1. Response to consultation

1.1  Innovate Finance welcomes the opportunity to respond to the Competition and Markets Authority's (CMA) “Provisional decision: Review of the SME Banking Undertakings 2002” which is also referred to as the “Limitation on Bundling Provisions” (LOBP). In preparing this submission, we have engaged with a cross-section of our membership, including start-up and scale-up challenger banks.

1.2 We acknowledge the CMA’s assessment that market conditions have evolved since the introduction of the undertakings in 2002. However, the data provided confirms that competition remains concentrated among the Bound Banks. Given the close relationship between products and entrenched monopolistic market structure, the LOBP remains a fundamental principle of enabling fair competition. The change of conditions cited have been largely facilitated by, and are not independent from, the unbundling restriction. Furthermore, the removal of the restriction risks undermining or reversing gains from the government's significant investment since 2014 in creating competition. We therefore challenge some of the justifications cited in the Decision. Finally, we note that removing restrictions on "National Champions" in any market ultimately suppresses competition and innovation, resulting in less choice, higher prices and worse service quality for SMEs.

1.3 We therefore do not support the removal of the limitation on bundling because there appears to be minimal benefit in its removal (the only potential benefit being reduced operational cost at the Bound Banks, but we understand this cost to be minimal given how long the Bundling Limitation has been established), and meaningful risk of detriment to established SMEs if it were removed. In this regard, it is notable that applications of bundling that are necessary for providing the loan or giving the customer a benefit are already allowed under the existing restrictions.

1.4 The CMA does not appear to have undertaken analysis of these critical items in its provisional decision. We believe it is important the CMA directly analyses the established SME market, including non-bank payment account providers and lenders, that is circa 1/3^rd of UK GDP, in making its final decision.

Read our response in full here.