The Treasury Select Committee has today published our report into competition and choice in retail banking.
We all know that the financial crisis had a major impact on the shape of the banking sector, and concerns have been raised that competition in the sector is not working, with investigations by the Office of Fair Trading into unauthorised overdraft charges and equity underwriting.
As part of our inquiry, we heard evidence from a wide-range of industry experts, including from established and new banks, regulatory bodies, and government agencies, and in particular we heard from Sir Don Cruickshank who previously undertook a wide-ranging review into the UK retail banking sector which found that there were competition problems in all markets investigated. You can watch some of my exchanges in the various evidence sessions below.
We have concluded that the pre-conditions for effective competition in the retail banking market are not present, and highlighted a lack of price transparency and comparability in the personal current account market, as well as the difficulty of switching.
We have called on the Government to make competition a primary objective of the new regulatory body, the Financial Conduct Authority, and recommended a "public interest test" based on competition considerations for proposed future divestments of Government-held stakes in the banks.
Enabling bank account number portability is a key focus for me, and the report makes clear that the switching process – despite improvements – remains cumbersome and does not always work smoothly. One of the biggest hurdles that prevents people from wanting to shop around and change bank accounts is the lengthy time it takes to transfer direct debits – up to two months in some instances – and this has resulted in enormous customer inertia within the sector.
I have also had letters from constituents saying that when they switch banks it is never quite clear who is facilitating the switching, whether it is the bank they are leaving or the bank they are going to, and the banks seem to argue among themselves about whose job it is to make sure the direct debits are set up.
If we can give consumers the ability to keep their bank account number if they wished to switch provider, and likewise their mortgage account number, this would radically reduce barriers to entry for new market players, increase consumer confidence in the banking system by giving people the ability to bank with their feet and to change their provider the same day they chose to move.
Effective competition will remain elusive unless urgent steps are taken to improve price transparency and comparability and the switching process.