Bank accounts: OFT says significant change needed

Cash The OFT last reviewed the way banks run current accounts for their personal customers in 2008

UK bank customers still have relatively little choice of personal current accounts and significant changes are needed, a regulator has said.

The Office of Fair Trading (OFT) said there was a "lack of dynamism" from the banks alongside customer inertia.

Despite improvements since its last review in 2008, it said consumers still lacked confidence to switch accounts.

It suggested a review into whether customers could take their account number with them when switching banks.

But the OFT chose not to refer the market to the Competition Commission - a decision welcomed by the banks.

Portable account numbers

The OFT has been reviewing the way the UK's banks run these accounts, because of concerns over competition and a lack of focus on customers' needs.

The watchdog found that since it last studied the market in 2008, the £9bn market had become even more concentrated among the major banks.

Lloyds, RBS, Barclays and HSBC now hold 75% of the market, the OFT said.

"The financial crisis and recession have weakened the competitive constraint from the smaller providers," the OFT's report said.

"While there have been two new entrants in recent years - Metro Bank in 2010 and M&S Bank in 2012 - neither is yet in a position to provide a significant challenge to the established providers."

The hope is that more entrants will mean more competition, leading to better rates and treatment for customers who are willing to move to the best deal.

The OFT made some new, specific recommendations on improving the market for customers. These included:

  • If customers still fail to switch, there should be a review into bank account number portability - when customers can keep their account number even if they move to a new bank, similar to switching mobile phone providers
  • Annual summaries of accounts should be available throughout the year, rather than sent just once through the post. This should make comparing accounts easier
  • Banks should do more to advertise a text alert system, which sends a message when a customer is close to their overdraft limit

It said that these changes had the potential to have a positive impact on competition and therefore it had decided not to refer the industry to the Competition Commission.

Comparisons 'difficult'

In the OFT's 2008 report, the watchdog revealed that charges from unarranged overdrafts brought in 30% of their current account revenue. It criticised the banks for the complexity of these charges.

Changes already happening

  • RBS and Lloyds Banking Group will sell branches to other smaller providers
  • A new switching service, available from September, that will change payments to a customer's new bank within seven working days at no cost
  • Banks providing annual statements that make it easier for customers to compare deals and rates
  • A trial into telling customers about the interest they are missing out on by holding money in a current account, rather than a savings account - effectively the "price" of a current account

Now, the OFT has reported the banks' were no longer receiving such large sums. This meant savings of between £388m and £928m for consumers since 2008, though much of this was the result of pressure from the OFT rather than competition between the banks.

It added that overdraft structures remained too complex.

Clive Maxwell, chief executive of the OFT, said that despite some improvements, the market for personal current accounts was still not serving consumers as well as it should.

"Customers still find it difficult to assess which account offers the best deal and lack confidence that they can switch accounts easily. This prevents them from driving effective competition between providers," he said.

But he added that there would be some major changes to the market taking place in the coming months, including the sale of Lloyds and RBS branches - as mandated by European competition authorities.

These should increase competition and choice for customers, although the OFT said these had been "slow in many respects".

They also include a new, automated switching service, launching in September, that will automatically redirect payments to the new account, and complete the switch within seven working days for free.

Anthony Browne, chief executive of the British Bankers' Association, which represents the major UK banks, said: "The banking industry is committed to modernising and improving current accounts so that customers get the best possible service.

"We welcome the OFT's decision not to refer this issue to the Competition Commission and will continue to work with them to make further improvements for customers and the wider economy."

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