EY comment on today's CMA reports on competition for personal current accounts and SME banking

18 July 2014

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Omar Ali, UK Head of Banking and Capital Markets at EY, comments:

"Nobody would disagree that improving the service offerings for retail and SME banking customers, through heightened competition, should be a priority. But, simply focussing on increasing the number of new entrants is not a solution in itself. Competition will come from genuine innovation and product and service differentiation, and ensuring providers have enough capacity to lend. With SME lending set to rise in the second half of 2014, now is certainly the time to encourage new providers to the market.

"If they are truly to compete with the established firms, they need to bring a differentiated service and product offerings to the market, which consumers will value switching for.

"More interestingly, competition therefore, may well come from other sectors. There is nothing to stop the big global tech and online retail firms from delivering modern high street banking services or parts of the banking product set that are truly differentiated. Competing with such firms, whose operating models are based around customer engagement and satisfying evolving consumer behaviour, means that banks cannot afford to loosen the reins on the progress made in digital banking, and must forge ahead with ever-easier ways for people to interact with their bank.

"It is clear from the CMA's market study on personal current accounts and SME's that transparency around fees is a key area of focus. The fact that core banking services are ultimately still seen as free in the UK is itself a barrier to open and fair competition between the large established players and new entrants. Price is a key driver of effective competition in consumer markets, but it is impossible to compete on price when the customer thinks the service they are getting is free."