CMA publishes updated issues statement in banking market investigation – Press releas

[Legal Beagles]

The CMA has today published an updated issues statement as part of its investigation into the supply of personal current accounts and retail banking services to SMEs. The updated issues statement (PDF, 771KB, 49 pages) summarises the independent investigation group’s initial thinking based on the evidence received and analysis carried out so far. It updates... Read more »
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[Amethyst]

Re: CMA publishes updated issues statement in banking market investigation – Press re

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(b) There are a wide variety of different charges that can apply particularly when going into overdraft. The number of different charges and the different circumstances in which these apply are likely to make it difficult for customers to keep track of how costly using an overdraft is and to compare different overdraft charging scenarios across PCA providers.

(c) There is a lack of comparative information on banks’ service quality, such as customer service and bank errors, available to customers in the public domain.


(c) Potential barriers to assessing information
66.Alongside access to information, we are also considering customers’ ability to assess information. In particular, we are considering whether there are any behavioural biases which might limit customers’ ability to accurately assess alternative offers, and how this interacts with banks’ decisions on price and product structures. This relates closely to the questions of complexity and comparability of charges noted above.

67.
One particular focus of our analysis is the ‘free-if-in-credit’ (FIIC) model.

Whilst a number of banks in recent years have introduced alternative fee-paying PCAs offering higher rates of interest or other benefits, FIIC remains the most common form of PCA tariff in the UK, notwithstanding the central bank interest rate environment.


Under this pricing model, customers are not charged directly for their PCA if they remain in credit but they pay indirectly through interest foregone as well as through contingent fees and charges for By FIIC we refer to PCAs where customers pay no monthly or yearly fees for the upkeep of the PCA or for the main package of transactions provided by a PCA such as receiving money, withdrawing cash or making payments such as cheques, standing orders or direct debits.

Approximately 74% of active PCAs in 2014 were FIIC tariff accounts.

Views diverge on FIIC. Some parties have commented that FIIC is beneficial to customers, providing a low-cost simplified pricing structure Others have suggested that FIIC is harmful because it increases customer inertia by reducing customers’ perceptions of the value of different PCAs and/or softens incentives on banks to compete.

69.We have not yet reached a view on whether these pricing structures distort customers’ perceptions of the cost of banking, or if so, what the impact might be on competition, and we are undertaking a range of analyses to assess the effect of FIIC on competition.

70.An important part of this analysis is understanding the profitability of particular customers, for example switchers, relative to other customers and the relative level of profitability of PCAs to other banking products. Our analysis on revenue and margins (see paragraphs
to

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[Amethyst]

Re: CMA publishes updated issues statement in banking market investigation – Press re

Basically the report says that the is still a lot of work to do to enable consumers to make an informed choice when choosing their bank account supplier.