9.22 While the OFT has provisionally decided not to make an MIR at this time, we have significant concerns about this market, and expect to return to this question – in line with the ICB’s recommendation – in 2015 if not before. With that in mind, the OFT makes a number of recommendations which build on previous initiatives to make PCA costs more transparent, the switching process more reliable and improve the way unarranged overdrafts are provided.
• In relation to switching, the OFT recommends that, in addition to ongoing monitoring to ensure that any problems are dealt with promptly, the Financial Conduct Authority or the Competition and Markets Authority carry out a review of the effectiveness of the new switching service once this has been in place for at least 15 months. As well as establishing that the system functions as expected, we anticipate that such a review would consider consumer interest and confidence in the system, and whether it results in consumers being more willing to switch when they are dissatisfied with their existing provider. In addition, the OFT
recommends that the Payments Council undertake research into the costs of bank account number portability. This would allow the impact of the new automated account switching service to be evaluated alongside other options to further develop the switching process.
• In relation to transparency, the OFT has seen encouraging feedback from customers that have seen annual summaries and believe they could be of greater value if consumers had more consistent access to them. Consequently, the OFT recommends that PCA providers
make annual summaries easily accessible throughout the year in both electronic and paper form. The OFT also recommends that the Money Advice Service enhances its PCA price comparison website to enable more accurate and detailed comparisons across PCAs and providers based on a consumer’s own specific needs, and the OFT will assist the Money Advice Service with this.
• In relation to control and overdrafts, text alerts appear to have a positive impact on consumers’ ability to avoid incurring
unauthorised overdraft charges, but there is currently a lack of awareness of this service among consumers. The OFT therefore recommends that PCA providers do more to offer their text alert service to all their customers proactively. It also recommends that PCA providers make opt-out of unarranged overdraft facilities available on a much wider range of PCAs. While it is recognised that this feature is likely to appeal only to some customers, the OFT considers that the limited way in which this option is currently offered is inhibiting take-up. In light of ongoing concerns over the clarify and predictability of overdraft charges, the OFT recommends that PCA providers further simplify their overdraft charging
structures so that PCA pricing becomes less complex and easier for consumers to understand.
9.23 We will also work with the industry to trial the provision of information to customers on interest foregone. Three providers have agreed to participate in this trial, and we expect to carry out the trial later this year.
9.24 In the meantime, as part of our programme of work on retail banking, the OFT intends to:
• Carry out behavioural economic research on the way consumers make decisions and engage with retail banking services. This will build on existing transparency initiatives by improving our
understanding of the information consumers need to make choices and how it can best be presented.
• Study the operation of payment systems, in the light of innovations since earlier competition analyses and the recent HM Treasury consultation on setting the strategy for UK payments.
• Study the market for banking services to small and medium sized enterprises (SMEs), looking at the effectiveness of competition in these markets and the extent to which they meet the needs of SMEs.
9.25 Much of the progress in the PCA market has come about as a result of intervention by the OFT, Government and the Financial Services
Authority. Going forward we want to see improvements in this market driven to a much greater extent by competition. The OFT has previously set out, in the context of its programme of work on retail banking, five outcomes it expects to see in the retail banking sector, namely:
• The banking sector is more customer focused. Providers' products are well-suited to their customers' needs and are provided in a way that makes it easy for customers to make well-informed decisions about how and when they are used.
• Consumers are sufficiently engaged with their banking services to drive competition. Banks equip their customers to make better decisions about which products they use, and how they use them.
This will stimulate banks to compete for customers' business on things that matter to them.
• Competition between banks (and from non-banks) is driving providers to operate more efficiently and to innovate. Effective competition between banks encourages them to perform more efficiently, meaning that lower costs are passed on to consumers and businesses, potentially in innovative new ways.
• Consumers have a broad choice of provider. The sector is less concentrated, with greater competition from 'challenger' banks and/or new technology providing scope for increased competition from outside the traditional banking model.
• Barriers to entry and expansion are lower. Credible new providers are able to join the market and have reasonable prospects for attracting the scale of customer base needed to achieve the economies of scale required to operate effectively.
9.26 Empowered consumers drive competition, which puts pressure on
providers to reduce the price and increase the quality of services offered.
This forces providers to operate efficiently and stimulates innovation for the benefit of consumers and the UK economy. We want to see this dynamic process operating well across retail banking markets in the UK.
Current account providers need to demonstrate a step-change in their approach to consumers for this to become a reality, and before
regulators can step away from their scrutiny of competition in this market.