Treasury report calls for more competition in retail banking
Share
The level of competition in the retail banking sector is inadequate and further measures are required to promote both competition and improved consumer outcomes, a Treasury Select Committee report has concluded.
The report, entitled Competition and choice in retail banking, says barriers to entry and expansion need to be reduced in order to promote greater competition between existing players and to encourage new entry.
It partly blames the lack of competition on the financial crisis and its resultant consolidation.
The report says: “Well known firms such as HBOS, Alliance & Leicester and Bradford and Bingley have either exited the market or merged with rival firms. A large number of building societies have merged, undermining the diversity of provision in the sector.
“Whilst these ’rescues’ were necessary in order to preserve financial stability, the consequence has been to reduce competition and choice in the market.”
Reviewing the mortgage market, the paper says the five largest providers - Lloyds Banking Group, Santander, Nationwide Building Society, RBS and HSBC - account for over 75% of gross new lending in the sector.
But it says the mortgage market looks less concentrated when examining the existing stock of mortgages held by consumers, where the five largest providers account for only 63% of the market.
The report notes the financial crisis has resulted in the disappearance of a significant number of specialist or foreign lenders from the sector, while specialist mortgage providers have lent reduced volumes following the financial crisis.
But it says the large banks have argued that while concentration in the retail banking sector has increased, this has had little or no bearing on competition.
The paper quotes Eric Daniels, then Group Chief Executive at Lloyds Banking Group, as saying the large number of firms in certain segments of the retail market is proof competition is working.
He says there are 60 competitors in the mortgage market, describing the number of mortgage products on offer as “absolutely phenomenal”.
However, the mortgage market seems to be an exception and the current account and SME markets are singled out by the report as having particularly low levels of competition.
The paper adds: “Effective competition should deliver good consumer outcomes. The theme of low levels of customer satisfaction and lack of choice reverberated through the course of our inquiry.
“Competition policy should maximise the benefit to the consumer. Our evidence suggests that this is not happening.
“The large banks perform poorly on many consumer satisfaction surveys relative to other providers. Survey evidence consistently shows customers are dissatisfied by service quality and the lack of real choice on offer in the marketplace.”
If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat
