A time for competition
We need to promote the challenger banks
Competition is at the heart of efficient, open and resilient economies. When markets are contestable, individual firms must offer products and services that are better value, higher quality or more innovative than their competitors, in order to attract and retain more customers.
That is why successive governments since 2010 have taken significant steps to increase competition in financial services, including retail banking. Setting up the Current Account Switch Service (Cass) has been a prime example—it allows customers to switch simply, quickly and reliably. Since Cass was launched in 2013, customers have switched five million times.
It is also crucial that competition benefits everyone in society, especially the most vulnerable. To promote competition and an inclusive financial system, action is needed to: support challenger banks; promote financial technology; improve financial capability; and tackle financial exclusion.
The government recognises the crucial role of challenger banks in providing customers with more choice on the high street. The first objective is therefore to take action to support challengers and create a regulatory environment where challengers can more easily enter, expand and compete with incumbents. To achieve that, competition objectives have been embedded within the statutory framework of the Financial Conduct Authority and the Prudential Regulation Authority. The government has also asked the regulators to produce annual reports on how they are delivering against their respective competition objectives across financial services, to help drive more competition and ensure the right incentives exist for new banks to enter the market. The government has also put competition at the heart of the regulatory system by setting up the Competition and Markets Authority as a single, stronger regulator.
The second objective is to ensure the UK is the best place in the world for fintech—financial technology—firms to grow. Fintech revolutionises financial services markets, promoting innovation and stimulating competition, ensuring that firms have both the right incentives and the means to deliver cheaper, better products to consumers. It can also benefit established financial services firms by, for example, reducing the costs associated with achieving regulatory compliance. The government’s new fintech Sector Strategy sets out how we intend to ensure that the UK remains the world’s leading hub for financial technology.
The third objective is financial capability. The benefits of competition can only be realised if people are empowered to make the right financial decisions for them and their families. This is why the government set up the Money Advice Service (MAS) in 2010, which has played a key role in providing free-to-consumer money guidance and debt advice and has co-ordinated a cross-sector financial capability strategy.
In May 2018, we took the next step to improve the public provision of financial guidance by legislating to create a new Single Financial Guidance Body, bringing together the services of the Money Advice Service, the Pensions Advisory Service and PensionWise, to provide a service that includes money guidance, debt advice and pensions guidance. I look forward to the new body’s official launch at the beginning of 2019 and to working with its new leadership team to continue supporting people to make sound financial decisions.
The fourth objective is financial inclusion. Vulnerability and exclusion are key when we consider the positive impact of competition. If people are excluded from mainstream financial services due to their income, background, disability, age or illness then it is impossible for them to choose alternative options that work for them and thereby realise the benefits of competition.
The government has made significant progress over the years in improving financial inclusion. The fee-free Basic Bank Accounts we have championed are benefitting over four million people and our tough new consumer credit rules mean that the number of payday loans has halved since 2014. However, there is still more to do to improve people’s access to useful and affordable financial services. To achieve that, in March 2018 we hosted the first meeting of the Financial Inclusion Policy Forum, which I am co-chairing with Guy Opperman, the Minister for Pensions and Financial Inclusion. The Forum brings together government, regulators, industry and consumer groups and provides leadership across government and the sector to tackle financial exclusion. Forum members are currently working on innovative solutions to improve access to affordable credit, as a large section of consumers remain excluded from affordable credit products, leaving them vulnerable and in danger of falling into problem debt. This is a key government priority and I look forward to the Forum’s next meeting in October.
I am passionate about promoting a competitive and inclusive market for financial services that works for all consumers and supports them at all stages of their lives. I want to ensure that the financial services sector continues to bring benefits and crucial services to people across the country and I will continue to work with the industry and the wider sector to ensure that these benefits reach those who are currently underserved.
Banking on Change is a publication which examines how we can develop a comprehensive policy approach towards financial inclusion. The report features contributions from the likes of John Glen MP, Peter Dowd MP, Anne Pieckielon, Chris Pond and Guy Opperman MP.
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