Lloyds Banking Group is trying to fend off tough intervention by the competition watchdog by creating a sophisticated price comparison system for current accounts.
The bailed-out bank, which has a market-leading 25% share of current accounts, has shown the Competition and Markets Authority (CMA) a prototype that could be adopted by the industry and by price comparison websites to make it easier for customers to shop around.
The service would be intended to make it as straightforward to compare current accounts as it is to evaluate home insurance policies or mortgages.
The ease with which customers can switch their current account providers is a key plank of the CMA’s review into the banking sector. The regulator is to publish its preliminary conclusions next month and, at its most extreme, could break up the big four banks.
New challengers have appeared on the high street. Lloyds was forced to sell TSB – now owned by Spain’s Sabadell – under the state aid terms agreed with the EU at the time of its bailout. Similarly RBS must spin off Williams & Glyn and has appointed bankers at Bank of America to run the process, much-delayed but now expected in the second half of 2016.
However, current accounts are notoriously difficult to compare and only 3% of customers switch each year.
Royal Bank of Scotland has told the CMA that it believes that an end to free in-credit banking would foster competition by making it easier to compare current accounts and could give customers an incentive to shop around.
The current CMA investigation follows 10 other inquiries in 15 years into a market which is dominated by the big four – Lloyds, RBS, Barclays and HSBC. The quartet control around three-quarters of the current account market and small business banking. This is despite repeated attempts to inject more competition into the sector, including a new current account switching service introduced two years ago. The banks generate £8bn a year in revenue from current accounts and £2bn from small business accounts,
“RBS had concerns that the free-if-in-credit model distorted customer perceptions of the true costs of banking. It made it difficult to assess alternatives, reduced the level of engagement and incentives to shop around,” the CMA said in its notes of its private hearing with the bank.
“RBS believed that if there was no free-if-in-credit banking accounts it would be easier for people to enter the market, perhaps with more varied offers. It might also encourage consumers to be more engaged, make easier comparisons between providers and pay more attention to what was on offer in the mark,” the CMA said.
Lloyds’ attempt to create a new way to compare current accounts, which has been devised by technology company Runpath, follows the launch in March of a Midata online tool which allowed customers of the biggest banks to input data into the GoCompare website and analyse different customer accounts. The current version of Midata – a government programme intended to give customers more information about their personal data – requires customers to first download their personal information before re-inputting it into the comparison website.
The Lloyds version attempts to overcome that hurdle, but, to work, it would need the government to require banks to share information about their customers.
The CMA’s notes of its private hearing with Lloyds refer to the impact that Santander’s 123 account has had on its current account share. Lloyds needs to open 1.7m accounts every year to try to maintain its market share and had launched its own Club Lloyds account to take on Santander. Lloyds estimated that Santander’s share of the current account market was as high as 13% or 20% in terms of the value of accounts.
The CMA reports that some of the banks see room for improvement in the seven-day current account switching service which was launched in the hope it would give customers more confidence to move direct debits and other regular items between current account providers.
