On Tuesday, the Competition and Markets Authority (CMA), a UK government agency, told British banks that they must digitise or suffer penalties. In a report called ‘Making banks work harder for you’, it has ordered UK banks to digitise within two years or face regulatory fines.
The key headlines include, under what the CMA calls its “open banking programme”, that banks must share their customer data with third party app providers. This is embodied in the PSD2 European Directive, even though we’re leaving Europe, but it’s the first move I’ve seen that’s saying this must happen under domestic regulatory review.
In terms of APIs and opening data to third parties, customers have to give their consent before this happens. and the aim is that it will enable consumers to see which bank is cheapest, given their particular pattern of borrowing.
The second headline is that all banks will be required to introduce a maximum monthly charge (MMC) to limit the costs of an unarranged overdraft. The MMC will include debit interest – typically charged at up to 20% a year – and unpaid item fees. At the moment, most banks cap overdraft fees, but then add on interest payments. The CMA said this would make different bank accounts easier to compare, and cut through the complexities of overdraft charges.
Thirdly, the CMA has ordered new measures to encourage more people to switch their accounts to other providers. Although easier account switching was introduced in 2013, it hasn’t resulted in any big change. Only 3% of personal customers move their accounts each year, and recent figures show the number of people switching actually going down. As a result, there will be:
- a new regulator to oversee the Current Account Switching Service (CASS)
- a longer period during which transactions will be redirected from the old account to the new – currently set at three years
- a “long-term” promotional campaign to encourage more switching.
More needs to be done
The news was greeted with some jeers from consumer groups that it hasn’t gone far enough. Alex Neill, director of policy and campaigns at UK consumer group Which?, said: “It is disappointing that the monthly charge cap is not actually a cap, and banks will be allowed to continue to charge exorbitant fees for so-called unauthorised overdrafts, rather than protect those customers that have been identified as among the most vulnerable.”
Andrew Tyrie MP, chairman of the Treasury Select Committee, said: “The CMA is relying on the rolling out of new technology to do the heavy lifting on competition. But many customers will not have the tools or skills to do this. Customers are also – understandably – wary of the data-sharing required for this to be effective.”
Diane Coyle, professor of economics at the University of Manchester, told the BBC: “There’s a lot of reliance being placed on more information, but consumers will need to give all of their transaction information to third party providers. And there’s the trust question … do you really want another party to be able to see all the transactions that you make in your bank account and be able to tell other potential competitors about that?”
The British Bankers’ Association defended the industry and how it operates, however, with its CEO Anthony Browne stating that, “Banks compete to attract and retain customers every day. They are also focused on giving their customers the best outcome for the services they provide. The CMA’s final recommendations will further help consumers with a package of measures which give individuals and businesses greater power to pick the products that are best for their needs.
“Customers and businesses have already found digital banking hugely convenient and have taken advantage of mobile technology that is allowing us to bank around the clock. We are pleased the CMA has reflected that in its recommendations. However, we recognise more work needs to be done to create a level playing field by supporting new banks wanting to set up business, as well as helping to grow established banks.”
Hmmm … more needs to be done. Perhaps the most intriguing analysis of the CMA’s report came from Financial Services Club member John Gilbert in his research note. Enjoy!
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