Press release

Personal current accounts and small business banking not working well for customers

CMA consulting on provisional decision to launch an in-depth investigation.


Essential parts of the UK retail banking sector lack effective competition and do not meet the needs of personal consumers or small and medium sized enterprises (SMEs), two studies by the Competition and Markets Authority (CMA), published today, have found.

The SME banking market study is the conclusion of a joint project with the Financial Conduct Authority (FCA), and represents the first formal collaboration between the organisations. The FCA also provided input into the CMA’s study of the personal current account (PCA) sector.

The CMA is now consulting on its provisional decision that there should be a joined up in-depth market investigation into the markets for personal current accounts (with revenues of over £8 billion) and SME banking (including the over £2 billion business current account market and business loans).

The CMA and FCA have carefully considered a wide range of recent regulatory initiatives and other developments designed to improve competition. These include initiatives to make the authorisation regime for new banks simpler and faster, to make switching easier and also to improve transparency. However, despite these important developments, and evidence of new entry, the market studies have identified a number of common concerns, together with evidence that competition is not effectively serving the interests of SMEs or PCA customers. In particular:

  • Barriers to entry and expansion for newer and smaller banks remain significant and the markets remain concentrated, particularly in Scotland and Northern Ireland.

  • There is very little movement in the market share of the largest banks (other than as a result of mergers and acquisitions).

  • Many customers see little difference between the largest banks in terms of the services they offer.

  • Levels of shopping around and switching between banks remain low. Perhaps as a result, very limited market share gains have been made in recent years by those banks with the highest levels of customer satisfaction – not what would normally be expected in well-functioning competitive markets.

  • Limited transparency, and difficulties for customers in making comparisons between banks, particularly for overdraft charges on PCAs which are very complex. This makes it hard for customers to choose the cheapest or most appropriate accounts for them, so limiting banks’ incentives to compete. This may result in higher overdraft charges than would otherwise be the case.

  • It is also possible that, particularly for PCAs, there is a degree of cross-subsidy, both from other retail banking products and, on the ‘free-if-in-credit’ model, between different customer groups, which may distort competition.

During the consultation, the CMA will be interested to hear views about these issues in particular and the impact of recent developments. The CMA is also particularly interested in hearing views on the ‘in principle’ proposals to remedy suspected problems in the SME banking sector that have been put forward by Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland Group, which they consider should be implemented instead of a market investigation reference being made. These proposals would involve those banks giving the CMA undertakings to set up a comparison website to improve transparency; to establish new account opening standards to make it easier for SMEs switching banks to open accounts; and to take certain promotional measures to facilitate comparability and switching. We provisionally consider that it would be more appropriate to conduct a full investigation than to accept these proposals. However, we remain open to views on this issue before we take a final decision regarding a market investigation in the autumn.

Alex Chisholm, CMA Chief Executive, said:

Competitive personal and SME banking markets are essential to households and businesses throughout the country, and to the success of the UK economy.

However, our studies have found that despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks.

Our provisional view is that a full market investigation by an independent, expert CMA group is necessary to look at this market in detail and identify appropriate measures if competition concerns are found. However we very much welcome views, which we will carefully consider, before taking a final decision.

The CMA has also conducted a preliminary assessment of the undertakings given following the Competition Commission’s investigation into SME banking in 2002, which were intended to facilitate switching and improve transparency. While the CMA considers that these undertakings remain valuable, it is minded to review whether they need to be varied given recent changes in the switching process. The CMA therefore also invites comments on whether such a review is required. In the meantime, the CMA is reviewing submissions received by banks one week ago regarding compliance with the 2002 undertakings, as announced by the Office of Fair Trading on 11 March 2014.

All comments, on either the provisional decision to refer the PCA and SME banking market, (including on whether the CMA should accept proposals put forward by some banks for undertakings in lieu of a reference), or whether to review the 2002 SME banking undertakings, should be sent to the CMA by 17 September 2014 to:

Retail Banking Team
Competition and Markets Authority
Victoria House
Southampton Row
London WC1B 4AD


Key facts and findings from the CMA market studies

Personal current accounts (CMA market study) SME banking (CMA and FCA market study)
The largest 4 providers account for over 77% of the market in the UK. The largest 4 providers account for over 85% of Business Current Accounts (BCA) and 90% of business loans.
65 million active accounts. Over 3.5 million BCAs.
Barriers to entry remain, including the need for a network of local branches, with over half of personal customers using them once a month. Barriers to entry remain significant, including the need for a network of local branches. Almost 70% of SMEs agree that having a local branch is still important.
Notable new entrants in recent years include Metro Bank, Tesco Bank (from June 2014) and TSB (as a result of the current divestment by Lloyds Bank). Their combined market share is around 5%, of which TSB represents 4.2%. There has only been one entrant into full service SME banking – Metro Bank – in recent years.
Annual switching levels remain low – only 3% of personal customers switch bank each year. Annual switching levels remain low – only 4% of SMEs switch bank each year.
The new current account switching service (CASS) seems to be working, but there has been relatively little increase in switching in its first 9 months. Fewer than 30% of SMEs shop around regularly for BCAs and loan products.
Satisfaction levels with the ‘big 4’ banks are less than 60%, yet their market shares have remained stable. Other banks with higher satisfaction ratings have not been able to acquire market share quickly. Satisfaction levels of SMEs with the ‘big 4’ banks for BCAs are around 60%. 13% trust their bank to act in their best interests and only 25% feel supported by their bank.

Notes for editors

  1. For further information on the CMA’s programme of work in aspects of retail banking, including the market study reports and the provisional decision in relation to a market investigation reference (MIR), please visit the PCAs and SME banking case page.
  2. The SME banking market study is a joint project between the CMA and FCA, although the proposed decision regarding an MIR, consistent with the current legal position, is the CMA’s alone. The CMA also liaised closely with the FCA during its work on personal current accounts. The FCA’s webpage in relation to SME banking can be found here.
  3. For further information on the FCA’s competition work programme, including its work in other areas of retail banking such as the cash savings market study, please visit the FCA’s website.
  4. Under section 131 of the Enterprise Act 2002, the CMA may make a market investigation reference to its Chair for the constitution of a group where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services, prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom.
  5. The compliance concerns regarding the 2002 undertakings, which the CMA is currently considering, relates to aspects of the undertakings which restrict the affected banks’ ability to require an SME to take out a business current account if they wish to obtain a business loan. The CMA has very recently received detailed audit reports from the affected banks on this issue and intends to make a further announcement on this issue.
  6. The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law. From 1 April 2014 it took over the functions of the Competition Commission and the competition functions (and certain consumer functions) of the OFT. For more information on the CMA, see its homepage, follow its Twitter @CMAgovuk or Flickr account or visit its LinkedIn page.
  7. Media enquiries should be directed to Michael Rosen or by ringing 020 3738 6133.
Published 18 July 2014