Retail Banking: More Changes in the Pipeline from The CMA
“Something must be done to break the inertia of the UK banking public”, said the BBC yesterday in its report on the latest activity from the Competition and Markets Authority’s latest plans for retail banking.
Following what is reported to have been a two-year investigation, the Competition and Markets Authority (CMA) has concluded that not enough is being done to pressurise banks into offering significantly cheaper or better services to customers. Indeed, only 4% of UK businesses and 3% of individuals currently switch their bank in any one year. As a result of these findings, the BBC yesterday said that, “some very big changes are now in the pipeline for the way people use their bank accounts and the way banks charge their customers”.
In essence, banking’s ‘big five’ (RBS, Barclays, HSBC, Lloyds and Santander) plus the Nationwide building society each have their own significant, but crucially captive markets. "The older and larger banks, which still account for the large majority of the retail banking market, do not have to work hard enough to win and retain customers and it is difficult for new and smaller providers to attract customers," said the CMA. Thus its latest initiative will look not only to make switching easier, but also aims to encourage customers to look elsewhere for a better deal that will ultimately save them money and offer other benefits - especially if they are likely to go overdrawn.
The topic of overdrafts has itself been a spotlight issue for The CMA throughout its investigations, as it now orders banks to put a hard cap on just how much they can charge customers for going into the red. Historically, this is an area that has caused controversy as banks have been allowed to charge more or less what they like for unauthorised overdraft use. In fact, in 2009 the Office of Fair Trading (now part of the CMA) failed in its legal challenge to overthrow the right of banks to set their own charges as they saw fit.
Forcing banks to cap and declare their overdraft charges does not, of course, go so far as to suggest that a monthly limit on overdraft fees and charges should be set by a regulator, but it will at least make things clearer for customers. "Many personal customers, in particular overdraft users, could make significant savings by switching to a different current account," says the CMA. It aims to bring this particular change into force by September next year.
Open Banking and the push for further CMA reform
In a bid to stimulate greater competition – and improve options for customers – The CMA is pushing for an industry-wide adoption of what is being referred to as ‘open banking’. In principle, open banking would see the financial technology industry strive to develop a computer application that would allow customers to manage accounts that may be across multiple banks through one central interface.
In recent years, we’ve seen vendor-specific banking apps pop up all over the place, but these only offer management of accounts held with that particular bank. This new, ‘all purpose’ app should also – so The CMA says – allow authorised intermediaries to provide a kind of ‘price and service comparison’, so that customers are able to check their existing provider(s) against others in the market at large, and thus potentially find other providers that are better suited to their specific saving and spending needs.
The CMA hopes that this will encourage customers to move money around - either to avoid upcoming overdraft charges, or to gain higher interest on more generous accounts.
And how soon will all this happen? The CMA’s final report, published yesterday, is just the latest in a very long line of official inquiries into the banking industry that have been held over the past 20 years. With a myriad of proposals on the table, all aimed at improving the customer experience in the retail banking arena, it is hard to say for sure which of these will be carried forward – and indeed when we might see them enforced. However, with plans around competition, overdraft caps and open banking now finalised and published, we’re told that official implementation dates range from the beginning of 2017 to the autumn of 2018. Watch this space!
For more information, visit the BBC business website here.