Retail banks not competitive, says Treasury committee
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.
Committee chairman Andrew Tyrie said: "Frankly, you won't get enough switching until people have a motive to switch. And they won't have a motive to switch until they know what the price of the product is.
"If you didn't know when you went into Sainsbury and Tesco what the prices were, you wouldn't really mind which one you went in."'Oligopoly'
The committee said competition in the UK retail banking market is "not strong enough".
The MPs spoke to a range of interested parties, including top industry figures such as former Lloyds chief executive Eric Daniels, Barclays boss Bob Diamond and Royal Bank of Scotland head Stephen Hester.
They also heard from smaller providers and new entrants, along with regulators and experts.
The mega banks may have already lost what they would see as the most important part of the argument about their future”
Mr 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."
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.
The MPs said they were pleased that the Independent Commission on Banking may propose that banks put strong firewalls between their retail and investment banking operations.'Massive disadvantage'
This would allow one part of a large 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".
- Big banks too dominant in retail and business banking
- Account charges not transparent
- Free banking "not free"
- Switching process cumbersome
- Government should prioritise competition
It said consumers with positive balances paid through interest foregone, which is the increased return they could have earned by placing current account deposits into higher interest savings accounts.
It found that customers on lower incomes paid proportionately more in overdraft fees, meaning they often ended up subsidising higher-earning customers.
The committee said these cross-subsidies were not necessarily wrong, but made it difficult to make comparisons on charges.
On small businesses, it 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.'A lot of effort'
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.
"The industry is working closely with the Office of Fair Trading on both of these."
BBA Chief Executive Angela Knight said banks had put "a lot of effort" into speeding up and simplifying the switching process.
She said customers were happy with the system: "One survey certainly very strongly repeats, year after year, that individuals do like the current model, which is that if you remain in credit you don't pay anything extra for everything from statements to cheque books and so on."
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."