UK Competition & Markets Authority Publishes Investigation into Retail Banking

The UK Competition and Markets Authority (CMA) has published its anticipated report on the retail banking sector. The document, entitled, “Retail Banking Market Investigation: Provisional Decision on Remedies,” is a 405 page document delivering a deep dive into the challenges of traditional banks. The CMA outlines a broad group of proposals to tackle the lack of competition in personal current accounts (PCA) and in banking services for small and medium-sized enterprises (SMEs).  Unlike the US where thousands of retail banking institutions remain, in the UK the sector is dominated by a few high street banks.

Alasdair SmithAlasdair Smith, Chair of the Retail Banking Investigation, commented on the report;

“For too long, banks have been able to sit back and not work hard enough for their personal and small business customers. We believe the strong and innovative package of measures we are proposing will give customers the information and tools they really need to get a better deal out of the banks. They will also protect those who fall into overdraft from being stung with unexpected fees.”

Smith also pointed to emerging “challenger banks,” startups or new entrants attempting to deliver new and better services to UK consumers and businesses.  Perhaps best exemplified by digital only providers such as Mondo Bank that raised a record £1 million in equity capital in less than 2 minutes on Crowdcube earlier this year. Or Atom Bank that received its license back in 2015.  Smith called all challengers important to sector;

“New entrants into a market are an important source of competition and innovation, and we are well aware of the current barriers to challenger banks in UK retail banking. What’s really holding them back is their ability to highlight to customers how new offerings compare with their current deal. Our package of banking reforms will help new competitors get a stronger foothold in a market which is of vital importance to the whole economy.”

louise-beaumontLouise Beaumont, Head of Public Affairs & Marketing at GLI Finance, forwarded a statement on the report to Crowdfund Insider; Beaumont believes more must be done but comparison services, as advocated in the document, do have the potential to unlock access to finance for SMEs.

“Existing options available to SMEs are limited when it comes to making comparisons – and banking is behind many other industries. By encouraging banks to share more data, SMEs will find it easier to shop around and ultimately competition will thrive,” stated Beaumont. “Availability of finance is a major issue facing SMEs and businesses have had £5.7m withdrawn a day in overdrafts alone since 2011, cutting available credit by £8.4bn. Funding Options, a GLI Finance investment platform, has led the way in providing an aggregator of finance providers to SMEs and the extension of such innovation into mainstream banking will provide greater clarity of choice to SMEs.”

UK Payments iPhone MoneyBeaumont also lauded the suggestion by the CMA to promote Fintech companies to play a much larger role in the process;

“We also welcome the proposals by the Competition & Markets Authority and Nesta for a ‘challenger prize’ allowing FinTech companies to play a greater role in helping SMEs better understand business financing. The UK is a world leader in financial technology and through greater collaboration between the sector and traditional banks, the end service provided to SMEs will only improve – with obvious benefits both to SMEs and the wider economy.”

The CMA seeks to “empower SMEs” to make it easier for small business to make more informed choices. The authors believe added competition will incentivise banks to more vigorously compete on on loan availability and other services thus delivering better value for SMEs. The package of proposed changes are expected to benefit bank customers to the tune of £1 billion over 5 years.

The report is embedded below.

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