Britain’s competition watchdog is likely to call for bank charges to be made clearer when it publishes the findings of an investigation into the industry next week, banking sources say.
The Competition & Markets Authority has been investigating the market for personal current accounts and small business banking services since November.
Politicians and regulators are keen to break the dominance of Britain’s big five banks — Lloyds, Royal Bank of Scotland, Barclays, HSBC, and the British arm of Spain’s Santander — which control 85% of the personal current account market and provide more than nine out of 10 loans to small businesses.
However, the watchdog is expected to resist calls for big banks such as Lloyds and RBS to be broken up and will focus on pricing and measures to encourage switching between lenders and make it easier for new banks to compete.
Executives at so-called challenger banks have, this week, called for changes in the way banks charge for services.
TSB chief executive Paul Pester said banks should be required to tell customers how much they’ve paid for their banking services each month.
Pester said TSB’s internal research had suggested British banks make between £7bn and £8bn (€9.5bn and €10.8bn) each year from personal current accounts even though accounts are presented to customers as “free” and without monthly fees.
The banks make money because interest rates on the accounts are often lower than the levels offered with savings accounts or the benchmark rate set by the Bank of England. Customers are also charged for going overdrawn without permission and for making certain transactions.
Virgin Money chief executive Jayne-Anne Ghadia said that so-called free banking distorts the marketplace but questioned whether there would be the political appetite to take it away. Industry experts agree that such a move might prove unpalatable for politicians.
“MPs might have to explain to their lower middle income constituents why they now have to find around £50-£120 per annum to pay for a current account that for most part has been fee-free for decades,” said Peter Hahn, senior lecturer in finance at Cass Business School.
Banking sources say the competition authority could recommend a cap on the fees that banks can charge but such a move would not be popular with new banks.
“To me, that plays right into the hands of the big banks,” said Pester.
“They’re sitting on millions of customers and what better way for them to reinforce their position by being able to charge those customers a certain amount a month.”
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