BRITAIN'S biggest banks are facing up to 18 months of uncertainty after the competition watchdog ordered an investigation into their stranglehold over high street banking.
The Competition and Markets Authority (CMA) will press ahead with an in-depth inquiry into the personal current account and small and medium enterprise (SME) retail banking sectors despite protests from the industry heavyweights.
Groups representing consumers and businesses welcomed the prospect of the dominance of major banks being challenged, as did smaller market players. However, the investigation could take up to 18 months to complete.
The SNP also welcomed the probe, saying it was long overdue.
The CMA, which fully came into being in April, has wide-ranging powers. As well as being able to force firms to change their behaviour or alter their structure, it can shake up the whole markets.
The competition watchdog said there has been "very little movement" in the market shares of the four largest banks, which are Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland (RBS).
Levels of customers switching accounts have remained low despite efforts to encourage more shopping around. Only about 4 per cent of SMEs switch bank every year.
The big four banks collectively supply more than three-quarters of the personal current account market in the UK, as well as more than 85 per cent of business current accounts and 90 per cent of business loans.
Barclays, HSBC and Lloyds all argued against an investigation after the CMA made a provisional decision in July that it should investigate. A submission from Barclays said that a review was "not appropriate at this time" as various developments were already helping to shake up banking, while Lloyds said it already faces competition from providers of all sizes whose business models often involve "cherry picking" the most profitable customers.
However, the move to launch a full inquiry was yesterday welcomed by smaller players in the banking sector. UK Business Secretary Vince Cable also described the review as important, as "the market is still dominated by the big banks".
Craig Donaldson, chief executive of Metro Bank, described banking competition as "heavily distorted", adding: "We need a level playing field in banking, where all banks can compete in a transparent and innovative market." John Willcock, head of current accounts at the Post Office, said the investigation was "extremely welcome".
Some 65 million active personal current accounts exist in the UK, while there are more than 3.5 million business current accounts. The personal current account market generates revenues of more than £8 billion, while the CMA's investigation into SME banking will include more than £2bn of business current account market and business loans.
SNP Treasury spokesman Stewart Hosie MP warned that the inquiry should take account of Scotland as a market in its own right and not just as a part of the wider UK sector.
"The CMA's inquiry is very welcome as Scottish firms are operating in a virtual duopoly," he said. "Comments from the Federation of Small Businesses are also welcome - the FSB has highlighted the longstanding structural issues which restrict competition for Scottish businesses and the need to fix the Scottish business banking model."
Anthony Browne, chief executive of the British Bankers' Association said: "All the banks will co-operate fully with any investigation. Banks are pro-competition - they compete for business every day."
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