In a new report, TSB, Britain's challenger bank, sets out four simple changes needed to put customers in control of their banking - at last.
Four out of five people (83%) say banks need to change the way they operate*
"Banking needs to be exposed to the full force of competition. Only then will consumers really start to see a change in an industry that's been stacked against them for far too long", says Paul Pester, CEO at TSB - the bank born to bring more competition to the UK.
Two years on from returning to Britain's high streets, TSB is calling for the Competition and Markets Authority's (CMA) investigation into banking to seize the opportunity to fix the industry to benefit consumers.
In a new reportpublished today, 'Competition Matters', TSB is lifting the lid on UK banking by identifying some of the key barriers to competition and proposing four simple changes to bring real competition to the market and, at last, put customers in control.
Important barriers to competition
TSB believes there are a range of interconnected issues preventing the banking market from operating in the best interests of consumers. Each on its own restricts consumers' ability to make informed choices about the best products and services for them - combined, however, they have created a market that is stacked against consumers. These issues are:
- A lack of transparency around what consumers are actually paying for their day-to-day banking. This is exacerbated by the myth that banking is "free".
- A lack of ability to compare and contrast easily the costs and benefits of different banking services.
- An industry-sponsored switching service that does not work for all UK consumers.
So, why is it so important to bring about change?
The market is stacked against consumers
The big banks maintain a stranglehold on the market controlling over 85% of all UK bank accounts**. In comparison, despite many new entrants over the past decade, these banks, excluding TSB, have collectively secured just over 1% of the main bank account market since they launched***.
In its report, TSB says that despite the introduction of the Current Account Switch Service (CASS) two years ago, only 2% of people switched their bank account using CASS last year****. This is evidence that the switching service is not working for all consumers, especially for those who would benefit most from switching, such as overdraft users.
Customers have been kept in the dark for far too long
There is a lack of transparency in the industry and the notion that banking is free is a myth. Banks make it difficult for consumers to understand how much they pay for their bank account, and where they might be able to get a better deal.
The hidden costs and charges mean it's difficult for consumers to understand how their bank works. And what's more, this is the only industry that doesn't send a standardised monthly bill to consumers. Competition will only come when customers can make informed choices.
Four ways to expose banking to the full force of competition
TSB has suggested four simple changes to the CMA that it believes will expose banking to real competition and therefore ensure the industry starts working for consumers:
- All banks should disclose to each of their customers how much they've paid for their banking each month. This should be delivered through a standard format "monthly bill".
- The industry needs to create a solution that means switching is a credible option for all customers, particularly overdraft users. This should include a requirement for each customer to be able to request a standard format "credit passport" which they can take to their potential new bank.
- All banks should be required to further promote the existence of the enhanced switching service to customers - explaining how switching is easy and how the cost of switching is underwritten by the big banks.
- The UK regulators must use their extensive competition powers relentlessly to promote competition as the only real way to make the market work for consumers.
TSB believes that implementing these changes will lead to a market that works in the interests of consumers rather than in the interests of the big banks.
Paul Pester, Chief Executive Officer for TSB, says:"Only real competition has the potential to fix the culture in UK banking.
"In a truly competitive market, consumers will be offered genuine choice and a level of transparency they've never seen before, so they can make informed choices and switch with ease. Only then will we see customers genuinely voting with their feet.
"We look forward to the outcome of the Competition and Markets Authority's investigation into the sector. The CMA has a golden opportunity to expose UK banking to the full force of competition putting consumers in control at last."
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Notes to editors
TSB's full report, 'Competition Matter's can be found here:
*Research commissioned with YouGov Plc. Total sample size was 2,057 adults. Fieldwork was undertaken between 21 - 22 September 2015. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).
** TSB, internal analysis and Competition and Markets Authority, Personal Current Accounts Market Study Update (2014), p.26, https://assets.digital.cabinet-office.gov.uk/media/53c834c640f0b610aa000009/140717_-_PCA_Review_Full_Report.pdf
*** TSB, internal analysis and Mintel, Current Accounts - UK - poll of 1,948 people (May 2015). This analysis includes respondents who answered 'Metro Bank', 'M&S Money' and 'Other' to the question "Which bank or building society do you hold your main account with?"
****TSB, internal analysis and CACI, Current Account and Savings Market Database (CSDB) (2015), and BACS, Account Switching Service Statistics (2014) http://www.bacs.co.uk/Bacs/Corporate/Resources/Pages/FactsAndFigures.aspx
TSB was created to bring more competition to British banking - to be a real challenger to the big banks and to deliver the kind of banking the people of Britain want. TSB only serves local customers and local businesses, to help fuel local economies, because communities thriving across Britain is a good thing for all of us.
We have a simple, straightforward and transparent banking model and make clear on our website how we operate and make money. We offer the products and services people tell us they want, with none of the funny stuff people normally associate with traditional banks.
For further information about TSB Bank plc, please visit our website www.tsb.co.uk.