Banks face new threat of break up
BRITISH retail banks must act fast to encourage competition or face the threat of being broken up, a leading regulator has warned.
John Fingleton, head of the Office of Fair Trading (OFT), yesterday said he would contemplate asking for a Competition Commission investigation into the sector unless there was a “step change” in the way banks operate that makes it simpler for customers to switch accounts.
Fingleton also called for more transparent pricing, suggesting it is difficult to encourage switching if customers “perceive that their banking is free”.
He used a speech to bankers to declare the current system was “manifestly not working well for consumers” and suggested that the lack of competition meant new entrants were seeing “limited rewards from innovating”.
“We need to see evidence which demonstrates that the market dynamics of entry and switching are sufficient to drive stronger customer-focused competition,” said Fingleton.
“Without this, the obvious question is whether the concentrated market structure of UK banking is the problem. And one way to consider this question is a reference to the Competition Commission,” he added, drawing parallels with the enforced break-up of airport operator BAA.
New entrants such as Metro Bank and Virgin Money provide a distinctive product but the market continues to be dominated by the traditional “big four” of Lloyds, RBS, HSBC and Barclays.
The long-awaited arrival of Tesco Bank has now been postponed until late 2013 to allow for the full implementation of an industry-wide automatic redirection service that will allow consumers to transfer all direct debits and payment arrangements to a new provider within seven days.
The OFT has already announced its intention to conduct a review of current account market later this year and will report back in early 2013.