The Financial Conduct Authority has launched a review into the business models of retail banks.
It has launched the strategic review because of the significant economic, technological, social and regulatory changes the sector faces.
Among the issues the review will look into will be how the free-if-in-credit business model is paid for, and how the decreasing use of branches – with the increased use of online banking – impacts consumers.
In a statement the FCA said: “We have been considering what we need to do in order to build a robust evidence base to enhance our understanding of the state of competition and conduct in retail banking markets at a pivotal time of change.
“We want to understand the impact of changes in retail banking business models and the implications for our objectives to protect consumers and promote effective competition, with the ultimate aim of ensuring our regulatory approach remains fit for purpose.”
The review will be carried out in two phases, with the first focusing on understanding existing business models and the markets they serve.
It will also look into which areas of retail banking are most profitable, how profits are distributed and how the personal current account market works.
In the second phase the FCA will look into how changes in economic, technological, social and regulatory factors are impacting retail banking business models.
The Competition & Markets Authority has recently finished its own study into retail banking – including the free-if-in-credit current account market.
It found that the oldest and largest banks in the UK did not have to compete hard enough for customers’ business while newer and smaller banks struggled to grow.
The CMA recommended requiring banks to implement Open Banking by early 2018 to accelerate technological change in the sector.
This will enable personal customers and small businesses to share their data securely with other banks and with third parties, enabling them to manage their accounts with multiple providers through a single digital ‘app’, to take more control of their funds (for example to avoid overdraft charges and manage cashflow) and to compare products on their own requirements.
The FCA said that while the CMA focused on personal current accounts, it will also look at savings and consumer lending.
It expects to provide an update on its review in the second quarter of 2018 along with conclusions from the first phase.
damian.fantato@ft.com
