Banks aren’t doing enough to compete for customer’s business, claims CMA report
The final report from the Competition and Market Authority’s retail banking investigation, published this week, has outlined new measures to ensure banks exploit the latest technologies.
It’s found that banks aren’t doing enough to compete for customer’s business, and at the same time, smaller and newer banks are struggling to grow. This, the organisation has concluded, means many are paying hefty sums and not benefiting from new services.
In a bid to enforce much needed change, the CMA has begun implementing a new package of reforms, with a focus on measures ensuring that customers benefit from new technologies and that smaller providers can compete more fairly.
Banks will have to implement “open banking” by early 2018, which CMA says will accelerate a technological shift in the UK’s banking sector. This move will let customers manage their various accounts through a single app, allowing them to take control of their finances and compare products.
At the same time, open banking means individuals and small businesses can provide their data with banks securely and easily. And banks will be expected to share this information with third-parties so mobile banking is overhauled.
Alasdair Smith, chair of the retail banking investigation, said open banking is at the heart of the reforms announced today. He believes updated, cross-bank apps will support individuals, businesses and the banks themselves.
“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,” he said in a statement.
“This is backed up by a wide package of measures to improve the current account switching service, to make it easier for small businesses to shop around and open new accounts or get a loan, and to see how the quality of service provided by your bank compares with other providers.”
As well as new apps, banks must also publish trustworthy and objective information about the quality of services and products on their websites, giving customers an indicator of how banks are performing.
They’ll be expected to send customers “periodic updates” and “prompts”, too. For example, if a local branch closes down or there’s an increase in charges, the bank will have to notify the customer via email or SMS.
Smith added: “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.”
Peter Roe, research director at TechMarketView, said today’s sweeping changes show that the CMA wants banks to exploit the digital revolution. However, he says banks have a lot on their plates already.
“The Competition and Markets Authority is turning the screw to force established banks to embrace the digital revolution. Measures will include publishing information on service quality, issuing alerts about impending overdrafts or service changes and most importantly, to enable customer data to be shared with other banks and third parties,” he said.
“The Big Four banks still hold 77% of the current account market (by number), and despite the introduction of mechanisms to facilitate account switching, churn rates are still very low, prompting this stronger move by the CMA.”
“Bank CTOs have enough on their plate with organisational changes (such as in RBS), new regulation and the need to improve customer experience. Their workload will be substantially increased by the CMA’s deadline of 2018 for the changes.
“Banks have already spent a lot of time and money re-organising the data held within their organisations, but this process is far from complete. The security, privacy and regulatory implications of the mandated changes to allow permissioned third party access will significantly add to the complexity of the task.”