The Financial Conduct Authority (FCA) has published an interim report on domestic cash savings market. This is part of a broader study that commenced in October 2013 under their “competition objective focused on the cash savings market”. The FCA wants to assure that competition is working for consumers (as opposed to protecting entrenched interests…). It should be noted that the FCA has an overarching strategic objective of ensuring markets function well by promoting effective competition. The agency does not limit itself solely to providing protection of consumers and enhancing the integrity of the UK financial system.
What the report discovered, in brief;
- Most savers don’t shop around, allowing providers on average to pay lower interest rates on older accounts than on accounts opened more recently
- Many people save with their personal current account (PCA) provider, despite the fact that the largest PCA providers on average pay lower rates than other providers
- This lack of switching by customers, combined with the high proportion of savings balances held by PCA providers, makes it very difficult for so-called challenger banks to gain market share and attract balances at a similar cost to the larger providers.
Traditional UK banks are under a greater threat to disruption than those in the United States. Peer to peer lending has created a more robust competitive market in the UK due to the light touch regulatory approach by the FCA creating greater opportunity for a wider range of investors. This may be exemplified in the recent understanding to allow P2P assets in ISA’s (UK retirement accounts) – a new option still awaiting final rules. While the FCA did not directly address the opportunity in P2P it is clearly on the horizon as they state in the just published report;
“Our study focuses on banks, building societies and NS&I. There are two other types of providers, namely credit unions and peer- to-peer lenders that offer products that potentially compete with the products investigated by the study. However, at this stage we have decided not to focus on these providers because the sectors are relatively small in scale…”
The FCA report also indicates they “will not focus on these [P2P] products within our study as the specific differences in product features may not make them substitutable from a consumer’s perspective”.
Peer to peer lending is in its infancy and, at least in the UK, is disrupting the High Street banks. In an inefficient market, such as traditional savings accounts, where opportunity exists – one may be certain an innovator will soon arrive to provide a better, more compelling service. Perhaps this will be the fast the growing P2P providers in the UK? Let’s see how the final report shakes out later in 2014.
The report is embedded below:
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