Tesco Bank proposes traffic light labelling system for current accounts

The bank called on the Competition and Markets Authority (CMA) to prioritise greater transparency in the current account market when it publishes its provisional findings later this month.

The lender has written to the CMA outlining findings from extensive research and setting out proposals to increase transparency.

In August 2015, Tesco Bank and TNS published research identifying the key barriers to effective competition in the current account market.

The research found that the difficulties customers experience in understanding the value of their account and the differences between accounts were critical barriers to increased switching levels and healthy competition – with 55 per cent of customers finding it impossible to determine the value of their account and only 14 per cent believing there are large differences between accounts.

The CMA’s own research has shown that 77 per cent of current account customers earn no credit interest allowing banks to generate income from current account deposits without paying anything back to millions of current account customers. Furthermore, many accounts now charge expensive monthly or daily overdraft usage fees, which often mean that the amount customers pay for their account far outweighs any benefits they receive. The CMA estimates that the eight largest UK banks generated £7.44 billion in income from current accounts during 2014.

Benny Higgins, Chief Executive, Tesco Bank, said: “Banks have lost the trust of their customers and it is about time that the industry took concrete steps to restore faith in the sector. An opportunity exists for the industry to come together to deliver a straightforward, accessible solution that will help customers get a better deal from their bank. If we don’t use this opportunity to make the market more transparent, we are unlikely to see sufficient competition and customers will continue to be poorly served by their bank. At Tesco Bank we are doing all we can to make banking as transparent as possible, and we stand ready to work with other banks and regulators to do much more.”

Amy Cashman, Head of Finance Division, TNS, said: “This research shows that customers have no effective basis for comparing and assessing the benefits of switching. Customers have been clear that the provision of an at-a-glance labelling approach would help to provide a clearer understanding of what they are being charged and what is being offered by other providers.”

Andrew Hagger, personal finance researcher, Moneycomms, who compiled the account comparisons, said:

“The wide variation in tariffs for overdrafts and credit interest means comparing bank accounts is too complex and a key reason why people don’t feel confident to switch provider.

“Traffic light indicators or colour-coded labelling offers something that’s not currently available - a straightforward, at-a-glance view, enabling people to quickly identify the account(s) likely to be most suited to their day-to-day banking needs.

“The labelling isn’t restricted to online use, and could easily be produced in leaflet format with the colour- coding becoming an integral part of all future current account marketing material.”

The Tesco Bank / TNS White Paper can be downloaded in full here