start, we’ve totally overhauled the way banks are regulated. We now have two new, stronger regulators: the Financial Conduct Authority and the Prudential Regulation Authority, both of which have been given statutory objectives on competition. In addition, we have created a new Payments Systems Regulator, which will help ensure that the payments systems – essential to offering banking services – aren’t a closed shop run by the big banks.
For competition to function, firms need to be able to succeed and fail. The government has looked to ensure this by addressing the problem of big banks being “too big to fail”. No longer will poorly-performing banks maintain their place in the market by right. And on the other hand, the government has looked to ensure that it’s easier for new banks to get started and give the big players a run for their money.
This is bearing fruit already, with around 25 potential new banks in discussions with regulators. The results can also be seen in the parade of new names now featuring on UK high streets, including TSB, Metro Bank, Tesco Bank and Virgin Money.
Within this broader picture, the two markets the CMA has picked out – personal current accounts and SME banking – have also been particular priorities for the government, and we’ve seen some big changes here already.
On personal current accounts, we tasked the banks with building the Current Account Switch Service, which has made it much easier for customers to vote with their feet and move account providers if they are unhappy. We also secured a commitment from the banks to the Midata programme: from April 2015, customers will be able to use their own current account data with comparison tools that will help them find the best product. Together, these two initiatives mean banks will have to work that much harder to win and keep their current account customers.
And on SME banking – the vital lifeline for companies that employ so many of us – we are legislating to ensure alternative lenders can access important credit data on smaller businesses, and for a referrals process to link up smaller businesses that get rejected for finance with alternative lenders. Both of these moves will help level the playing field by making it easier for smaller businesses to get a loan from lenders other than their bank.
Much has been done, but much more remains to do. That is why I welcome the CMA’s decision as an important next step. We in government are determined to continue this journey, and will not rest until we have a fiercely competitive banking sector, delivering the best possible outcomes for customers and the country.