Banks ‘must pass on technological advantages to customers’

THE UK’s high street banks must work harder for their customers and pass on the benefits of new technology to improve services, a new report has recommended.

The final report of the Competition and Markets Authority’s retail banking market investigation, published today, concludes that older and larger banks do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow.

This means that many people are paying more than they should and are not benefiting from new services.

To tackle these problems, the CMA is implementing a wide-reaching package of reforms. Central to the CMA’s remedies are measures to ensure that customers benefit from technological advances and that new entrants and smaller providers are able to compete more fairly.

The key measures, which will benefit personal and small business customers, include requiring banks to implement Open Banking by early 2018, to accelerate technological change in the UK retail banking sector.

Open Banking will enable personal customers and small businesses to share their data securely with other banks and with third parties, enabling them to manage their accounts with multiple providers through a single digital ‘app’, to take more control of their funds (for example to avoid overdraft charges and manage cashflow) and to compare products on the basis of their own requirements.

Banks will also be required to publish trustworthy and objective information on quality of service on their websites and in branches, so that customers can see how their own bank shapes up.

Whether a personal customer or small business is willing to recommend their bank to friends, family and colleagues will be a core measure but we will also be requiring banks to publish and make available through Open Banking a range of other quality measures.

They will have to send out suitable periodic and event-based ‘prompts’ such as on the closure of a local branch or an increase in charges, to remind their customers to review whether they are getting the best value and switch banks if not.

Unlike many other financial products such as home insurance, current accounts do not have annual renewal dates to act as natural reminders and other possible triggers like business growth are not prompting customers to review what they are getting from their bank.

Underpinning these remedies, the CMA is introducing further measures to make it easier for customers to search and switch.

At the moment only 3% of personal and 4% of business customers switch to a different bank in any year. This is despite, for example, personal customers being able to save £92 on average per year by switching provider, with savings of around £80 a year on average available for small businesses.

Larger savings are available for overdraft users – for example, personal customers who are overdrawn for one or two weeks every month could save £180 per year on average.

The CMA has also introduced specific measures to benefit unarranged overdraft users, who make up around 25% of all personal current account customers, and small businesses.