The competition watchdog has said it is concerned by the impending increase in the concentration levels of the retail banking sector in Ireland as a result of the exits of KBC Bank Ireland and Ulster Bank.
The Competition and Consumer Protection Commission (CCPC) said that while non-bank lenders have brought some new products to the market, there has been no entry by a full-service banking provider and no indication such an entry is likely in the near future.
"This situation risks leaving certain consumer and business segments with little choice for a range of products," the commission warned in its submission to the Government's ongoing retail banking review.
The CCPC said it also noted the withdrawal of Ulster Bank and KBC will leave only three full-service banks in the market for consumers, and two for businesses, which compares poorly against other EU member states and leaves Ireland in a unique place when it comes to consumer choice.
"We’ve seen in other jurisdictions where there are only two or three players it has an impact on price and innovation in these markets," said Brian McHugh, member of the commission.
"So that is concerning, and we would like to see steps taken to address those concerns."
The commission has put forward a series of recommendations which it thinks would, if implemented, assist in boosting competition in the banking market.
Chief among them is a suggestion that the Central Bank of Ireland’s mandate be extended to include competition objectives.
It also recommends that as part of the bank’s upcoming review of the Consumer Protection Code, an evaluation of the operation of the Bank Switching Code for the movement of accounts between institutions should be conducted.
It says it is concerned that vulnerable customers, who may find the switching code process to be of particular use, are not being facilitated with the extra help that they require and are being channeled into the self-service option that may not be appropriate for their needs.
The CCPC says credit unions, An Post and fintechs are also not bound to follow the switching code, which is limited to retail banks.
"There is some frustrations out there on that process so we do think lessons can be learned and that can be improved in terms of the consumer experience," Mr McHugh said.
"So we’d like to see it to be faster and it to be more efficient in terms of costs for consumers. And we think that will have a big impact on the consumer experience but also on the potential for banks entering the market."
The loyalty penalties that arise when borrowers end a fixed rate term and roll onto a higher variable rate also need to be examined as part of the code review, the commission states.
It says the application of default interest rates in this manner can lead to unfair outcomes for consumers, particularly those unable to engage with their bank on expiry of a fixed rate period for reasons such as a lack of knowledge or understanding of the benefits of such engagement or low financial literacy.
"The CCPC recommends that a revised Consumer Protection Code should mandate mortgage providers to offer the same rate or equivalent best rate to a consumer at the end of an initial fixed term," it says.
"The Central Bank should also consider the differentials between offers made to new and existing customers and their appropriateness or otherwise."
The submission also claims that the Central Bank should introduce a guidance note for fintechs seeking authorisation to operate here, in order to assist new firms seeking to enter the Irish market.
"The CCPC is aware of commentary that the pace at which authorisations are processed by the Central Bank is regarded as a barrier to entry to the Irish financial services markets, although this appears to relate to markets other than the retail banking market," it says.
It also adds that it has become aware of suggestions that the Central Bank's regulatory requirements are "excessively intrusive" and this may be adding to the cost of financial services and potentially acting as a barrier to entry.
The CCPC also suggests that the use of suspended possession orders by the Courts be reviewed, as they could be a possible means of improving the enforcement of the security of mortgage debt, which has been cited by those in financial services as a potential barrier to entry.
"Potential entrants may be discouraged from entering the Irish market by the risk that, if they were to enter, their profitability will be negatively impacted by a difficulty in accessing processes which enable the timely and effective resolution of non-performing loans," the document claims.
The commission is also urging the Government to engage with the proposal for a European Digital Identity Wallet which if implemented could help consumers to access financial services across EU borders more easily under banking union.
Financial literacy among micro, small and medium sized enterprises also needs to be improved, the commission proposes, while these smaller businesses also require new innovative options around relationship management because of the reducing number of business bank options.