The watchdog’s 18-month review has, however, stopped short of requiring banks to end free-if-in-credit accounts and has not recommended breaking up the larger banks. 

Its report states: ‘Improving competition through further divestitures is an idea that is superficially attractive, but would be sensible only if we had strong evidence that it would make the retail banking market work better, and we do not consider that the evidence supports such an intervention.’

Instead, CMA says it wants to increase the competitive pressures on banks, which it describes as ‘weak’. Its research found nearly 60% of personal customers have stayed with the same bank for more than 10 years and over 90% of SMEs get their business loans from the bank where they have their current account. 

CMA said that making it easier for SMEs to shop around and open a new current account will reduce business owners’ reliance on their personal bank when choosing a bank for their business. By making the prices and availability of lending products more transparent, the majority of SMEs need not, as is the case now, turn directly to their existing bank for finance without considering other offers.

Its calculations suggested that at a conservative estimate, SMEs could save around £70 per year on their business current account (BCA) if they were to switch to a cheaper provider. 
CMA has put forward a number of proposals to increase banking competition, of which it says the one with the greatest potential is the development and implementation of an open API banking standard. This will enable personal and SME customers to safely and securely share their unique transaction history with other banks and trusted third parties.

The report describes the  competition problems in SME banking as ‘deep-seated’ and CMA says , additional targeted measures are needed.  It found that information on business loan prices and eligibility is not readily available and that there are no effective comparison tools serving the needs of diverse business customers. New business account opening processes can be very time-consuming, which in turn can discourage business customers from considering switching. 

The watchdog is therefore proposing to improve the information available to SMEs about loan charges and eligibility for loans, to make it easier for SMEs to compare the products of different banks, and to make it easier for SMEs to open a new BCA. 

CMA says it particularly wants SMEs to have a real choice when they need finance, and not to feel that their existing bank is the only option. It is proposing that all lenders offering such loans publish standard rates for unsecured loans and overdrafts of up to £25,000 in value and that this information is made available as open data to intermediaries. 

It also wants the largest SME banking providers to offer a tool on their websites so that business customers can get an indicative quote and know, provisionally, whether they would be eligible for the loan they seek.

It argues this would make it much easier for both personal and business customers to compare what is offered by different banks and pave the way to the development of new business models offering innovative services to customers. 

CMA says it intends to require the largest retail banks to develop and adopt an open API banking standard to a specified timetable, with a potential start date of May 2018. It also wants to see better information available to customers through the collection and publication of data on service quality and the development of open APIs. 

The proposals will require banks to display prominently a small number of core indicators of service quality. Data will be collected twice a year on a standardised basis, so that customers can easily compare across banks.

CMA is also proposing that banks should collect and publish a wider range of additional quality measures which they will make available, alongside the core indicators, through open APIs to intermediaries such as accountants and financial advisers, who can use them in new kinds of advisory and comparison services. 

It says it thinks that the Financial Conduct Authority is best placed to work with banks to develop, and test which specific additional measures of service quality would be most useful, and then to put these measures in place, and intends to make a recommendation to that effect.

CMA has rejected the idea of introducing Account Number Portability (ANP), which would mean that a customer effectively took their account number (and maybe their sort code) with them when they switched banks. This requires substantial changes to the banks payment system, at estimated costs of between £2bn and £10bn, and the regulator says it thinks a more  cost-effective and timely approach is to seek further improvements in the Current Account Switch Service (CASS).

CMA wants to see better governance of CASS to improve specific aspects of the switching process, with a longer period of redirection of transactions from the old to the new account and with guaranteed provision of the transaction history on the old account.

In addition, CMA will recommend the Treasuring works with credit reference agencies (CRAs) and SME lenders to implement a mechanism for ‘soft’ searching, so that SMEs are confident that they can shop around for credit and obtain indicative price quotes without adversely affecting their credit rating. 

On the issue of the availability of effective comparison tools for SMEs, CMA says the current offerings are too fragmented and it wants to see a ‘one-stop-shop’ that would enable SMEs to quickly and reliably compare banks on price, quality of service and lending criteria across the whole range of providers. 

The independent charity Nesta is planning to launch a ‘challenge prize’ to identify possible solutions to the problem of limited access by SMEs to information on banking services, which CMA believes will facilitate the development of innovative and commercially sustainable solutions. In the meantime, it calls on banks to continue to support the Business Banking Insight (BBI) comparison website.
 CMA says the Nesta project needs both financial backing and technical support from the banks, and it proposes to require the largest SME banking providers to provide product data and samples of customer transaction data to the developers of proposals. It will also require these banks to support and fund the organisation of the prize process and to contribute funding to the prize fund in proportion to their share of UK BCAs. 

CMA says its overall package of proposals for SME banking will be more effective if more businesses understand the benefits of shopping around for their banking services. 

Professional advisers, particularly accountants, have an important role in helping SMEs make good business decisions, including decisions about their choice of provider

The report states: ‘Professional advisers, particularly accountants, have an important role in helping SMEs make good business decisions, including decisions about their choice of provider. We therefore propose that BIS should work with the British Business Bank (BBB) and professional associations such as the ICAEW to explore ways in which their members can channel advice on choice of banks and sources of finance to SMEs.’

Mike Cherry, national chairman of the Federation of Small Businesses (FSB), said: ‘We welcome the package of measures aimed at boosting awareness of the CASS. Current levels of switching among small firms are far too low, with only 4% of FSB members switching in the last year. Small business owners are still not confident that switching banking products or services will be a risk-free, seamless process, and as a result, many choose not to switch’

‘The proposals' focus on a new online comparison tool should help businesses feel more confident when trying to find the bank that best suits their needs. If the CMA decides to support Nesta’s “challenge prize” in its final report, it must be careful to ensure any subsequent development of new comparison services does not complicate or confuse the advice process for small firms.’

CMA is asking for comments on its proposals by 7 June. Its final report will be published on 12 August. 

CMA’s report: Retail banking market investigation Provisional decision on remedies, is here.