UK Banking System Still Disappoints

by | Jul 18, 2014

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The UK banking system is still letting down small businesses and consumers.

So says the Competition Markets Authority (CMA) which today has published two studies into the sector, with the Financial Conduct Authority (FCA) also providing input. The studies conclude that many parts of the UK retail banking sector do not meet the needs of SMEs, or personal customers. The key problem is the lack of effective competition.

According to the statement from the CMA: “…the market studies have identified a number of common concerns, together with evidence that competition is not effectively serving the interests of SMEs or PCA customers. In particular:


·         Barriers to entry and expansion for newer and smaller banks remain significant and the markets remain concentrated, particularly in Scotland and Northern Ireland.

·         There is very little movement in the market share of the largest banks (other than as a result of mergers and acquisitions).

·         Many customers see little difference between the largest banks in terms of the services they offer.


·         Levels of shopping around and switching between banks remain low. Perhaps as a result, very limited market share gains have been made in recent years by those banks with the highest levels of customer satisfaction – not what would normally be expected in well-functioning competitive markets.

·         Limited transparency, and difficulties for customers in making comparisons between banks, particularly for overdraft charges on PCAs which are very complex. This makes it hard for customers to choose the cheapest or most appropriate accounts for them, so limiting banks’ incentives to compete. This may result in higher overdraft charges than would otherwise be the case.

·         It is also possible that, particularly for PCAs, there is a degree of cross-subsidy, both from other retail banking products and, on the ‘free-if-in-credit’ model, between different customer groups, which may distort competition.”


The CMA is looking into launching a further in-depth investigation into the markets for personal current accounts and SME banking. 

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