Competition and Markets Authority reveals plans to ‘shake up’ retail banking sector
- Credit: PA
Plans to “shake up retail banking for years to come” have been unveiled by the competition watchdog after it found older and larger banks do not have to compete hard enough for customers’ business.
The Competition and Markets Authority (CMA) today confirmed a package of measures designed to help customers to shop around for a better deal and smaller and newer banks to grow.
The plans include requiring banks to publish trustworthy and objective information on quality of service on their websites and in branches, so that customers can see how their own bank shapes up.
Alasdair Smith, chairman of the CMA’s 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.
“We are breaking down the barriers which have made it too easy for established banks to hold on to their customers. Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy.”
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The package of measures, set out in the final report from the CMA’s retail banking market investigation, will enable people and small businesses to manage accounts held with different providers in a single digital app.
The CMA said this will help customers to take more control of their funds; for example, by managing their cashflow and avoiding overdraft charges by being able to move money around more easily. It could also help them compare products more easily.
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Banks will be required to put this “open banking” measure into place by early 2018, the CMA said, to speed up developments in technology in the retail banking sector.
The CMA said “many people are paying more than they should and are not benefiting from new services”. The CMA will require banks to:
:: Publish trustworthy and objective information on quality of service on their websites and in branches for customers to see. A core measure of how banks shape up will be whether customers would be willing to recommend their bank to friends, family and colleagues.
:: Send out suitable “prompts” such as on the closure of a local branch or an increase in charges, to remind their customers to review whether they are getting the best value and switch banks if not. Unlike many other financial products such as home insurance, current accounts do not have annual renewal dates to act as natural reminders for customers to compare deals.
:: Send alerts to customers going into unarranged overdraft, and inform them of a grace period, to avoid charges. Banks will also have to set a monthly cap on unarranged charges, and tell their customers about it. Banks make £1.2 billion a year from unarranged overdraft charges, which have been described as a “cash cow” for banks by commentators.
:: Provide financial backing and technical support to independent charity Nesta to make it easier for small businesses to get a better deal. The CMA found small businesses lack tools providing detailed information about bank charges, service quality and credit availability. A range of measures targeted at small businesses will include a loan eligibility tool.
At present, just 3% of personal and 4% of business customers each year ditch their old bank and switch to a new one.
The CMA said, despite this, someone could save £92 a year on average by switching to a deal that better suits their needs. Savings of around £80 a year on average are available for small businesses by ditching and switching.
People who are often overdrawn could make even bigger savings. Someone who goes overdrawn for one or two weeks every month could save £180 per year on average, the CMA said.
Unarranged overdraft users make up around 25% of all personal current account customers and small businesses.