Tasting Notes: Enjoy with the Merlot you buy when you have had a bad day and you can’t be bothered to find a more exciting alternative.
The Competition and Markets Authority (CMA) have been busy bees recently, firstly offering their recommendations to OFGEM about how best to increase competition in the energy market, releasing the stranglehold of the ‘Big Six’, and more recently turning their attention to the banking sector to see what mischief they can cause there.
This latter pursuit is the subject of this week’s blog. You have probably heard about Metro Bank, the new kid on the banking block, hoping to win over part of the 77% market share the traditional big four currently enjoy.
(NB: The big four are: Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays)
After seeing Metro Bank’s meteoric rise to success, other banks have entered the ring, prompting the CMA to step in and see what they can do to help them along a bit.
The report entitled “Making banks work harder for you” was published on 9th August, claiming to have identified the reasons why the big banks monopolise the market and offering recommendations for reform.
The CMA reported that; “Essentially, the older and larger banks, which still account for the large majority of the retail banking market, do not have to work hard enough to win and retain customers, and it is difficult for new and smaller providers to attract customers.”
So why do smaller banks find it so hard to win-over personal account holders and small businesses? Ultimately, it is a combination of ignorance, apathy and a massive teenage-like case of ‘can’t be bothered’.
The findings seem to conclude that a lack of knowledge about the ease and benefits of switching provider is the main reason only 3-4% of customers transfer to a different bank each year.
The supposed ‘difficulty of switching’ is a myth that the report seeks to dispel by noting that there is a Current Account Switch Service (CASS) currently available which seeks to make it easy for customers to change banks but, due to a lack of awareness, it is under used, making a transfer long and onerous in most cases.
The report also hopes to raise awareness of the fact that personal customers could be saving an average of £92 a year, and business customers £80 a year, if they switched providers. For overdraft users, the savings could be even higher: £180 on average, due to the hidden charges many overdraft accounts contain.
While ignorance of a better option is one excuse, and in some respects one that can be forgiven, a reason that is less easy to understand is the identification of a sort of 'loyalty'. A characteristic especially prevalent among small business account holders.
It was found that many business owners tended to have their business account at the same bank as their domestic account. This 'loyalty' and familiarity prevented them from shopping around due to the belief that it’s quicker and easier to open a business account if you stick with what you know. The big four currently hold 85% of small business accounts and grant 90% of small business loans. Metro Bank has been the only entrant into the SME banking market in recent years.
So the dominance of the major banks is not only a result of a lack of awareness, but also a lack of willingness to explore other options.
The perceived difficulty of moving banks, combined with an inability to easily compare what they have to offer, seems to lie at the heart of the matter.
So what have the CMA suggested? They’ve recommended a phone app.
Yep, that’s right: the main way to increase competition in banking is to introduce an Open Banking phone app which would allow personal account customers and small businesses to compare and manage numerous accounts, from different banks, via the secure sharing of data between banks and third parties.
This would be accompanied by a kind of glorified Net Promoter Score, where banks would be required to publish objective information on their quality of service, including whether or not customers would recommend the bank to their peers.
Combine this with the third recommended requirement, that banks should send out “suitable periodic and event-based prompts” when charges are altered or local branches close, and it is hoped that this enhanced transparency will encourage competition.
But will it?
Market watchdog Which? were one of the first to raise concerns, being quoted by the BBC as saying “it is questionable whether these measures will be enough.”
Concerns were also voiced over data security, with many asking whether the general public, let alone the banks, would accept such widespread data sharing.
And the challenger banks themselves? They branded it a major missed opportunity, failing to combat the disproportionate capital requirements and regulatory hurdles currently barring new entrants.
Without competition, the big banks will continue to hold a majority stake. But it is more than that: until customers take the leap and try something new, shaking off apathy and questioning loyalty, the status quo will not alter and no ‘app’ will change that.
Why Merlot?
Merlot is arguably one of the most popular red wine varieties in the current market. A flexible grape, it is one of the most widely-planted the world over, most notably in Bordeaux (France) and Chile. It is common, reliable and widely available.
When you’re in desperate need of a glass of vino, you can usually rest assured that a relatively cheap Merlot will be available on the shelves of any local supermarket, and you know you can just grab it and drink it with warm familiarity.
So it is with the big four banks.
They are always there, they are widely used, and they can be relied upon (generally) to do the job you ask of them. Yes, there is the odd 'duff' experience, but it doesn't stop you going back for more.For those for whom wine is not of paramount importance, Merlot is a name they know and one they can identify with. Again, it’s the same with banks: for those who are not particularly well acquainted with the particulars of the sector, the bank they (or their parents) have always banked with is an easy option that requires no real in-depth research.
A constant pruning of the vine is needed for Merlot to flourish, with reduced yields being rumored to result in a higher quality wine. It is also believed that the older the vine, the more characteristic the taste.
If we apply this to the CMA report, maybe then it is a good thing that the doors have not simply been flung wide open to new entrants. It could be a good idea to strip back the leaves and force the existing incumbents to expose themselves, forcing them to work harder, resulting in a lower yield but higher quality.
This may be taking the analogy too far… but next time you’re reaching for that ‘old faithful’ on the bottom shelf, ask yourself this - is there an option better suited to you out there? This app may help.
Enjoy!
The Competition and Markets Authority (CMA) have been busy bees recently, firstly offering their recommendations to OFGEM about how best to increase competition in the energy market, releasing the stranglehold of the ‘Big Six’, and more recently turning their attention to the banking sector to see what mischief they can cause there.
This latter pursuit is the subject of this week’s blog. You have probably heard about Metro Bank, the new kid on the banking block, hoping to win over part of the 77% market share the traditional big four currently enjoy.
(NB: The big four are: Lloyds Banking Group, Royal Bank of Scotland, HSBC and Barclays)
After seeing Metro Bank’s meteoric rise to success, other banks have entered the ring, prompting the CMA to step in and see what they can do to help them along a bit.
The report entitled “Making banks work harder for you” was published on 9th August, claiming to have identified the reasons why the big banks monopolise the market and offering recommendations for reform.
The CMA reported that; “Essentially, the older and larger banks, which still account for the large majority of the retail banking market, do not have to work hard enough to win and retain customers, and it is difficult for new and smaller providers to attract customers.”
So why do smaller banks find it so hard to win-over personal account holders and small businesses? Ultimately, it is a combination of ignorance, apathy and a massive teenage-like case of ‘can’t be bothered’.
The findings seem to conclude that a lack of knowledge about the ease and benefits of switching provider is the main reason only 3-4% of customers transfer to a different bank each year.
The supposed ‘difficulty of switching’ is a myth that the report seeks to dispel by noting that there is a Current Account Switch Service (CASS) currently available which seeks to make it easy for customers to change banks but, due to a lack of awareness, it is under used, making a transfer long and onerous in most cases.
The report also hopes to raise awareness of the fact that personal customers could be saving an average of £92 a year, and business customers £80 a year, if they switched providers. For overdraft users, the savings could be even higher: £180 on average, due to the hidden charges many overdraft accounts contain.
While ignorance of a better option is one excuse, and in some respects one that can be forgiven, a reason that is less easy to understand is the identification of a sort of 'loyalty'. A characteristic especially prevalent among small business account holders.
It was found that many business owners tended to have their business account at the same bank as their domestic account. This 'loyalty' and familiarity prevented them from shopping around due to the belief that it’s quicker and easier to open a business account if you stick with what you know. The big four currently hold 85% of small business accounts and grant 90% of small business loans. Metro Bank has been the only entrant into the SME banking market in recent years.
So the dominance of the major banks is not only a result of a lack of awareness, but also a lack of willingness to explore other options.
The perceived difficulty of moving banks, combined with an inability to easily compare what they have to offer, seems to lie at the heart of the matter.
So what have the CMA suggested? They’ve recommended a phone app.
Yep, that’s right: the main way to increase competition in banking is to introduce an Open Banking phone app which would allow personal account customers and small businesses to compare and manage numerous accounts, from different banks, via the secure sharing of data between banks and third parties.
This would be accompanied by a kind of glorified Net Promoter Score, where banks would be required to publish objective information on their quality of service, including whether or not customers would recommend the bank to their peers.
Combine this with the third recommended requirement, that banks should send out “suitable periodic and event-based prompts” when charges are altered or local branches close, and it is hoped that this enhanced transparency will encourage competition.
But will it?
Market watchdog Which? were one of the first to raise concerns, being quoted by the BBC as saying “it is questionable whether these measures will be enough.”
Concerns were also voiced over data security, with many asking whether the general public, let alone the banks, would accept such widespread data sharing.
And the challenger banks themselves? They branded it a major missed opportunity, failing to combat the disproportionate capital requirements and regulatory hurdles currently barring new entrants.
Without competition, the big banks will continue to hold a majority stake. But it is more than that: until customers take the leap and try something new, shaking off apathy and questioning loyalty, the status quo will not alter and no ‘app’ will change that.
Why Merlot?
Merlot is arguably one of the most popular red wine varieties in the current market. A flexible grape, it is one of the most widely-planted the world over, most notably in Bordeaux (France) and Chile. It is common, reliable and widely available.
When you’re in desperate need of a glass of vino, you can usually rest assured that a relatively cheap Merlot will be available on the shelves of any local supermarket, and you know you can just grab it and drink it with warm familiarity.
So it is with the big four banks.
They are always there, they are widely used, and they can be relied upon (generally) to do the job you ask of them. Yes, there is the odd 'duff' experience, but it doesn't stop you going back for more.For those for whom wine is not of paramount importance, Merlot is a name they know and one they can identify with. Again, it’s the same with banks: for those who are not particularly well acquainted with the particulars of the sector, the bank they (or their parents) have always banked with is an easy option that requires no real in-depth research.
A constant pruning of the vine is needed for Merlot to flourish, with reduced yields being rumored to result in a higher quality wine. It is also believed that the older the vine, the more characteristic the taste.
If we apply this to the CMA report, maybe then it is a good thing that the doors have not simply been flung wide open to new entrants. It could be a good idea to strip back the leaves and force the existing incumbents to expose themselves, forcing them to work harder, resulting in a lower yield but higher quality.
This may be taking the analogy too far… but next time you’re reaching for that ‘old faithful’ on the bottom shelf, ask yourself this - is there an option better suited to you out there? This app may help.
Enjoy!
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