The notion that British consumers benefit from ‘free in credit banking’ is a misnomer, according to
the Treasury Select Committee. The Daily Telegraph reports that whilst a minority of consumers pay
explicit charges for things like overdrafts, other consumers who remain in credit still pay for their
banking through the interest they forego on their money.
Experts have called for a shake-up of the banking sector to make it more competitive for consumers.
Banks making £152 a year from each current account
The Office of Fair Trading estimated in 2008 that the banks earned £8.3 billion in revenues from
personal current accounts in 2006 and that average bank revenue from a current account was £152
per customer per annum.
A problem identified by the Treasury Select Committee is that pricing in the banking sector is
complicated and that consumers cannot always easily switch provider. Committee Chairman
Andrew Tyrie said: “For competition to be effective, customers need to know what they are buying,
how much they are paying and to be able to transfer their custom from one provider to another
without risk.”
Bank account market ‘crying out for competition’
The chief executive of consumer group Which?, Peter Vicary-Smith, said: “This report makes sadly
familiar reading. We’ve known for a long time now that retail banking in the UK is uncompetitive,
that consumers don’t know how much they pay for their current accounts and that switching rates
are low. The market is crying out for an injection of competition.”
Sarah Brooks, Head of Financial Services at Consumer Focus, agrees: “The Treasury Committee has
recognised what consumers have long known. The banking sector is not sufficiently competitive
and is failing many of its customers. Today’s report echoes our own research which shows this lack
of competition is contributing to low switching rates on current accounts and the selling of overly-
complex products, which mean consumers are losing out.”
