At the center of measures intended to bolster competition in the banking sector in the U.K. are expected to have overdraft fees and an easier system of moving personal and small business accounts.
The measures focus on how customers can switch accounts away from the high street “big four” and have been formulated after a a two-year investigation into the banking sector.
The current account and small business sectors generate £14bn of revenue for the industry a year and Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC hold more than 70% of these accounts.
The Competition and Markets Authority conducted the inquiry which was first announced in July 2014, at a time when Labour was promising to create new banks. While challenger banks have complained that it is hard to compare “free” accounts, as charges for going into the red are unclear, the watchdog backed off from creating new banks and instead focused on switching in its provisional findings. Forcing banks to publish their maximum charges for unauthorised overdrafts is one such idea.
While manufacturers are calling on the CMA to foster more competition among high street banks, consumer bodies have complained the provisional remedies did not go far enough. In the wake of the Brexit vote, companies need more confidence to approach banks for loans to fuel growth, says the manufacturers’ organisation, the EEF.
Companies are shunning bank loans, with 55% holding more cash than in the past, found a survey of manufacturers by the EEF conducted in February. If banks adopt charges for holding deposits in the event of negative interest rates, this would leave them exposed. This threat was conveyed to small business to warn them it might charge to hold deposits by Royal Bank of Scotland and its NatWest arm.
RBS, however, has insisted it has no intention of doing so.
The problems with creating new banks were illustrated by the problems RBS has had in carving out the Williams & Glyn branches. This is a mandatory requirement imposed by the EU to create a new competitor bank. After a long-running process that has already cost £1.5bn, plans to float the Williams & Glyn branch network were abandoned by the bank last week.
Since the 2008 crisis, when lending dried up, the supply of credit to business has been closely monitored.
Confidence of securing finance for a new business opportunity was expressed by eight in 10 (85% of) manufacturers, found the EEF’s survey.
This was a “persistent hangover from the credit crunch, where trust and confidence in the banks stalled and never quite recovered”, said Lee Hopley, EEF’s chief economist.
“But with the Brexit vote dampening investment intentions and adding to uncertainty, this pre-existing condition could now become further aggravated, posing a risk. This makes the CMA’s package of reforms even more important. The CMA cannot prevent a fall in investment intentions, but it can help to strengthen supply dynamics in the market and resolve some of these long-term issues by providing swift and firm remedies that pack enough punch to stop the rot,” she said.
Financial technology companies creating ways for small businesses to move accounts would be given a £5m challenger prize and this is one of the recommendations made by the CMA targeted at small businesses. The project should be completed in mid-2018 and would be overseen by the innovation charity Nesta and be funded by the banks.
(Adapted from The Guardian)
Categories: Economy & Finance