An Office of Fair Trading report into current accounts in the UK has received a mixed response by the industry, with some analysts claiming that banks have relied on brand and customer loyalty for too long.
The OFT concludes that the market in personal current accounts is “not working well” for consumers. It says the complexity and lack of transparency of current accounts makes it “extremely difficult” for individual customers to compare their bank account with other offers, giving little incentive for to switch banks.
It also reports that 81% of banks’ revenue from current accounts is derived from two sources: overdraft charges (£2.6bn) and net credit interest income (£4.1bn). OFT says it wants to work with banks, either voluntarily or through regulation, to change the current system. Chief executive John Fingleton says: “In the view of the OFT the status quo is not satisfactory.”
Moneyfacts.co.uk analyst Michelle Slade says: “The big named banks have for a long time relied on brand and customer loyalty.”
While David Kuo, head of personal finance at online comparison site fool.co.uk, urges banks to change before they are forced to. “Banks have been exploiting customers for far too long,” he adds.
Changes could include more fee-based accounts, which are the norm in Europe and America and which Defacto consultant David Black suggests will lead to the “eventual demise of free-in-credit banking”.
The report also suggests there is high consumer satisfaction with current accounts and competition in the marketplace. Lloyds TSB director of current accounts Catherine McGrath says that competition is “fierce”.
The market study was launched by the OFT in spring last year. A decision into a High Court appeal into overdraft against banks, which may have a bearing on the market, is expected within weeks.