10th Aug 2016
The Competition and Markets Authority (CMA) has advised the UK’s retail banks to begin ‘open banking’ by early 2018, in a bid to drive competition within the sector.
The move means banks will be required to share their customer data with third-party app providers, allowing customers to compare different current accounts and track down the best deals. However, the CMA has stressed that customers will need to give their consent before their data is distributed.
Following its two-year investigation into the sector, the watchdog has also urged banks to set maximum monthly fees for unarranged overdrafts, and to alert customers when they fall into them, to avoid excessive charges. About a fifth of current account holders in the UK have unarranged overdrafts, generating approximately £1.2bn for banks in 2014 alone, the CMA revealed.
Aside from public services, banking has the highest percentage of customers who have used the same service for more than 20 years, meaning the sector suffers from weak competitive pressures. According to the CMA’s latest findings, only 3% of personal customers move their accounts each year.
The CMA’s recommendations should help customers, but banks could also profit from the rise in savvy consumers.
“Consumers stand to benefit from these proposals, but banks should also see the CMA’s recommendations as an opportunity,” Jo Causon, chief executive of the Institute of Customer Service, advises. “As switching becomes easier, those that make use of technology to champion excellent customer service across multiple channels will be well placed to reap the rewards by taking market share from competitors.
“There is, however, some cause for caution. Today’s consumers are not fazed by digital solutions, but in the wake of high-profile data breaches they are becoming fiercely protective of their personal information. Any online switching strategy will therefore need to balance the appetite for convenience and accessibility, with ensuring consumers can share personal information with confidence, and are assured of its long-term security.”