THE OFFICE of Fair Trading (OFT) said yesterday that smaller retail banks face significant challenges when trying to entice customers away from the high street giants.
Customers are reluctant to switch banks and remain loyal to existing brands, the watchdog said in a research paper published yesterday.
Smaller banks also complained of difficulties in getting approval from the Financial Services Authority, and of higher capital requirements hitting new entrants disproportionately.
“A number of firms have recently entered the market, and more are expected to follow,” said OFT executive director for goods, services and mergers Clive Maxwell, in a nod to the newly-opened Metro Bank.
“While we found few barriers to setting up, new firms trying to grow in this market face difficulties due to customers’ low levels of switching, loyalty to incumbent providers, and attachment to a local branch.”
The OFT also warned that a lack of inter-bank lending following the financial crisis could also hinder the growth of new banking groups.
The OFT’s review will be submitted to the Independent Commission on Banking, which was set up by the new government in June to look at competition and stability in the banking market.