Overdraft fees and an easier system of moving personal and small business accounts are expected to be at the centre of measures intended to bolster competition in the banking sector.
After a two-year investigation into the banking sector, the measures to be published on Tuesday will focus on how customers can switch accounts away from the high street “big four”. Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC hold more than 70% of the current account and small business sectors that generate £14bn of revenue for the industry a year.
The inquiry, first announced in July 2014 at a time when Labour was promising to create new banks, has been conducted by the Competition and Markets Authority. In its provisional findings, the watchdog backed off from creating new banks and instead focused on switching – although some challenger banks have complained that it is hard to compare “free” accounts, as charges for going into the red are unclear.
One idea is to allow customers to force banks to publish their maximum charges for unauthorised overdrafts.
Consumer bodies have complained the provisional remedies did not go far enough, while manufacturers are calling on the CMA to foster more competition among high street banks. The manufacturers’ organisation, the EEF, says companies need more confidence to approach banks for loans to fuel growth in the wake of the Brexit vote.
The EEF’s call came as it published the findings of a survey of manufacturers – conducted in February – which found companies are shunning bank loans, with 55% holding more cash than in the past.
This would leave them exposed if banks adopt charges for holding deposits in the event of negative interest rates – a situation highlighted after Royal Bank of Scotland and its NatWest arm wrote to small businesses to warn them it might charge to hold deposits. RBS, however, has insisted it has no intention of doing so.
The problems RBS has had in carving out the Williams & Glyn branches – mandated by the EU to create a new competitor bank – illustrates the problems with creating new banks. Last week, the bank abandoned plans to float the Williams & Glyn branch network, after a long-running process that has already cost £1.5bn.
The supply of credit to business has been closely monitored since the 2008 crisis, when lending dried up.
The EEF’s survey found that eight in 10 (85% of) manufacturers were confident of securing finance for a new business opportunity. But while 35% said they were more likely to use external finance than they were two years ago 65% disagreed.
Lee Hopley, EEF’s chief economist, said this was a “persistent hangover from the credit crunch, where trust and confidence in the banks stalled and never quite recovered”.
“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,” she said. “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.”
The banks are insisting that the supply of credit is no longer a problem; when the Bank of England’s governor, Mark Carney, announced the cut in interest rates to 0.25% on Thursday he made clear that banks should be ready to lend to viable businesses.
One of the recommendations made by the CMA targeted at small businesses is a £5m challenger prize for financial technology companies to create ways for small businesses to move accounts. The project, funded by the banks, will be overseen by the innovation charity Nesta and should be completed in mid-2018.
Some of the provisional remedies were “a step in the right direction”, the EFF said. But it suggested banks should specialise along sector lines and develop more specialist products.