Topic dos - Competition in the financial services sector Flashcards
What is competition
The number and size of sellers supplying products to a certain market
Why is competition good
As banks try to get people, they will make better deals and make themselves better
What is the downside of competition
Banks might make their operatives riskier to be better, then collapse
What is effective Competition
a situation in which ‘banks compete to serve customers well rather than exploiting lack of customer awareness or poor regulation.
Example of effective competition
A person can switch banks and accounts if they find another provider with better rates
What is Good competition
situation in which there are many good banks that people can choose from, these banks have good practices and have good rates
What is bad competition
A situation where there is few providers and these providers aim to maximise their sales, these banks have little product differentiation and the bank isn’t transparent
Example of bad competition
Every bank sells the same poor product like PPI
What is wasteful competition
A situation where a bank will spend lots of money just to end up with a product similar to another bank’s product
Why is product complexity a problem
People cannot differentiate between products, leading to less competition
Why do banks make their product complex
So they can add clauses to trick consumers
What do the FCA say about product complexity
It’s bad and information should be clear and transparent
What is the concentration rate
the percentage of a particular market accounted for by a certain number of firms - eg 85% of the market was the big 5 banks
How does low concentration effect consumers
Less competition, so an oligopoly forms
How can competition be improved
Encouraging challenger banks
Reducing barriers to entry
Regulation
Consumer choice
