The final report of the Competition and Markets Authority’s (CMA) 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:
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 in Great Britain 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.
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.
We are breaking down the barriers which have made it too easy for established 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.
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.
This is backed up by a wide package of measures to improve the current account switching service, to make it easier for small businesses to shop around and open new accounts or get a loan, and to see how the quality of service provided by your bank compares with other providers.
We are also taking measures to give customers much greater control over their overdraft charges, so that they are clearly told when they are about to be incurred and have an opportunity to avoid them. Alongside this, banks will have to cap their monthly charges for unarranged overdrafts.
The CMA will now focus on putting in place the remedies announced today, working with others whose role it is to make individual remedies happen, such as HM Treasury, FCA, Bacs and Nesta. See a list of the main remedies(PDF, 61.5KB, 1 page) .
Mark Cresswell, CEO of LzLabs:
“The traditional banks remain dependent on legacy mainframes to manage their systems of record. Some research suggests over 70 percent of the world’s commercial transactions will eventually run a legacy mainframe program.”
“Legacy mainframe systems have not benefited from advances in technologies characterised as the “DevOps Toolchain.” These tools have been fully embraced by born-on-the-web Fintech companies, and make those companies far more responsive to shifting market requirements.”
“The CMA directive will shine a light on how legacy technologies act as a boat anchor when trying to remain competitive. Traditional banks will need to accelerate their transition off legacy mainframe systems, before the agility of the Fintech companies becomes an existential threat.”