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Bank accounts: OFT says significant change needed Bank accounts: OFT says significant change needed
(about 3 hours later)
Further significant changes are needed in the market for personal current accounts, the Office of Fair Trading (OFT) has said. UK bank customers still have relatively little choice of personal current accounts and significant changes are needed, a regulator has said.
The OFT has been reviewing the way the UK's banks run these accounts, because of concerns over competition and a lack of focus on customers' needs. The Office of Fair Trading (OFT) said there was a "lack of dynamism" from the banks alongside customer inertia.
Despite improvements since its last review in 2008, it said consumers still lacked confidence to switch accounts.Despite improvements since its last review in 2008, it said consumers still lacked confidence to switch accounts.
But the OFT chose not to refer the market to the Competition Commission. It suggested a review into whether customers could take their account number with them when switching banks.
The OFT found that, since 2008, the major banks had increased their market share, occasions when new competitors entered the market remained infrequent, and consumers still only rarely switched to an alternative provider. But the OFT chose not to refer the market to the Competition Commission - a decision welcomed by the banks.
However, it also pointed to some specific improvements. For instance, it estimated that consumers had saved up to £928m a year from the fall in unauthorised overdraft charges between 2007 and 2011, though it added that overdraft charging structures remained too complex. Portable account numbers
Major changes The OFT has been reviewing the way the UK's banks run these accounts, because of concerns over competition and a lack of focus on customers' needs.
The watchdog found that since it last studied the market in 2008, the £9bn market had become even more concentrated among the major banks.
Lloyds, RBS, Barclays and HSBC now hold 75% of the market, the OFT said.
"The financial crisis and recession have weakened the competitive constraint from the smaller providers," the OFT's report said.
"While there have been two new entrants in recent years - Metro Bank in 2010 and M&S Bank in 2012 - neither is yet in a position to provide a significant challenge to the established providers."
The hope is that more entrants will mean more competition, leading to better rates and treatment for customers who are willing to move to the best deal.
The OFT made some new, specific recommendations on improving the market for customers. These included:
  • If customers still fail to switch, there should be a review into bank account number portability - when customers can keep their account number even if they move to a new bank, similar to switching mobile phone providers
  • Annual summaries of accounts should be available throughout the year, rather than sent just once through the post. This should make comparing accounts easier
  • Banks should do more to advertise a text alert system, which sends a message when a customer is close to their overdraft limit
It said that these changes had the potential to have a positive impact on competition and therefore it had decided not to refer the industry to the Competition Commission.
Comparisons 'difficult'
In the OFT's 2008 report, the watchdog revealed that charges from unarranged overdrafts brought in 30% of their current account revenue. It criticised the banks for the complexity of these charges.
Now, the OFT has reported the banks' were no longer receiving such large sums. This meant savings of between £388m and £928m for consumers since 2008, though much of this was the result of pressure from the OFT rather than competition between the banks.
It added that overdraft structures remained too complex.
Clive Maxwell, chief executive of the OFT, said that despite some improvements, the market for personal current accounts was still not serving consumers as well as it should.Clive Maxwell, chief executive of the OFT, said that despite some improvements, the market for personal current accounts was still not serving consumers as well as it should.
"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," 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," he said.
But he added that there would be some major changes to the market taking place in the coming months, including the sale of Lloyds and RBS branches - as mandated by European competition authorities - and a new automated account switching service. But he added that there would be some major changes to the market taking place in the coming months, including the sale of Lloyds and RBS branches - as mandated by European competition authorities.
The OFT also made some new recommendations to make current account costs more transparent, to make the switching process more reliable and to improve the way unarranged overdrafts are provided. These should increase competition and choice for customers, although the OFT said these had been "slow in many respects".
It said that these changes had the potential to have a positive impact on competition and therefore it had decided not to refer the industry to the Competition Commission. They also include a new, automated switching service, launching in September, that will automatically redirect payments to the new account, and complete the switch within seven working days for free.
But Mr Maxwell added: "The retail banking sector needs to become more competitive and customer-focused to ensure that further action by the competition authorities is not required." Anthony Browne, chief executive of the British Bankers' Association, which represents the major UK banks, said: "The banking industry is committed to modernising and improving current accounts so that customers get the best possible service.
"We welcome the OFT's decision not to refer this issue to the Competition Commission and will continue to work with them to make further improvements for customers and the wider economy."
Have you had problems with your bank especially concerning charges or changing banks? Send us your comments and experiences using the form below.Have you had problems with your bank especially concerning charges or changing banks? Send us your comments and experiences using the form below.