Key Terms in Competition and Financial Services

Bad competition

Where there is a small number of large, powerful providers on the market that only aim to maximise their sales, which may result in mis-selling and a lack of differentiation in products.

Barriers to entry

The features of the market that make it difficult for new firms to enter and compete.

Barriers to expansion

The features of the market that make it difficult for new firms to grow.

Challenger banks

Any new bank that challenges the 'big four'. For example, Virgin Money, Metro Bank, Monzo Bank and Starling Bank.

Competition

The number and size of sellers supplying products to a particular market.

Competition and Markets Authority (CMA)

The body responsible for strengthening business competition and preventing and reducing anti-competitive activities.

Competitive market

A market where there is a large number of sellers and where no one of these is so big that it can dominate the market.

Concentration ratio

The percentage of a particular market accounted for by a certain number of firms.

Customer inertia

The idea that customers are reluctant to change their financial services provider and therefore tend not to challenge poor service.

Effective competition

When the providers on the market compete to provide the best product, rather than taking advantage of lack of customer awareness or poor regulation.

Financial Conduct Authority (FCA)

The organisation that regulates financial firms providing services to consumers, and maintains the integrity of the UK's financial markets.

Genuine competition

Where there are several providers, who are independent of each other, that design a range of clearly differentiated products for consumers to choose from.

Good competition

Where there are a good number of providers on the market so that consumers have a variety of firms to choose from.

Market share

The sales that a company makes as a proportion of the total market for the products and services it provides, or the sales of a specific product as a proportion of the total market for that product.

Oligopoly

A market dominated by a few large firms, eg the financial services sector.

Payment protection insurance (PPI)

An insurance product intended to ensure repayment of loans should a borrower face unexpected events that prevent them from repaying the debt.

Pressure group

A group who act together to try to bring about change. In the case of financial services, they try to pressure financial services providers into making changes to the way they develop, market and deliver their products.

Product complexity

The idea that financial services products can be too complicated for consumers to understand.

Transparency

When customers are given full information on the products available, the terms and conditions are clearly explained, and customers understand what they are buying and the financial implications involved.

Wasteful competition

Where providers spend huge amounts of money on designing, branding and marketing a product that is only slightly different from those of its competitors.