Mortgage News
TSC: Uncompetitive banks treating customers poorly
The UK banking community is treating customers poorly because of the lack of competition between financial services providers, according to a government banking report.
The Treasury Select Committee report, Competition and Choice in Retail Banking out over the weekend concluded the pre-conditions for effective competition in the retail banking market “are not present.”
The Committee noted that bank bosses confirmed the banking industry is already competitive, however, far more industry commentators suggest it is closer to an ‘oligopoly’ or situation where the few sell to the many, impacting pricing.
Problems identified in the Cruickshank report back in 2000 suggest the problems consumers have comparing prices remain ‘acute.’
The credit crunch compounded these problems, it said, as the industry concentrated further with larger institutions at an unfair competitive advantage to smaller less “systemically important ones.”
As such, future regulator the FCA should make competition its primary objective, it said.
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“The Treasury can assist competition when it divests further bank stakes. Short-term profit maximisation should not be at the long-term expense of the consumer.”
Committee Chairman Andrew Tyrie said: “For competition to be effective, customers need to know what they are buying, how much they are paying and to be able to transfer their custom from one provider to another without risk.”
The report concluded the sale of the RBS divestments to Santander was a missed opportunity to inject more competition into UK retail banking and added the sale of the Lloyds branches and Northern Rock should be checked against public interest.
“Government credibility would be undermined if a merger arrangement approved by one administration was unpicked by another. It would risk politicising competition policy, create incentives for political lobbying and uncertainty for business.”
However, the need to respect the merger should not inhibit the Independent Commission on Banking from proposing radical changes to the market as a whole, the report said.
The British Banker’s Association said it supported competition as it is the best driver of innovation and cost efficiency and delivers real benefits for customers.
“This is a detailed report which covers a large number of areas and will need to be considered alongside the imminent report from the Independent Commission on Banking,” it said.