27 June 2018

FCA publishes update on wide-ranging review of retail banking sector

The Review gives a greater understanding of retail banks’ business models, what includes looking at how personal current accounts (PCAs) are paid for, the possible impact of technological and regulatory developments such as Open Banking and changes to payment services due to the revised PSD2.

The review is also critical to the FCA’s work on overdrafts.  The FCA has already expressed concerns that some potentially vulnerable people are paying significantly more for their current accounts through unarranged overdraft charges and fees. In May this year, the FCA proposed a set of potential changes on overdrafts for discussion as part of its high cost credit work and will consult on any changes later this year.

The review shows that most current account customers contribute to their bank’s profits, but a small proportion pay significantly more than others – around 10% of customers generate between a third and a half of all contributions to profits from current accounts.  The data also show that many consumers go to their current bank rather than shopping around when looking for other financial products.

The FCA’s analysis shows some of the reasons why retail banking markets remain highly concentrated.  Major banks have a captive audience of customers who do not switch and can be cross-sold other products.  Together they have a large share of the PCA market, currently over 80%, giving them considerable competitive advantages.

This update also sets out a number of factors that could lead to significant changes in this overall picture of the market.  In the next stage of the Review, FCA will look at a number of scenarios to assess when and how these changes may have an effect – including changing customer behaviour, regulatory initiatives, technological developments like Open Banking, and changes to banks’ business models such as branch closure programmes.

The FCA has collected information from 45 firms across the range of the market to inform the Review including major banks, small retail banks, building societies, specialist lenders and new digital banks.

The FCA is asking for responses to this update, including evidence or views, by 7 September 2018. The next stage of the Review will look at a range of possible future scenarios, including what branch closure programmes mean for consumers and banks’ business models, and how technological and regulatory changes may affect the market.

Press release

Progress report

Consultation paper

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