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FCA chief executive says there is no such thing as free banking

BBR Staff Writer Published 29 June 2018

The UK’s Financial Conduct Authority’s (FCA) review on retail banking sector has showed that some customers are paying significantly more for their current accounts, via unarranged overdraft charges and fees.

The FCA has provided an update on its strategic review of retail banking business models, which focused on personal current accounts (PCAs) payments, the possible impact of technological and regulatory developments such as open banking and changes to payment services due to the revised Payment Services Directive (PSD2).  

In May this year, the FCA recommended a set of potential changes on overdrafts for discussion, as part of its high cost credit work.

The review demonstrated that most current account customers contribute to their bank’s profits, while a small proportion pay significantly more than others.

Approximately 10% of customers are said to generate between a third and a half of all contributions to profits from current accounts.

The data also revealed that multiple consumers go to their current bank rather than shopping around when looking for other financial products

The FCA’s review showed that 52% of PCA customers with credit cards have one with their PCA provider, while 48% of PCA customers with personal loans have one with their PCA provider and 32% of PCA customers with mortgages have one with their PCA provider

FCA chief executive Andrew Bailey said: “This is an important piece of work to help us understand the complexities of the retail banking market and how this may develop in the future.

“It provides more evidence that there is no such thing as free banking. In particular, this evidence will inform the work we are doing on overdrafts, so we can fully understand the potential effects of the significant action we are considering taking in this market.”

The FCA’s analysis also demonstrated that major banks have a captive audience of customers who do not switch and can be cross-sold other products.

The FCA has gathered information from 45 firms across the market, including major banks, small retail banks, building societies, specialist lenders and new digital banks.

Image: The FCA building. Photo: courtesy of FCA.