The final report conducted by the Competition and Markets Authority (CMA) into the retail banking market investigation, published on 9th August, concluded that the older and larger banks do not have to compete hard enough for customer’s business. This has meant that smaller and newer banks have found it difficult to grow, and means many people have been paying more than they should have without receiving any benefit from the new services.
To tackle this problem, the CMA is implementing a wide-reaching package of reforms. These reforms should ensure that customers benefit from technological advances and allow smaller banks to compete fairly.
We could now be on the cusp of a banking revolution where real competition will help customers get the better deal.
CMA Key measures
The key measures that the CMA are looking to implement are:
Requiring banks to implement Open Banking by early 2018. This will mean an acceleration in technology changes and allow customers and smaller businesses to share their data securely with other banks and third parties. This will allow them to manage their accounts with multiple providers and take more control of their funds by allowing them to compare products based on their individual needs.
Require banks to publish trustworthy and objective information on the quality of their services. This will include from both their website and in their branches so that customers can compare their bank to others. This could be a great way for those that recommend banks to family or friends to be able to have real quality measures that the bank has implemented available to them.
Banks are required to send out suitable periodic and event-based prompts. These will include the closure of branches and increases in charges as a way to remind customers to review if they are getting the best deals and customer service. If they are not getting the best value, this can allow them to make the decision to swap banks.
The point of the measures
The point of these measures is that the CMA wants to make it easier for customers to search and switch their bank.
Only 3% of personal and 4% of business customers do switch banks in any year. This is incredibly low!
Specific measures will also be introduced to benefit unarranged overdraft users. These make up to 25% of personal and business customers.
Banks make £2.1 billion a year from unarranged overdraft charges. Banks will now be required to send alternatives to customers that are looking to use these overdrafts and let them know of a grace period in which they can avoid charges. A cap must be set on these overdrafts as well, and banks must inform customers about it.
Small businesses were also found to lack tools providing comprehensive information about bank charges, service quality, and credit availability. Banks are now required to provide independent charity Nesta with financial banking and technical support, as well as introduce a range of other measures targeted at small businesses.
The CMA will now be focusing on bringing these measures into action.
Alasdair Smith, Chair of retail banking investigations, 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”.
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