Lenders’ yields fall ‘sharply’ following FCA intervention

In an update to its 2018 strategic review of banking, the FCA found that measures put in place by the regulator to support borrowers financially affected by the pandemic had also resulted in a drop in yield on authorised overdrafts. 

Elsewhere, consumers, small businesses and mortgage borrowers are benefiting from choice and lower prices in the retail banking sector, despite the impact of the pandemic, the FCA said.

The watchdog found that, while still strong, there are signs that large banks’ historic advantages are starting to weaken - the share of personal and micro-business current accounts held by digital challengers rose between 2020 and 2021, while the largest banks saw their share fall. 

The FCA said the change was being driven by digital innovating and changing customer behaviour. The economic environment was also a factor, it added, particularly sustained low interest rates. 

It added that adoption of digital innovations by banks and their customers, accelerated by the pandemic, had also improved quality and satisfaction, particularly for mobile and app-based users. 

Meanwhile the FCA said evidence suggests that intense competition, partly driven by the increased use of brokers, has benefited mortgage borrowers through lower interest rates, however it added that this makes it more difficult for smaller lenders to compete. 

FCA chief economist Kate Collyer said: “Competitive pressures and innovation are starting to deliver for retail banking customers, with greater choice, lower prices and more convenient ways to bank. 

“But changes that may benefit many of us can also be a risk to those in vulnerable circumstances, which is why we have put in place guidance on the closure of branches and ATMs. We are also consulting on a new consumer duty to set higher expectations for the standard of care that firms provide.”