Member Article

Banks urged to make changes in current accounts

Banks need to make a major change in the personal current accounts (PCA) market, according to a recent review into the £9bn-a-year market.

Ongoing issues in the banking sector have been raised by the Office of Fair Trading (OFT), who said competition between banks in the PCA market mean the customers’ needs are often overlooked.

Since OFT’s last investigation into the market in 2008, the major banks have increased their share of the market whilst entry from new competitors remains very low and infrequent.

The latest report also shows customers rarely switch from their existing current account, although banks have made improvements in other areas of the market.

OFT estimated a £928m annual saving made by customers since unauthorised overdraft charges were lowered between 2007 and 2011, however the Office noted that overdraft procedures are still too complicated.

Customers’ ability to compare different current accounts is also still fairly convoluted, according to the report, although some improvements have been made.

Banks were criticised for a lack of innovation in the market, and OFT said customers were often apathetic when faced with complex cost structures and a lack of choice in current accounts.

Clive Maxwell, chief executive of OFT, commented: ’Personal current accounts are critical to the efficient functioning of the UK economy. Despite some improvements, this market is 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.

Changes are expected to occur in the major banks over the coming months to potentially open up the PCA market.

Lloyds Banking Group and the Royal Bank of Scotland are expected to sell a number of their branches, while new automated switching services should make it easier for banking customers to change to a different service.

OFT suggested a series of changes to make current account costs more visible and to create a more reliable switching process.

In the review released on Friday, banks and building societies were called upon by the Office to push these initiatives through quickly, including plans to improve the provision of unarranged overdraft services.

Mr Maxwell added: “For these changes to improve the effectiveness of competition in this market, banks and building societies need to act now to improve the quality of service and value for money they provide their customers.

“The retail banking sector needs to become more competitive and customer-focused to ensure that further action by the competition authorities is not required.”

OFT said the proposed changes should impact competition positively, and the organisation has provisionally decided to not go ahead with a Market Investigation Reference to the Competition Commission.

The case will be revisited in 2015, in line with recommendations made by the Independent Commission on Banking.

This was posted in Bdaily's Members' News section by Miranda Dobson .