FCA – ‘There’s no such thing as free banking’

by Mike Birkett, 28/06/2018

FCA – ‘There’s no such thing as free banking’

A new report from Britain’s financial regulator warns consumers ‘there’s no such thing as free banking’ revealing just 10% of bank customers generate between a third and a half of all profits from the current account system which allows ‘free access’ to cash for users.
The Financial Conduct Authority (FCA) review of the way Britons use their banks found that the UK’s biggest lenders have tightened their grip on the market in the decade since the financial crash.

Competition

This is despite attempts to improve competition by setting up a number of ‘challenger banks’ to open up the market and trying to persuade customers to switch accounts after shopping around for better deals.
FCA chief executive, Andrew Bailey, said: “The review provides more evidence that there is no such thing as free banking.”

Profits

The regulator found that banks were making profits from their loyal customers who hold money in accounts that pay little or no interest. Overdraft revenue – excluding interest and other fees and charges – generates more than 30% of banks’ personal current account income.
A recent FCA report revealed more than three million people have dipped into an unauthorised overdraft in the last year by exceeding their agreed limit.
The majority of unarranged overdraft charges are concentrated on just 2% of customers, some of whom are vulnerable.

Captive audiences

The review also found banks are benefiting from ‘captive audiences’ of customers who don’t switch and are therefore targeted for the cross-selling of products.
The big six lenders – RBS, Barclays, Lloyds HSBC, Santander and Nationwide – control 87.3% of the current account market between them.

Cheapest deal

More than half of people with credit cards (52%) had one with their existing bank and 48% of people with personal loans had stuck with their banks too instead of seeking out the cheapest deal available. The same is true about 32% of people taking out a mortgage.
Consumers holding both current and savings accounts with the same bank are said to be receiving between 30% and 50% less interest than if they switched their savings elsewhere.

Change ahead?

But the report concluded there could be big changes ahead with the rapid take-up of online and mobile banking leading to a ‘Big Switch’ scenario with customers abandoning their current banks in droves.
The regulator also came up with a further three possible scenarios for the future. In the first, digital banks would grab more market share but mostly provide ‘front-facing facilities’ while the established banks acted as ‘utilities’ in the background.
The second scenario sees the new challenger banks starting to make more headway in the marketplace while, thirdly, the change is more slow-paced with the market remaining largely unchanged.

Stage Two

The FCA is asking for responses to its initial report by September 7th before embarking on Stage Two of its review of retail banking in the UK.
The second part of the review will examine branch closures, changing customer behaviour and the impact of the ‘open banking’ reforms introduced earlier this year which are designed to allow consumers to see information on all of their finances in one place.

“The big six lenders – RBS, Barclays, Lloyds HSBC, Santander and Nationwide – control 87.3% of the current account market between them”

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