How UK consumers are treated by their banks is set to change after a series of proposals by the competition watchdog. The Competition and Markets Authority (CMA) has proposed a number of measures in Making banks work harder for you
to improve the current account market for consumers.
Information published on the UK government website states that the measures were introduced to “ensure [that] banks work harder for customers” and that technological advances are taken advantage of.
The proposals aim to make it easier for bank customers to switch accounts and reduce fees, such as those applied to overdrafts, by introducing smartphone apps that will let them assess how much they could potentially save by changing.
It relays the CMA’s report, which finds that older and larger banks “do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow,” meaning that the public are paying more in banking charges than necessary and are not benefiting from new services.
The share of the retail current account market held by Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland
The CMA is implementing a “package of reforms” in efforts to eradicate these concerns.
According to the government website, the measures will mean banks are obliged to: “Implement Open Banking by early 2018 … to enable personal customers and small businesses to share their data securely with other banks and with third parties, allowing them to manage their accounts with multiple providers through a single digital ‘app’.”
The report also says banks must “publish trustworthy and objective information on quality of service” across their websites and branches, so customers can see how their banks are performing.
The government press release says that at present, just 3% of personal and 4% of business customers change bank in any year, “despite personal customers … being able to save £92 on average per year by switching provider”.
Competition and Markets Authority report
Writing for Reuters
, Dominic Elliot says that the cap introduced by the CMA for unarranged overdraft charges will impact the big four banks – Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland – the most, costing them a potential £1.2bn a year. These banks, which will be allowed to set their own overdraft caps, have more than 70% of the retail current account market.
However, Elliot writes that the CMA failing to ban ‘free-if-in-credit’ banking was a missed opportunity, with less well-off customers funding the services given to others.
With regards to small business customers, Elliot says the watchdog “could have urged prudential regulators to ease capital requirements for so-called challenger banks”, but instead left that decision up to the Bank of England. He adds businesses would be inclined to borrow less if they have to pay more than what banking services are worth.
Conrad Ford, writing for CityAM
, claims that the Open Banking aspect of the CMA changes “has been compared to the ‘Cambrian Explosion,’ an era half a billion years ago when high oxygen levels led to an unprecedented boom in life on earth”.
“Just as the availability of oxygen led to an explosion of new life forms, rich data from Open Banking APIs will add rocket fuel to innovative fintech firms like alternative finance providers,” writes Ford, founder and CEO of Funding Options.
He said that some alternative lenders will make better credit decisions using read-only access to Open Banking data. At the same time, they could use read-write access to the data, “giving them the ability not just to view bank account payments, but also to initiate them.”
Customers should expect to see peer-to-peer lenders compete on equal terms against the dominant banks with the advent of Open Banking, writes Ford.