Last year, Metro Bank became the first new UK bank with High Street branches in over 100 years Retail banks ‘aren’t competitive’
Last year, Metro Bank became the first new UK bank with High Street branches in over 100 years Retail banking in the UK is not competitive enough, a Commons Treasury Committee report has concluded.
The cross-party group of MPs said there was a lack of price transparency between current accounts at different banks and it was too difficult for customers to move their accounts.
The committee said similar barriers existed for small business customers.
The British Bankers’ Association said the industry was working with regulators to improve competition.
The committee spoke to a range of interested parties, including top industry figures including the former Lloyds chief executive Eric Daniels, Barclays boss Bob Diamond and Royal Bank of Scotland head Stephen Hester.
It also heard from smaller providers and new entrants, along with regulators and experts.
Committee chairman Andrew Tyrie said: “The CEOs (chief executive officers) of the large incumbents told the committee UK retail banking was enormously competitive, but a far larger range of witnesses described the industry as close to an oligopoly.”
“We could not but conclude from this that competition in the UK retail banking market is not strong enough”
Andrew Tyrie Treasury Committee chairman
He said the impact on competition of part-nationalised Lloyds, which took ownership of the Halifax during the banking crisis had not been assessed and might be harming competition.
He said for competition to be effective, customers needed to know what they were buying, how much they were paying and to be able to transfer their custom from one provider to another without risk.
Mr Tyrie added: “We could not but conclude from this that competition in the UK retail banking market is not strong enough.”
The MPs say they are pleased that the Independent Commission on Banking may propose that banks put strong firewalls between their retail and investment banking operations. This would allow one part of a mega bank to fail without needing to be bailed out by the state.
BBC business editor Robert Peston said this was “the last thing the banks themselves want to hear, because they think it will put them at a massive disadvantage compared with their overseas rivals”.
The committee also concluded that “so-called free banking is not free”.
Key findingsBig banks too dominant in retail and business bankingAccount charges not transparentFree banking “not free”Switching process cumbersomeGovernment should prioritise competition
It said the term “free-in-credit banking” was a misnomer, given that consumers with positive balances paid through interest foregone.
It said that customers on lower incomes paid proportionately more in overdraft fees, meaning they often ended up subsidising higher-earning customers.
It said these cross-subsidies were not necessarily wrong, but made making comparisons on charges difficult.
On small businesses, the committee said too often the focus had been simply on credit and its availability.
It said competition in this area was a concern, but that good customer service could be even more important for small and medium sized enterprises.
In 2000, a government-sponsored report by former telecoms regulator Don Cruickshank highlighted the problems in comparing prices between banks.
The Treasury Committee says that little has changed in this regard. In fact, the problem has been compounded by greater concentration in the banking sector because of mergers brought about by the financial crisis.
However, the British Bankers’ Association said: “Straightforward account switching and transparent fees and charges are important for competition and for customers, so they know where they stand and are able to choose.
Lloyds’ impact on competition has not been assessed – it is 41%-owned by the UK government “The industry is working closely with the Office of Fair Trading on both of these.”
The report also notes the difficulty in breaking into the UK retail market for new entrants.
In July 2010, Metro Bank became the first new UK bank with branches on the High Street in more than 100 years.
The committee said that the importance of the local branch to UK customers meant that any bank without an extensive network of branches was at competitive disadvantage.
The Treasury Committee called on the government to make competition a primary objective of the new regulatory body, the Financial Conduct Authority.
Sarah Brooks, head of financial services at Consumer Focus, said: “‘The Treasury Committee has recognised what consumers have long known.
“The banking sector is not sufficiently competitive and is failing many of its customers.”
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