CMA pins hopes on technology revolution to shake up UK banking

CMA pins hopes on technology revolution to shake up UK banking

The UK's Competition and Markets Authority is relying on a technological revolution driven by the introduction of Open APIs to kick start competition in the UK market for personal and business bank accounts, following a two-year investigation into the sector.

The measures proposed by the competition watchdog were widely trailed in a consultative document published in May.

At the moment only three percent of personal and four percent of business customers switch to a different bank in any year. To transform the market the CMA believes 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 most eye-catching proposal is a requirement by banks to introduce an Open API (application programming interface) banking standard by "early 2018". This will enable personal and SME customers to safely and securely share their unique transaction history with other banks and trusted third parties.

The CMA is also demanding that banks provide technical support and financial backing to an initiative by independent charity Nesta to develop a set of tools providing comprehensive information about bank charges, service quality and credit availability.

Nic Beishon, head of commercial at Equifax comments: “The banks covered by the order need to prioritise implementation to make sure they have the right processes and technology to support robust lending decisions under the new regime. While only four banks are obliged to introduce the tools at this stage, we believe that other lenders, including challenger banks, should introduce the same tools to ensure their offering stacks up against larger players."

While the watchdog lauds these and other measures as a "wide-reaching package of reforms", campaigning groups have bemoaned the absence of tougher sanctions to break the stranglehold of the UK's top banks.

Kevin Mountford, banking expert at MoneySuperMarket, says: “Those looking for wholesale reform of the banking market are likely to be holding their heads in their hands this morning. The CMA’s final remedies are more ‘gently does it’, as opposed to the seminal, watershed moment for British banking that many had been looking for."

The raft of challenger banks vying to take on the UK's biggest banks have also slammed the watchdog for failing to address the capital requirements foisted on new banks trying to break into the market.

Craig Donaldson, Metro Bank chief says: “After more than two years in the writing and costing several millions of pounds, we are astonished 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 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.”

Comments: (1)

Nick Ogden
Nick Ogden - ClearBank - London 09 August, 2016, 12:181 like 1 like

Despite successive reports over the past 15 years, no definitive action to open up the retail banking market has been taken. Today's CMA report will help remove some of the barriers to competition but it does not go far enough. Beyond the CMA report, what we really need to see is the whole market being opened to allow more current account entrants, thus encouraging consumer choice. Challenger banks, building societies and some credit unions are a logical vehicle for this change. However, currently the whole “competitive” market is constrained beneath the market weight and power of the big four banks who control what is known as agency banking and consequent market pricing, and that is the core issue which is not addressed in this report.

 

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