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CMA: an opportunity not a threat. What are retail banks waiting for?

Last month, following almost two years of consultation, the Competition and Markets Authority (CMA) announced its final recommendations of reform to the retail banking sector. There had been much debate in the industry about whether the revised EU directive on payment services (PSDII) should be implemented in the UK post-Brexit, with the expectation being that, in the absence of compulsory pressure to adapt, many British banks would choose to ignore the new European regulation.

It now seems likely, however, that the CMA’s recommendations will steamroller the big four into accepting progressive banking. If they don’t, they will be putting themselves at considerable risk of being left behind by disruptive challengers – such as the new wave of digital-only banks – that are investing heavily in providing innovative services and experiences that are more relevant to the modern consumer’s needs. But with the competitive and regulatory landscape calling for banks to embrace innovation rather than wallow in inertia – and with eight weeks having passed since the publication of the CMA’s recommendations without any meaningful action – the question remains of just when the banks will start acting.

Improving transparency, accelerating innovation

The CMA made a number of constructive recommendations, the key messages being that: 

1.       Banks will be required to implement Open Banking by early 2018, to accelerate technological change in the UK retail banking sector. With or without the EU PSDII regulation, or a UK equivalent post-Brexit, banks will need to accelerate the process of opening up their APIs to allow trusted third parties to access customer data with their permission. 

2.       Banks will be required to publish transparent and objective information on the quality of their service on their websites and in branches. Making this information available is not difficult, but making sure their NPS (net promoter score) is high will be a top priority for banks. NPS scores will, in my view, first and foremost be about getting the basics of banking right and fixing the fundamentals – e.g., providing good customer service capabilities, such as authenticated chat, easy payments, and better insights shared with customers into their everyday spending. 

3.       Banks will be required to send out suitable periodic and event-based ‘prompts’. The bottom line is that banks need to implement intelligent messaging to help customers make informed decisions – such as in instances when they may be about to enter their overdraft.

The importance of open APIs 

Regardless of how the banks get there – whether as a result of European or other legislation, the CMA’s recommendations, or just because they see the competitive threat coming from challenger banks, they really need to embrace open APIs and allow third parties to access customer data with their permission. Customers increasingly want and expect to use whatever is at their disposal seamlessly on any channel. The CMA recommendations encourage banks to take the initiative in finding solutions for easier comparison services, payments, better insights into everyday spending, cross-selling, and up-selling. It will result in better communication between banks and customers and, I am sure, prove to have real commercial upsides both now and in the future.

Creating a more collaborative market

The UK’s fintech sector is thriving, with smart founders and technology attracting the investment and developer talent to truly disrupt the wider industry. The innovation mandate provided by the CMA’s recommendations presents a real opportunity for banks and disruptive fintech companies to accelerate technological change in the UK retail banking sector, to the benefit of customer experience.  But working in isolation will only get any of them so far – one of the most significant outcomes of the CMA’s recommendations should be the fostering of closer collaboration between banks and fintechs to bring new customer propositions to market quickly.

Many of the fintechs that we speak to have already created the messaging, communication, comparison, or insight functionality discussed above. What they need is access to their biggest potential customers, and assistance from organisations with experience of navigating the complex structural, technical, and regulatory environment they are entering into. Meanwhile, the banks are struggling to make sense of a market where so much is being done so quickly by so many. Where should they start their search for innovation partners? Market curation – and solid, revenue-generating business plans from fintechs – can point them in the right direction.

Moving beyond ‘innovation theatre’

The CMA’s objective in publishing its recommendations might have been to instigate a levelling of the playing field for smaller, challenger banks, and to give customers a better banking experience. But the big established banks, too, should see in the recommendations genuine encouragement and opportunity to properly embrace innovation. They represent an invitation to move beyond the ‘innovation theatre’ of siloed or hidden-away labs and skunkworks, the fruits of whose labour never make it into customers’ hands. These recommendations should spur banks to take a more ‘startup’ approach to innovation, geared towards getting new products and services to market, testing with customers, and iterating based on real-world experience and feedback. That’s real innovation.  

What next?

The challenge facing retail banks isn’t a new one – nor is it one that will be solved overnight. But boards have bought in to innovation, customers are demanding it, and with every recommendation from on high – from the CMA or others – you can sense the groundswell of movement towards making real innovation, brought to market quickly, a reality.  

The recommendations from the CMA are a starting point for the unshackling of banks from the legacy systems that have hamstrung them for decades, holding them back from making real and necessary changes to improve their services. 


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