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Much is still to be done on reforming the banks

It is clear that banking customers are still not benefiting enough from competition in the sector.

Welcome change in the dominance of the big four banks appeared to be on the way last autumn, when the banking industry, in response to UK Government demands, launched the Current Account Switching Service.

This makes it much easier for customers with personal current accounts to move them - and guarantees it can be done in just seven days. However the desired effect is not being achieved. Although the figures have risen, levels of annual switching are still tiny; only three per cent of personal account customers move each year. Meanwhile, there is also an issue in the small business market; only four per cent of businesses move their accounts.

Progress on opening up the market to allow new players to enter the field is making slow progress. Despite the arrival of the banking arms of companies such as Virgin and Tesco (both with headquarters in Scotland) the largest four banks still hold 77 per cent of personal current accounts and 85 per cent of business accounts.

The full-scale inquiry launched yesterday by the Competitions and Markets Authority therefore has an important role to play. It could begin by looking at whether more could be done to alert consumers to the changes. One reason so few switch bankers may be that customers believe it is still hard to change accounts. It is difficult to understand this but banks with high customer satisfaction struggle to increase their share of the market while the big four banks, whose satisfaction averages less than 60 per cent, continue to dominate.

The challenge for the inquiry is not an easy one. Hurdles for those seeking to enter the market are obvious. The large, well-established networks of the big banks cause a degree of inertia and, without radical measures (such as requiring them to share these networks with newer rivals), change cannot come quickly. Yet, limited as it is, competition in the £8 billion personal current account market is more advanced than in the small business sector. Here, too, big banks dominate the £2bn of business in providing lending and current account services.

Our SME-SOS campaign continues to highlight the need for more help for Scotland's small businesses. News of a rise in the number of Scottish companies showing signs of "critical distress" only adds to the urgency of our call. Banking is one area where the need for change is pressing. The review must shed light on the barriers that prevent new entrants gaining a toehold in the market and why it is that new entrants are unable to put more pressure on the market leaders.

Banks insist they support competition. In that case, they can do so now, by reducing the complexity of fees and charges, setting up a comparison website, and making it easier for SMEs switching banks to open accounts. They should explore promotional efforts to make comparisons and switching easier.

Meanwhile the inquiry, which will take 18 months, can review whether such measures go far enough.

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