November 06 ,2014 | by Thiago Kiwi

Personal and SME banking to face competition probe

SME banking face competition probe

Personal current accounts and small business banking are about to come under scrutiny for the Competition and Markets Authority.

Consumers and small firms heard over the summer that authorities were planning to review how competition works when it comes to their banking sectors. Now the consultation has been completed and stakeholders have voiced their support, it’s set to become a reality.

The government has announced that the Competition and Markets Authority (CMA) will embark on an in-depth market investigation into the banking sector. CMA plans to draw on some of its panel of independent members to form a Market Reference Group that will study the personal current account and small business banking sectors.

No timetable has been announced yet and it’s not clear what the focus of the investigation will be, but the findings could have big implications for banks – not to mention the way that consumers and small businesses interact with them.

It comes as a response to a number of concerns that were brought to CMA earlier this year. Small and medium-sized enterprises (SME) are likely to recognise many of them. For example, there have been relatively few customers shopping around and switching their bank accounts, while CMA says it is tough to make comparisons on complex issues like overdrafts.

But it also relates to the industry as a whole, since CMA plans to look into barriers to entry for smaller lenders trying to break into the personal current account and small business banking sectors. Challenger banks are arguably booming – Virgin Money is planning to float, as is Aldermore, a bank which is specifically aimed at SMEs – but the four biggest UK banks have seen relatively little change in their market share.

“Effective competition in retail banking is critically important for individual bank customers, small and medium-sized businesses, and the wider economy,” said Alex Chisholm, CMA chief executive.

John Longworth, director general of the British Chambers of Commerce, says that the needs of SMEs are not being met by the banking sector as it stands.

“This is undoubtedly the right decision as businesses want more competition and greater choice in the banking sector,” he added.

Thiago Kiwi

Thiago is the LSBF Blog Editor who manages news and features content on the site, and writes about business, finance, technology, education and careers.

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