We are now just days away from the start of what could be the biggest shake-up in banking for a generation. At least that’s what I am hoping. The Competition and Markets Authority’s (CMA) investigation into banking offers a golden opportunity to turn the industry on its head and put customers in control at last.
Today’s government has done more than most to push competition in banking up the political agenda, but people are still more likely to get divorced than switch bank accounts.
Despite frequently voiced disillusionment with the big banks, they retain their stranglehold on the industry, controlling over 85 per cent of all UK current accounts.
Much has been made of the number of new banks entering the market in recent years, of which TSB has been the largest, now holding 4.4 per cent of the current account market overall. But, collectively, all the other new players have secured a little over 1 per cent of UK main bank accounts in the past decade.
The market remains heavily stacked in the big banks’ favour and that is why the CMA must seize its chance to break their stranglehold.
It’s no exaggeration to say the banking industry needs to be exposed to the full force of competition.
Just look at what has happened in other industries. Startup and challenger airlines have opened up trans-Atlantic travel and short breaks across Europe to millions of people, by bringing new choice and innovation to their market.
Households are also reaping the benefits of new competition in retail, as online and new challengers shake up the way we shop – and how we’re served.
At TSB, we’ve identified some of the key barriers to competition in banking and are proposing four simple changes to bring real competition to the market, and put consumers in control at last.
The big banks claim customers are “inert” but, to us, it’s clear that, under the current system, many customers are simply “trapped” with their bank.
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At the heart of the matter lies a lack of transparency. At present the industry seems determined to perpetuate the myth that banking is free. It is not.
This smoke and mirrors illusion makes it almost impossible for people to compare accounts and make an informed choice to switch to a better deal.
This means that too many people believe banks are all the same and it isn’t worth what they believe will be a hassle to move.
Our proposals seek to free customers.
Banking must be the only industry that does not send customers a standard format bill each month. This must change. All banks should be obliged to lay out how much customers are paying through things such as forgone interest, as well as overdraft charges.
Lack of awareness of the CASS switching service is also a problem, with TSB research showing just 16 per cent of people know it exists and only one in 50 switchers using it.
CASS also needs reforming to make it easier for people to switch banks – especially those who would benefit most, regular overdraft users.
Under the current system, these customers are effectively trapped. This is because they must pay off their existing overdraft before they can switch; something many could not afford. On top of this, there is no guarantee that they would be offered the same overdraft facility by their new provider if they switch.
This could be easily rectified with a “credit passport” containing key customer data, which would give banks the visibility needed to assess whether they are comfortable matching their current overdraft.
We believe only real competition has the potential to fix the culture in UK banking. In a truly competitive market, consumers will be offered genuine choice and a level of transparency they’ve never seen before, so they can make informed choices and switch with ease. Only then will we see customers genuinely voting with their feet.