Personal current accounts - who pays, who benefits?

11 September 2014

Transparency and competition in the personal current account market can only be achieved by investigating cross-subsidies and understanding the true cost of banking, according to a discussion paper published today by the Financial Services Consumer Panel.

The Panel believes that a competitive market for current accounts requires people to switch in response to price and quality signals. However, the complexity and opacity of cross-subsidisation means that consumers do not know what price they are actually paying for their accounts.

With this discussion paper, the Consumer Panel demonstrates the need for further research into whether and how cross-subsidisation benefits consumers across all income groups and provides for access to vital banking facilities. To this end, it calls on the Competition and Markets Authority (CMA) to conduct a fuller investigation into cross-subsidies for personal current accounts.

The Panel also wants to stimulate debate on the advantages and drawbacks of cross-subsidising basic bank accounts, as there has been no consensus to date as to whether and how this should happen.

Sue Lewis, Consumer Panel Chair, said:

“The pattern of cross-subsidies in the PCA market is complex and there is no consensus on how it affects competition or specific groups of consumers. Consumers do not understand the real price they are paying for their “free” banking, nor whether they would get a better deal elsewhere. The Panel would also like to see a wider public policy debate on whether, for example, cross-subsidies should be progressive, or whether horizontal cross-subsidies act in the consumer’s best interest.”

Notes to editors

  1. There were around 141 million current and deposit accounts in the UK at the end of 2012, of which 94% were held with only six banking groups. The market remains static: half of all account holders have never switched, and only one in twelve has done so in the past year.
  2. The Consumer Panel is a statutory body under the Financial Services Act 2012. It was initially established by the Financial Servicse Authority in December 1998. The panel advises the FCA on the interests and concerns of consumers.
  3. The Panel's membership is drawn from a broad range of backgrounds with expertise including market research, law, financial services industry, financial inclusion, European Regulation, financial regulation, consumer advice, campaigning, communications, compliance and later-life issues.
  4. The emphasis of the Panel's work is on activities that are regulated by the FCA, although it may also look at the impact on consumers of activities outside but related to the FCA's remit. More information about the Panel's work is available here.