The Financial Conduct Authority (FCA) has today published an update on its Strategic Review of Retail Banking Business Models. The review aims to better understand the retail banking market and how competition may evolve over the next few years. The main findings include:

• The top 10% of Personal Current Account (PCA) customers generate up to half of a bank’s revenue
• Major banks have a competitive advantage over smaller players as PCAs pay little or no interest but account for a big proportion of major bank’s funding
• A large number of PCA customers also hold other products with their banks such as credit cards, loans and mortgages

The FCA has explored a range of questions around PCAs, including how they are priced, whether they act as a gateway to other products, and how far they restrict entry or prevent smaller banks from expanding. The FCA plans to do further work on these topics to better analyse different scenarios and future business models.

Antti Lemberg, Associate Director in Frontier’s Financial Services team, said: “The FCA’s findings cover a wide range of potential issues in retail banking, and highlight that there are possible funding advantages for the major banks. But the analysis does not yet account for capital requirements or operating costs. The FCA has recognised the potential for change: new regulation has only just started in the savings and PCA markets, and Open Banking has only recently been launched. Any competitive advantages for the major banks , as far as they exist, might be eroded surprisingly quickly in the next few years.”

Frontier regularly advises Financial Services companies and regulators on commercial and regulatory issues.

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