The Competition and Market Authority (CMA) has issued a report determining that large and established high street banks do not have to work hard enough to retain customers, and has set about implementing reforms to revolutionise the sector.
Operating as a non-ministerial government department, the CMA is in its third year of full operation and is responsible for ensuring there is suitable business banking competition and reducing anticompetitive activities.
The organisation wants banking customers to be able to access technological advantages and that small providers can compete on a fairer footing. At the heart of its report and set of reforms are measures designed to make it easier to search for, and then switch to, a new account.
Alasdair Smith, chair of the retail banking investigation, said that the reforms will “shake up” retail banking and ensure small businesses get a better deal from banks.
“We are breaking down the barriers which have made it too easy for establish banks to hold on to their customers. Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy.”
Smith indicated that the CMA’s central reform is its Open Banking programme, which is set to unleash technological changes which have “transformed” other markets.
The CMA’s reforms are as follows:
- Require banks to implement Open Banking programme by 2018, allowing small businesses to share data securely with banks and third parties and then ultimately manage accounts with multiple providers through a single digital app.
- Make banks publish “trustworthy” and “objective” information regarding the quality of service on websites and in branches
- Stipulate banks must send out “prompts” indicating events such as branch closures or increases in charges, so that customers are fully aware of whether they are getting the best value or not
- Banks must send alerts to customers going into un-arranged overdraft facilities and then let them know what the grace period is
- With small businesses lacking tools to understand bank charges, service quality and credit availability, the CMA is requiring banks provide independent innovation charity Nesta with financial backing and technical support to create these tools
Conrad Ford of Funding Options said: “Often banks have been guilty of mental gymnastics, on the one hand arguing the impracticability of Open Banking, whilst at the same time already offering the same technologies elsewhere, for example to their preferred accounting software partners.
“Exactly because the banks already deploy Open Banking application programming interfaces (APIs), they should be opened up quickly. Not only will consumers and SMEs benefit from better choice, this will support the UK’s post-Brexit leadership in fintech, as similar EU initiatives lag behind.”
Mike Cherry, national chairman of the Federation of Small Businesses, added: “FSB is deeply concerned about the worrying pace of branch closures and the impact this is having on some small businesses’ ability to make informed banking decisions, particularly in rural areas. Unfortunately, 2016 is already looking like a record-breaking year for closures. We are pleased the CMA has taken forward our recommendations of greater communication and support to affected small business customers, but we now want ministers to look at further options to protect small businesses’ access to their local bank.
The FSB has welcomed the package of measures looking to improve the Current Account Switching Service (CASS). Currently, only four per cent of business banking customers switch to a different bank in any given year, despite savings of around £80 available for small businesses.
The CMA has produced an infographic highlighting how its reports and reforms could lead to a better deal for small and medium-sized businesses – which can be found below.
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