Retail Banking Market Investigation: CMA Decision on Remedies

The Competition and Markets Authority (CMA) published in May 2016 its provisional decision on remedies in its market investigation into retail banking. The provisional decision outlines a wide-ranging package of measures to address the issues hindering competition in personal current accounts (PCA) and in banking services for small and medium-sized enterprises (SMEs).

In order to transform the market, the CMA stated that banks need to be made to provide their customers with the right information so that they can easily find out which provider and type of account offers best value for them. The CMA also proposes to promote the development of new online comparison tools and improve the current account switch service to make switching banks more straightforward and give customers more awareness of the process.

The CMA also considered whether to get rid of “free, if in credit” current accounts. It says that such accounts are certainly not free for overdraft users, who represent nearly half of personal customers. The CMA’s proposals include new measures targeted at overdrafts, with a particular focus on users of unarranged overdrafts. In 2014, £1.2 billion of banks’ revenues came from unarranged overdraft charges. The CMA has proposed requiring banks to set a monthly maximum charge for unarranged overdrafts on personal current accounts and to alert people when they are going into unarranged overdraft, and give them time to avoid incurring the charges.

The CMA says that significant technological changes are happening and it wants banks to harness them to empower customers to compare and switch accounts. The CMA is proposing to require banks to move swiftly to introduce an Open API (application programming interface) banking standard. This standard will enable personal and SME customers to safely and securely share their unique transaction history with other banks and trusted third parties. This will enable bank customers to click on an app, for example, and get comparisons tailored to their individual circumstances, directing them to the bank account, which offers them the best deal. The CMA also proposes that banks should be made to regularly prompt their customers to check that they are getting good value from their banking provider. When these prompts direct customers to digital comparison services, which give tailored price-comparison and service quality advice, the foundation has been laid for a major change in the retail banking sector.

The CMA proposes to build a strong package of measures to deliver better banking services to SMEs. Making it easier for SMEs to shop around and open a new current account will reduce business owners’ reliance on their personal bank when choosing a bank for their business. By making the prices and availability of lending products more transparent, the majority of SMEs need not, as is the case now, turn directly to their existing bank for finance without considering other offers. The CMA will publish its final report on the retail banking market investigation by 12 August 2016.

[This is considered as a major shake-up by the CMA to improve retail banking services for customers and is of interest to banks and all customers which include retail clients and SMEs]