Watchdog calls for change
Banks told to give customers more use of technology
The Competition and Markets Authority demands what it calls “Open Banking” to create greater transparency.
Among the suggested changes are that banks make more use of innovative apps.
The watchdog also demands that banks cap their monthly charges for unarranged overdrafts.
The report is the final statement following a two year inquiry into retail banking by the CMA.
Alasdair Smith, chairman of its retail banking investigation, said: “The reforms we have announced today will shake up retail banking for years to come, and ensure that both personal customers and small businesses get a better deal from their banks.
“Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy.
“Our central reform is the Open Banking programme to harness the technological changes which we have seen transform other markets. We want customers to be able to access new and innovative apps which will tailor services, information and advice to their individual needs.”
Consumer groups wanted a tougher approach and preferred that there had been more focus on the regulators rather than the banks themselves. Challenger banks were also disappointed .
Kevin Mountford, banking expert at MoneySuperMarket, said: “Those looking for wholesale reform of the banking market are likely to be holding their heads in their hands this morning. The CMA’s final remedies are more ‘gently does it’, as opposed to the seminal, watershed moment for British banking that many had been looking for.
“The CMA’s focus on the Open API banking standard is a source for optimism. APIs are already being used to great effect in other industries and could transform the customer experience in everyday banking.
“Making such a standard a success, though, will rely on widespread industry engagement. Given the tight timelines, we need clarity on how these changes will be mandated, governed and measured so that consumers and SMEs reap the benefits.
“The CMA’s intervention on overdraft charges is also long overdue – these end up milking customers, exacerbating indebtedness and all the stress that goes along with it. The banking market should be giving consumers more transparency on overdraft tariffs and the opportunity to get a better deal elsewhere if their bank isn’t providing competitive rates.
“The introduction of a monthly maximum charge is also a step in the right direction, but giving banks the freedom to set their own cap on overdraft charges might not always result in good outcomes for consumers.”
Gillian Guy, chief executive of Citizens Advice said the CMA needed to impose “stronger measures” its recommendations fail to produce change.
She said: “The CMA’s move to force banks to be clear on their maximum overdraft charges is good, but banks really need to step up to the plate and set limits that are fair on consumers. Better use of data is a positive step and could make it easier to switch and unlock benefits for customers. The changes announced today need to be monitored closely to ensure they are effective – and stronger measures should be kept on the table if they are not working.”
Tesco Bank chief executive Benny Higgins, said: “While the CMA has made some positive proposals, we don’t believe they will have an impact in the short to medium term to help millions of customers get a better deal from their bank.
“Throughout this process, we have argued that transparency and comparability are key to helping customers understand their current account, and we have long argued that simple measures are required to increase consumer engagement in the market.
“Customers have a right to know what they are paying for their bank account and what they receive in return. We continue to believe that if that information was readily available far more customers would switch accounts.
“For example, we are the only UK bank to advocate the introduction of an at-a-glance comparison traffic light label to help customers quickly and easily compare accounts and make an informed decision on whether to keep or switch accounts.
“In the coming months we will consider and reflect on the changes proposed by the final conclusion of the CMA, while also considering broader market conditions to ensure we serve customers to the best of our ability.”
TSB chief executive Paul Pester said the CMA has failed to make strong recommendations to help make the industry more transparent to consumers.
He said: “Banking must be the only industry that doesn’t tell its customers how much they are paying for their services.
“Consumers need to be equipped with the necessary tools in order to make informed choices about the best products and services for their needs.
“This is why we will continue to champion transparency over the true cost of banking through the creation of a Monthly Bill. The CMA’s report is only the first rung on the ladder and, while disappointing, it should not constrain the Government in its ambition to achieve a truly competitive banking market.”
Adam Tyler, chief executive of the National Association of Commercial Finance Brokers said more could have been done to help business customers.
“If the small business community is going to take advantage of the opportunities presented post-Brexit, the Government must drum home the message that banks aren’t the only route to funding,” he said.
“With the diversity of funding options now available to SMEs, it’s staggering that most small business owners turn to their existing bank for finance.
“There needs to be greater awareness and transparency of the types of funding available to small businesses, beyond the high street.”