The Retail banking sector performs a vital role in the economy. There are around 73 million current accounts (PCAs) and 4 million business accounts in the UK, and retail deposits total around £1.5 trillion. Retail lending is a key driver of economic activity; UK households owe around £1.4 trillion in mortgages and £198 billion in consumer credit. The accelerating pace of change from regulatory changes and technological developments brings unprecedented potential to transform retail banking.
To understand the impact of change on retail banking business models, and the implications for consumers, we launched an exploratory programme of work in April 2017. The objectives of this review, as set out in our Purpose and Scope paper were to:
In June 2018, we published a Progress Report. This noted that historically the market shares of the major banks have been high and stable, and that the PCA and branch network had been a key competitive advantage, due to:
Our Final Report extends this analysis beyond the PCA and informs our view of emerging scenarios in retail banking and their impact on consumers. It is founded on business model analysis of around 40 firms active in retail banking and on the output of our September 2018 conference on the future of retail banking. We also examine the impact of branch closures, provide an update on our distributional analysis of PCAs, and analyse the profile of customers who switch PCA provider.
Our Final Report confirms our view that the PCA is an important source of competitive advantage for major banks:
Major banks also benefit from advantages in lending activities, where they generate higher yields and enjoy relatively low levels of capital requirements.
These advantages have led to outcomes for many consumers and small businesses in the form of little or no interest on credit balances, high charges, and pricing models that can work against loyal customers.
Banks are closing branches across all regions of the UK in response to declining branch usage. People are having to travel further to reach branches.
Innovative business models and competition could deliver better value and enhanced customer service, including:
As a result of this review we will initiate 3 strands of work:
We have also identified 3 potential areas requiring coordinated action in the future to ensure a retail banking sector that works well for consumers:
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