Banking sector is highly essential to the development of UK economy. The sector connects savers and borrowers. In addition, it enables transfer and store of value. Banks help in managing fiscal risks as well as in providing basic infrastructure for transactions. In essence, the sector plays a significant role in the development of United Kingdom.
Other markets cannot accomplish these roles as effectively as banks do. However, it is also important to note the sector’s significance to the UK economy. In addition, whenever the sector faces unexpected obstacles, it usually leads to consumer detriment. This paper will explore competition in the banking sector (Fingleton, 2012, pp. 1-9).
Over the years, competition has been insignificant in UK’s banking sector. However, if results from the 2012 market activity are to be believed, this trend is changing. According to Cruickshank’s report, competition in UK’s banking industry lacked effective competition as late as the year 2000. This has caused competition authorities, the government, and other stakeholders to intervene.
However, progress has not been forthcoming even in areas of success. Of great concern to stakeholders is the performance of markets as well as their competitive structure. Issues like financial crisis have not made things better. Moreover, the long-standing issues such as low competition have made it difficult for banks to increase their market share.
For instance, banks that offer better services have still found it difficult to increase their market share. In addition, this has made it increasingly difficult for new entrants to gain recognition in the industry. Nonetheless, there has been strong competition for specific groups of consumers.
However, this has not compelled banks into improving efficiency, innovation, or consumer support. In essence, consumers do not have control over banks’ dealings. This has made it difficult for banking sector to create effective competitive structures (Fingleton, 2012, pp. 1-9).
Report conducted on UK’s banking sector showed that customers were being overcharged. Moreover, there was lack of innovation. In addition, UK’s market was highly concentrated to allow for effective competition. This was especially a concern in the SME banking where information concerning personal customers was inadequate to allow for switching current accounts.
Customers also suffered from issues like barriers to entry as well as non-standardised service levels. However, annual rates of switching have come down tremendously with stakeholders trying to effect competition between banks (Fakhri, 2013, pp. 1).
Payment systems have also slowed competition in banks since it under their control. However, retail baking has emerged as an incentive to competition. For instance, Virgin money and Metro bank, among others managed to enter the markets to reinforce competition.
The new entrants still face considerable obstacles given that customer inertia continues. Nonetheless, it is a positive step towards achieving competition in the UK banking sector. The next 5 years will be a landmark for changes in the banking industry. More so given the dynamics brought about by new entrants in retail market. Moreover, competition is expected to penetrate current accounts to achieve efficiency (Fakhri, 2013, pp. 1).
References List
Fakhri, D., 2013: brighter prospects for competition in UK retail banking. Web.
Fingleton, J. 2012. Competition in UK Banking. Web.