CMA supports challengers with retail banking overhaul

The CMA has today proposed a wide-ranging package of proposals to tackle competition issues across banking services.

Related topics:  Finance News
Rozi Jones
17th May 2016
bank money building

Its research found that it is currently hard for bank customers to work out if they are getting good value, as bank charges are "complicated and opaque". As a result, it believes "competitive pressures are weak, so banks do not need to work hard enough on price or quality of service".

The CMA considered whether the largest banks should be broken up but concluded that this would not address fundamental competition problems.

However it admitted that it is "well aware of the current barriers to challenger banks in UK retail banking", stating that their inability to highlight to customers how new offerings compare with their current deal is holding them back.

The CMA therefore proposes to push the development of new online comparison tools and improve the current account switch service.

The proposals also include new measures targeted at overdrafts, including monthly maximum charges for unarranged overdrafts.

The CMA is also urging banks to move swiftly to introduce an Open Application Programming Interface banking standard, which will enable customers to safely and securely share their unique transaction history with other banks and trusted third parties. This will enable bank customers to get comparisons tailored to their individual circumstances, directing them to the bank account which offers them the best deal.

The CMA also proposes that banks should be made to regularly prompt their customers to check that they are getting good value from their banking provider. When these prompts direct customers to digital comparison services which give tailored price-comparison and service quality advice, the foundation has been laid for a major change in the retail banking sector.

Its package of measures also aims to deliver better banking services to SMEs by making the prices and availability of lending products more transparent, and therefore reducing business owners’ reliance on their personal bank when choosing a bank for their business.

The CMA estimates the package of changes to benefit customers by £1 billion over 5 years.

Alasdair Smith, Chair of the Retail Banking Investigation, said:

"For too long, banks have been able to sit back and not work hard enough for their personal and small business customers. We believe the strong and innovative package of measures we are proposing will give customers the information and tools they really need to get a better deal out of the banks. They will also protect those who fall into overdraft from being stung with unexpected fees.

"New entrants into a market are an important source of competition and innovation, and we are well aware of the current barriers to challenger banks in UK retail banking. What’s really holding them back is their ability to highlight to customers how new offerings compare with their current deal. Our package of banking reforms will help new competitors get a stronger foothold in a market which is of vital importance to the whole economy."

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