It reports that the big established banks do not have to work hard enough to retain and win customers and it is too hard for newer, smaller banks to grow.
A number of proposals arise from the investigation, designed to help consumers and SMEs get a better deal. You could almost hear the sigh of relief from the big banks that CMA avoided the danger of doing anything too silly.
The report's conclusions are best summed up by Anthony Duffy, Director of Retail Banking in UK & Ireland at Fujitsu. He notes:
“The Competition and Markets Authority’s findings are designed to encourage competition and switching in the retail banking market. It is further evidence of the interest that regulators continue to have in the working of the UK’s financial services industry.”
One of the most significant changes being recommended is the opening of banking data through an ‘Open Banking Programme’.
John Smith, Managing Director, EMEA, Fiserv perfectly sums up the potential for open APIs to accelerate competition in the sector, speed-up the revolution of mobile banking and change customers lives for the better.
“Open APIs could enable banks to offer simple and complex services, normally offered in high street branches or online, through mobile apps.
“The opening of information will also allow customers to compare deals and shop around for better offers.
“The analysis made possible via this shared data has the potential to guide the generation of new technologies, services and functionality in financial services as it has in other industries, enabling all banking though a single channel.
Reaction to the report is far from universally positive.
Daoud Fakhri, Principal Analyst for Retail Banking at Verdict Financial, sums up the views of many commentators, arguing:
“Given the widespread consumer indifference to switching since the service launched nearly three years ago, the incremental improvements that have been proposed by the CMA are highly unlikely to have any noticeable impact on switching rates.”
Mark Mullen, chief executive of challenger Atom Bank, criticises the way in which the CMA has told the big banks to police the changes it wants. He says:
“It’s like trusting a pyromaniac with the security for a fireworks party. It means that the new banks like Atom will have little direct say in shaping the future.”
At Metro Bank, CEO Craig Donaldson adds:
“We are astonished that the CMA's findings do not attempt to level the playing field for new entrants and challenger banks, by recommending that the PRA looks into disproportionate capital requirements.
“Disproportionate capital requirements are anti-competitive and unduly support the large incumbent banks by allowing them to hold up to 10 times less capital for the same loans than challenger banks.
“The CMA was given a rare opportunity to support and develop competition in banking, it is disappointing that they decided not to get at the root of the problem, but rather they missed the point and tinkered around the edges.”
The Guardian was fairly typical of the consumer press. “Weak and disappointing from a toothless watchdog”. Which argues it was “questionable whether the CMA measures will be enough, not only to increase competition but also to ensure banks deliver a better service for their customers.”
The CMA arguably goes too far in hailing its open banking proposals as revolutionary – evolution yes but a new app is hardly revolutionary. Critics have suggested that banks may struggle to deliver this given problems with their proprietary systems.
As the banks have performed the switching service pretty well across the sector, sorting out the proposed app ought to be deliverable.
The CMA also proposes that banks will have to publish core indicators of service quality based on customers’ willingness to recommend their bank to friends, family or colleagues. This will be of passing interest though a major surprise if the pecking order in the early days does not result in Metro Bank, first direct and Nationwide in that order, with TSB and Hlaifax vying for a top five slot.
Expect Handelsbanken to score highly in the SME sector with the Cooperative Bank, despite its troubles, also scoring particularly well.
For some critics, the concept of major banks making a profit and paying a dividend is an alien concept.
The perennially loss-making Guardian used to bang on about excessive bank profits and become positively hostile if banks dared to report double digit returns on shareholder capital every year.
Unless one is looking towards Canada, growing shareholder dividends and decent returns on capital seem to come from another banking era. Nor is there merit in suggesting, as some do, that low levels of switching are by definition an automatic cause for concern.
One or two of the digital start-ups may yet break the mould and become major players. The jury is out, when one considers that one of the best publicised and well funded start-ups has been up and running for months but has not quite managed to launch an Android app.
Another start-up gave it a go for a bit and then cashed in when a major French player dangled a cheque before you could say take the money and run.
There was no merit to UK plc in the current climate in the CMA battering the big five banks and they have wisely resisted that temptation.
Professor Alistair Milne – a leading financial economics expert specialising in technology and innovation and rather more clued up on banking than some of the bank-bashing consumer press commentators argues that critics of the CMA are missing a trick.
Milne argues the CMA has got it right.
“The CMA investigation is not just another stitch up by the banking industry. Instead it offers a first real opportunity for change. Properly followed up, the CMA recommendations can be the start of a technological revolution, leading to an era of open and competitive banking that benefits us all.”