Remedies listed in the Competition & Markets Authority’s (CMA) final report on the UK’s retail banking market could lead to a slow but steady erosion of profitability at the major UK banks, says Fitch Ratings. But the initiative depends on customers being comfortable sharing sensitive financial information with other banks and third parties, which could represent a major barrier.
The remedies hinge on using technology to ensure that customers get the best deal, implying a loss of revenue for the banks. For example, several of the CMA’s remedies are directed at making sure customers can either reduce or avoid overdraft charges, which the CMA says bring in one-third of total revenue generated by retail banking activities in the UK.
UK current account holders are already able to ‘switch’ their account between banks in seven days by using the Current Account Switch Service (CASS), in place since September 2013. CASS was set up by the UK government to improve competition, but switching rates remain relatively low. In 2015, only around one million customers, equivalent to 3% of current account holders, used CASS.
