There’s good news for fintech challengers trying to compete with established retail bank products like current accounts this morning.
New regulation means UK retail banks have two years to “fully exploit” the potential of technology including making it easier for customers to control their own financial data.
They are also required to provide information that will make it easier for customers to switch bank accounts for a better deal, as well as implement caps on charges for going into their overdrafts.
That’s according to The Competition and Markets Authority (CMA)’s new package of measures – published today – which is designed to boost competition and thereby provide a better deal for customers in the UK.
The CMA says the measures will make big banks work harder for their customers and make them take advantage of the the opportunities of technology. They will also ensure that new entrants and smaller players can compete more fairly.
One requirement will make banks implement Open Banking by 2018, which is designed to “accelerate technological change” in retail banking and will require banks to make it easier for customer so share their data.
“We are breaking down the barriers which have made it too easy for established banks to hold on to their customers,” says Alasdair Smith, chair of the retail banking investigation.
“Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy. 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.”
It’s good news for UK challenger banks and tech companies challenging services offered by traditional financial institutions in the wake of the competition regulator’s new report. It is the latest measure by the UK financial regulators to boost competition in the space, following drives by the Payment Services Regulator to open up access to core financial technology previously controlled by the big banks.
These latest measures have been welcomed by figures in the challenger banking space. Sophie Guibaud, VP of European expansion at recently acquired Fidor Bank, says consumers have been suffering too long.
“Consumers have been suffering for far too long from complicated current account prices. It’s now time for the banks to make their prices clearer for everyone, whilst putting in place measures to help customers choose the best current account and service for them,” says Guibaud.
“In the future, we believe that more people will end up switching their banking services to different providers when they see clear differences in the offers available to them. With new banks coming to the market with more innovative and targeted offerings, the percentage of people switching services in the future will certainly increase.”
The conclusion of a two-year investigation, the measures include:
> Tech push: Forcing banks to implement Open Banking by 2018
> Making it easier to compare: Requiring banks to publish info on quality of their service on sites and in branches
> Transparency: Requiring banks to send prompts to alert customers to things like branch closures, higher charges
> Make switching easier: Prompting customers them to review whether they are getting the best deal or not
The Open Banking push will include enabling customers and small businesses to share their data with other banks and third parties. The idea is that customers can manage their accounts through one app and therefore have more control over their finances.
The transparency push is clearly well intentioned, but raises questions over whether banks will swallow being required to remind their customers to review if they’re getting the best value or not. Another question raised by the measures relates to the requirements around unnarranged overdraft fees.
The CMA is introducing other measures including requiring banks to alert customers going into their overdrafts and give them a ‘grace’ period in which to avoid the hit. Banks like Lloyds and Natwest already offer this and studies suggest the measure is effective. Banks reportedly make £1.2 billion each year from unarranged overdraft fees and research by the Financial Conduct Authority has suggested these kind of alerts can heavily reduce charges.
However the CMA says while it will require banks to set their own monthly cap on fees, ultimately they are still able to control what that cap is, which is likely to rankle with customers.
Despite the momentum growing in the challenger banking space it’s still relatively early days as highlighted by the fact that only 3% of personal and 4% of business accounts currently opt to switch bank accounts each year – despite the potential cost savings.
“Older and larger banks do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow,” says the report.
“This means that many people are paying more than they should and are not benefiting from new services.”
In the latest episode of the FinTalk podcast we talk to Fabian Vandenreydt, head of SWIFT Innotribe about key trends in emerging financial technology, what to expect from Sibos and why there’s never been a better time to collaborate in financial services.
There are increasing calls for the use of open banking APIs from industry groups and even the UK Treasury. It is clear that this market shift is inevitable, but while this openness will facilitate innovation and drive competition, there is uncertainty.
Haunted by the mistakes of 2008, financial regulators decided to introduce more stringent regulations to lessen the likelihood of a double-dip recession. But this is now leading to growing concerns and begging the question – is regulation stifling innovation within the financial services industry?