The Competition and Markets Authority has told banks to adopt digital services as part of a technological revolution.
The CMA’s final report on its retail banking investigation places a heavy emphasis on the need for banks to make sure that the benefits of new technologies are fully exploited, such as new phone-based apps, which the CMA said should be brought in as quickly as possible.
The idea is that this will help customers to share their data with banks and websites, as part of these measures it is aiming to ensure that banks adopt a digital standard called “Open Banking” by 2018.
Customers will then be able to share their transaction history with third parties and other banks and will be able to gain current account comparisons through an app. The app will then help customers to find the best deal for a bank account.
The Open Banking programme will require banks to make it possible to share customer data on new apps, if individual customers have given consent to this. APIs will need to be created so that customers can see information about prices, standards, location of High Street branches, and which bank is cheapest based on borrowing patterns.
Alasdair Smith, chair of the retail banking investigation, 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.”
Essentially this plan of action should help customers to be able to switch accounts more easily as they will for the first time be able to accurately compare all accounts.
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Mike Blanchard, head of customer intelligent solutions, SAS UK & Ireland, said: “Governing bodies have once again reaffirmed their commitment to protecting the interests of customers by handing power back to the consumer.
“Despite nearly 60 per cent of current account customers staying with the same bank for more than 10 years, consumer confidence in financial services remains low. As a result, we are seeing a new army of entrants emerge that have developed a customer-centric approach to capitalise on the perceived lack of care and attention that the finance sector has historically shown.”
In addition to being beneficial for customers, the CMA report brings good news for challengers.
One of the big changes could be the introduction of account number portability, this will allow a customer to take their account number with them when they switch banks, theoretically making the switching process a lot easier.
The worry for banks is that the cost of this would "vary between £2bn and £10bn", due to the need for significant changes to be made to payments systems.
However, due to the cost the CMA will explore the role of its Open Banking programme first, but suggested that the Payments Systems Regulator should consider ANP in the future.
On the whole the report should make for quite good reading for fintechs and challenger banks that are just breaking into the market.
Mondo, a digital challenger bank, has just reached £20 million spending on its mobile app after just four months after moving into a public Beta phase.
A quarter of the £20m spent so far has been applied to purchases abroad, with the USA, France, and Spain the most common.
The combination of a growing popularity and increased trust through use of the mobile banking app has seen the daily spend more than double since April from £80,000 to £200,000.
What this means for incumbents is that they will have to work even harder to keep their customers happy and maintain market share.
Blanchard said: “To maintain market share and foster an environment of trust with existing and prospective customers, banks need to develop financial products that use the wealth of insights available to drive a more personalised service that offers customers the right financial products.
“For example, targeting consumers that prefer short-term lending with products that offer lower levels of interest rates or special discounts and promotions.”
Aside from the focus on technology the CMA will require banks to introduce a Maximum Monthly Charge, set by the banks themselves, to limit the costs of unarranged overdrafts. The MMC will include debit interest – typically charged at up to 20% a year – and unpaid item fees.
This differs from the current system where most banks cap overdraft fees but then add on interest payments.
