The Competition and Markets Authority (CMA) has released the final report from its retail banking market investigation enforcing widespread technological upgrades in some of the industry’s more traditional institutions.
The five person investigation committee, which was initially launched in November 2014, were required to decide whether features of the retail banking industry distorted competition within the UK. After two years, the report stated traditional retail banks were not doing enough to ensure the consumer is receiving the best possible deal, and has now set out a number of new rules including the introduction of an open API to enable customer’s access to all their finances, irrelevant of organization, on a single app.
“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,” said Alasdair Smith, Chair of the retail banking investigation. “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.”
The development and adoption of an open API standard will have to be in place in all retail banks by Q1 2018, and will enable customers to see their finances, whether they be current accounts, savings accounts or mortgages, in a single app. By providing a single place for all accounts, the CMA hopes this will benefit consumers in a number of ways including avoiding fees incurred by unauthorized overdrafts, which currently adds £1.2 billion a year to the pockets of the retail banks.
Other rules from the CMA include enforcing banks to make all products available to customers through mobile applications, including loans, investments and mortgages. Despite the promise of banking apps, the report has concluded the technology in the more established retail banks is lagging behind other industries. Technology has proved to be a leveller in other sectors, AirBnB is a prime example of technology encouraging the growth of a SME, though this would not appear to be the case in the retail banking sector.
“Mobile financial services have long been approached as a luxury to the banked population in Britain, with banks offering limited services only through their respective applications,” said Maya Barkay, Product Marketing Manager for Mobile Financial Services at Amdocs. “In fact, the true potential of mobile financial services as a whole is being best explored in developing countries, such as Kenya and the Philippines, where these services are providing both basic and advanced financial services to a previously unbanked population.
“Regulation has time and time again been proven an essential enabler to mobile financial services, and this new ruling from the CMA is ensuring that British citizens will finally have the opportunity to harness mobile financial banking in a more useful and user-friendly way.”
The rules set in place are set to encourage more competition in the retail banking market, as larger organizations do not currently have to work hard enough to acquire or retain customers. Moving banks, irrelevant of the money which can be saved is too difficult, thus making growth for challenger banks more difficult and not encouraging competition in the industry.
Despite the efforts of the CMA to increase competition in the industry and provide more of a level playing field for smaller banks, some in the industry do not believe the report has gone far enough.
“As expected, the CMA’s report has fallen short and failed to deliver solutions to a number of the key issues it identified, in particular those facing SMEs seeking larger loans,” said Rishi Khosla, CEO of OakNorth Bank. “The CMA has explicitly stated in its report that a combination of factors make it difficult for new entrants and smaller banks such as OakNorth to effectively compete. Yet despite this, the solutions it’s provided for SME lending are limited to unsecured loans of up to £25,000, so won’t address the issues facing SMEs that need secured or larger loans.
“The fact that the CMA is simply going to pass the buck to the Treasury who won’t look to launch their own investigation until two years from now is extremely disappointing. There are millions of SMEs that are struggling to secure growth capital who may now need to wait up to four years for the situation to improve.”
While the CMA’s ruling does have the best interest of the consumer in mind, aiming to create a more transparent and competitive banking environment, the reception will not be truly known until the Open Banking app is released. During a time where security is top of the agenda and headlines detailing data breaches are not uncommon, it is not clear how many customers would agree to have all their financial information in one place.