James Daley

By James Daley

Competition in the retail banking sector hasn't been working properly for decades. At the last count, some 75% of current accounts were held by the big four clearing banks - and the entrance of a number of new challengers into the market appears to be having little impact on breaking up the party.

This is no revelation. Even before the banking crisis, the industry had been subject to report after report commenting on the need for more effective competition - starting with Donald Cruickshank's report back in 2000. Post-crisis, the number of reports has spun out of control. In 2008, the OFT published a review of the current accounts which concluded that the market "wasn't working well for consumers". It seized on the low levels of switching and banks' complex charging structures as two major problems.

In 2010, Which?'s Commission on Banking Reform - which also looked at structural and cultural issues in the sector - drew many of the same conclusions as the OFT's 2008 report. In 2011, John Vickers' Independent Commission on Banking also pointed out similar problems, as did the OFT's second study on current accounts in 2012. In 2013, the Parliamentary Commission on Banking concluded that the UK banking sector is "not as competitive as it should be"; and today, the Competition & Markets Authority has, surprise surprise, made exactly the same assertion, and asked for permission to carry out a full market investigation - ensuring that we'll have yet another report to look forward to in 2015.

A waste of time and money

As the CMA points out, these reviews cost plenty of time and money - both for the industry and for the taxpayer. How on earth can yet another lengthy investigation be justified given what the sector has had to endure over the past few years?

Don't get me wrong, change is desperately needed. But the regulator now has all the evidence it could possibly need to make some significant changes. While it is not in the Financial Conduct Authority's gift to order banks to sell off branches - as the CMA could do - there are dozens of other remedies that could increase competition, all of which have been surfaced in the myriad reports that have been published over the past six years.

Even today's CMA consultation floats a few of them.

Five quick fixes for the banking sector

So here, in a nutshell, is my recipe for a better banking market (at a cost to the taxpayer of zero pounds and pence).

  • Banks need to be forced to display their current account charges in such a way that customers can make meaningful comparisons between one account and another. The Money Advice Service's current account switching tool goes some way to helping customers here, but standardised summary boxes could help as well.

  • Switching needs to be made even easier than it is already. Seven day switching is an improvement, but we need to go all the way to portable account numbers, so that the possibility of banking errors is eliminated, and consumers can switch with confidence.

  • Banks need to be forced to try harder to communicate with customers. Rate changes and charges should be communicated by text and email as well as by letter.

  • The Post Office and big clearing banks should be forced to allow new entrants to use their branch networks, to reduce the barriers to entry for challenger brands.

  • And, dare I say, the regulator should looking to encourage more people to use services such as Fairer Finance's - which can help them to choose banks based on quality, rather than just price.

Much of the work could be done using the existing regulatory structures, but if primary legislation is needed then why not table it now? Another 18 months of investigation, pouring over the same territory yet again seems entirely unnecessary.