Consumer groups claim victory in long battle to boost banks competition
Bank customers should benefit from greater competition and transparency of services under plans from the Independent Commission on Banking.
By 2013, lenders will be given a time limit of seven days to switch a customer's current account and must transfer direct debits and standing orders "seamlessly". The ICB aims to make switching accounts hassle-free, thus teasing banks into fierce competition on rates and customer service.
Currently, customers switch their current accounts only once every 26 years on average, the ICB found. Its proposals would make it easier for new banks to compete with the "big four". Between them, Barclays, HBOS, Lloyds and RBS control 77 per cent of the personal current account market and 85 per cent of small business accounts.
Part of the problem is that competition has narrowed since Lloyds and HBOS were merged and other failed current account providers – Alliance & Leicester and Bradford & Bingley – were gobbled up by Santander. The ICB hopes to improve competition by creating a new high-street challenger from the forced sale of 600 Lloyds Banking Group branches. The new bank would have a 4.6 per cent share of the current account market.
Peter Vicary-Smith, chief executive of Which?, said the Government had a responsibility to ensure competition developed from the sale of nationalised banks. "[It] must be clear how it will create more competition when it sells our stakes in Lloyds, RBS and Northern Rock," he said. "It should not hesitate to refer the industry to the Competition Commission if the market does not improve or if Lloyds won't agree to enhance its divestment."
To further improve competition, the ICB called for the introduction of a free current account "redirection service" which would require a lender to transfer an account within seven working days.
However, quicker and easier switching will not on its own persuade the three out of four people who have never switched current accounts to do so, said Sarah Brooks, the head of financial services at Consumer Focus. "Easier switching must be accompanied by greater transparency of pricing so consumers are able to see how new accounts compare," she added.
However, the ICB's proposals about ring-fencing banks' retail businesses could hit savers and borrowers, warned Mark Jenkinson, a banking expert at Capco. "Customers may find it even more difficult to find competitive rates on savings accounts, given that banks will no longer be able to invest savings through their investment arms," he said.
"Consumers may even find it more difficult to find a mortgage, as savings rates and volumes are not attractive enough to bring in the level of funding required for high mortgage volumes."