From small challengers and fintech upstarts to larger disruptors such as Virgin Money, the world of banking is slowly starting to evolve with the times. The industry is ripe and ready for disruption and I want to see UK banking opened up to the full force of true competition.
The UK’s competition watchdog, the Competition and Markets Authority (CMA), recently announced its provisional findings as part of its investigation into the personal current account and SME banking sectors. It made clear that retail banking is massively important to consumers and to the UK economy as a whole and, critically, that banks do not have to work nearly hard enough to compete for customers.
Low levels of customer switching mean that banks are not put under enough competitive pressure, and new products and new banks do not attract customers quickly enough. As such, the CMA is proposing a better deal for bank customers and remedies which focus heavily on switching, transparency and comparability.
This is good news. But there is a much bigger opportunity at stake.
The CMA has provisionally decided not to recommend remedies addressing “free banking”. To me, this misses the point. Nothing is ever free. The point is that affluent people tend to benefit from “free” banking while those that are less well-off are charged heavily for overdrafts and minor breaches of terms and conditions. That sort of cross subsidy isn’t right and isn’t sustainable in the long term.
The myth of “free banking”, together with the fact that the four dominant banks look and feel very similar to each other, leads directly to a lack of customer engagement and low switching. The complexity of pricing under the “free” model makes it very hard for customers to understand the true cost of their banking. A move towards clearer pricing would be a first important step to delivering true transparency.
Greater competition in retail banking would improve standards and deliver real consumer benefits in terms of service and innovation. I believe the way to achieve this is through full account number portability – in other words, allowing customers to take their account number with them when they move institution.
In the same way that Oftel changed the mobile phone industry in the late 90s, account number portability in the current account market could really bring positive change for today’s consumer. Suddenly mobile phone companies couldn’t rip off customers by making it hard to switch. No longer could they lock you in and charge higher fees because people simply didn’t want to change their number when moving provider. The UK was the first country in the world to give consumers the ability to keep their mobile phone number. We haven’t looked back.
That simple change delivered huge innovation in a market we now all rely on. It ultimately enabled the smart mobile technology of today. The parallels between banking now and the historical mobile phone market are extraordinarily telling: the big banks still lock in customers because it remains far too much of a risk – and a pain – to move your account.
Switching currently requires a huge upheaval in your own personal payments infrastructure and, while the big banks continue to monopolise UK current accounts, there is no motivation for them to change.
If banks could no longer lock in customers through lack of choice and the complexity of switching, innovation would follow. Banks would have to compete based on new and improved services to customers.
UK retail banking is ripe for disruption. Full account number portability is the real game-changer that could deliver smart banking. Now is the time for the CMA to show some teeth, level the playing field, and allow competition to flourish.