Consumers still lack confidence in switching current accounts, the Office of Fair Trading has said, as it called for further changes to the market.
The OFT has been reviewing the market for current accounts to see if concerns outlined in the last review in 2008 had been addressed.
It found that the market had improved since its last review, but that issues surrounding competitiveness and complexity have persisted.
One major improvement it found was a fall in overdraft charges, which had previously boosted banks’ coffers by £2.6 billion per year (read more).
Consumers were now saving £928 million per year from lower unauthorised overdraft charges, the OFT said, though it found that this had been partly compensated by higher arranged overdraft charges and that the structure of charges remained too complicated.
Competition also remains an issue, the review concluded, with a narrow concentration of the market and lack of consumer confidence in switching accounts favouring the big banks.
Major banks had increased their share of the current account market since 2008, the OFT found, with few new competitors entering the marketplace during this time.
The market distribution could be set to change in the months ahead, however, as new banks establish themselves while major banks complete the enforced sales of hundreds of branches.
Smaller competitors such as Metro Bank have made small but persistent inroads into the market. Though the arrival of M&S Bank only targeted loyal customers of the high-street favourite, Tesco Bank, which has faced a number of setbacks in the preparations for its current account delivery, will expect to make more significant inroads.
The transfer of 632 branches from Lloyds Banking Group to the Co-operative Bank is expected to boost the Co-op’s share of the market to 7%. Royal Bank of Scotland will also lose a chunk of its share when 316 branches are eventually sold.
Lloyds, which has recently announced heavy job-losses, will be ousted as the leading current account provider when it sells off 632 branches.
Current Accounts "Critical" to UK Economy
However, banks continued to benefit from consumers’ reluctance to switch accounts, the OFT decided, which made switching a relatively rare process despite the influx following recent scandals.
OFT chief executive Clive Maxwell said that, as it stood, the market for personal current accounts was still not serving consumers as well as it should.
"Personal current accounts are critical to the efficient functioning of the UK economy," he said.
"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."
Consumers are likely to gain more confidence in switching accounts from September, when banks will have seven days – less than half the current average – to switch a customer's current account and transfer direct debits and standing orders.
With the developments to come, Mr Maxwell said that the OFT had decided not to involve the Competition Commission at this stage.
"The retail banking sector needs to become more competitive and customer-focused to ensure that further action by the competition authorities is not required," he said.
Have you changed current accounts recently? How was the experience? Are you more likely to change when the process becomes easier? Let us know by leaving a comment below!
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