CMA imposes mobile banking revolution in final report – industry responds

CMA imposes mobile banking revolution in final report – industry responds

The Competition and Markets Authority (CMA) will be imposing a package of measures to ensure banks work harder for customers, according to its final report published today.

Following a two-year enquiry, the report of the retail banking market investigation concluded that older and larger banks do not have to compete hard enough for customers’ business, while challenger banks find it difficult to grow.

Its central reform will be to harness the technological changes that have transformed other markets, including new and innovative apps that will tailor services, information and advice to customers’ individual needs.

In June, challenger banks claimed that the CMA was letting incumbent banks “off the hook” by failing to provide a remedy to address disadvantages suffered by challenger banks.

Ten challenger banks also wrote to the CMA in May urging it to look again at its findings into capital requirements after it stated it did not intend to further consider the issue as part of its review.

Today, the CMA has announced it will be introducing reforms so that smaller banks can compete more fairly.

What do the CMA retail banking reforms include?

  • Requiring banks to implement Open Banking by early 2018 so that personal customers and small businesses can manage their accounts with multiple providers through a single app
  • Requiring banks to publish trustworthy and objective information on quality of service on their websites and in branches
  • Requiring banks to send periodic ‘prompts’/alerts to customers so they can review whether they can switch banks if they are not getting the best value.

The CMA will also be introducing further measures to make it easier for customers to switch after finding that only 3% of personal and 4% of business customers switch to a different bank during a year.

The new alerts imposed by the CMA, which will inform customers of possible increases in charges, are also set to heavily reduce overdraft fees – banks currently make £1.2bn a year from unarranged overdraft fees.

Unarranged overdraft fees make banks £12bn a year
Unarranged overdraft fees make banks £1.2bn a year

Alasdair Smith, chair of the retail banking investigation, said that the reforms would shake up retail banking for years to come.

“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.”

How will the CMA’s remedies help SMEs?

James Sherwin-Smith, CEO of Growth Street, welcomed the final decision from the CMA to make APR information mandatory on unsecured SME loans under £25,000, after explaining in an exclusive interview with Bridging & Commercial last month that he was "sceptical" of firms which rejected APRs.

"In taking this step, the CMA brings much needed transparency to the commercial finance market where fees are opaque and tariffs are complex. 

“The decision is also a major victory for the #APR4SMEs campaign which, led by Growth Street, has been leading the sector in calling on politicians and regulators to bring forward this measure. 

“However, more can be done. Growth Street, and the #APR4SMEs campaign, will continue to call for APR information to apply to all SME finance products and will continue to make the case to policy makers for this broader measure.”

Infographic by the CMA

Adam Tyler, chief executive of the National Association of Commercial Finance Brokers, said that although the report was a “giant step” in the right direction, the measures needed to be implemented quickly.

"If the small business community is going to take advantage of the opportunities presented post-Brexit, the government must drum home the message that banks aren’t the only route to funding.

"Business owners shouldn't see their existing business account provider as their default lender and their only source of finance.

"At a time when the banks are still ultra-cautious about who they lend to, there are more lenders than there's ever been in the commercial finance sector who are happy to provide finance to small businesses.”

On the other hand, Ian Walters, managing director of business and private banking at Metro Bank, stated that the challenger was disappointed by the CMA's findings.

“SMEs are the most underserved community in UK banking and we are disappointed that the CMA's findings do not attempt to level the playing field for new entrants and challenger banks, by recommending that the PRA looks into disproportionate capital requirements.

"Disproportionate capital requirements are anti-competitive and unduly support the large incumbent banks by allowing them to hold up to 10 times less capital for the same loans than challenger banks. 

“The CMA was given a rare opportunity to fundamentally support and develop competition in banking, it is disappointing that they decided not to get at the root of the problem, but rather they missed the point and tinkered around the edges.”

Specialist lending industry responds to CMA retail banking final report

Anthony Browne, chief executive of the BBA, added that the CMA’s package of measures would give individuals and businesses greater power to pick the products that were best for their needs.

“Customers and businesses have already found digital banking hugely convenient and have taken advantage of mobile technology that is allowing us to bank around the clock. We are pleased the CMA has reflected that in its recommendations.

“However, we recognise more work needs to be done to create a level playing field by supporting new banks wanting to set up business, as well as helping to grow established banks.”

Mike Blanchard, head of customer intelligence solutions SAS UK & Ireland, explained that despite almost 60% of current account customers staying with the same bank for over 10 years, consumer confidence in financial services remained 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. 

 “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.”

What happens next?

The CMA will now focus on putting the new reforms in place by working with HM Treasury, the FCA, Bacs and Nesta. 

Infographic by the CMA


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