In a follow up to the CMA’s consultative document detailing its investigation into competition in retail banking and proposed remedial measures, the CMA has stated that intends to accelerate the pace of change in the market, by ‘harnessing technology’ and ensuring actors have access to more perfect information about banking products and services. To view a summary of the CMA’s package of remedies, see here. To view the final report in full, see here.
The CMA have identified a number of barriers to competition in the retail banking market which result in a situation whereby incumbent Banks do not have to work hard enough to win business and retain customers while new innovative entrants struggle to penetrate the market. Consumer apathy around switching, complicated fee structures and imperfect information are cited as key barriers. The CMA has found that market failure in retail banking has its most pronounced effect on overdraft users and small business customers, with only 3% of consumers and 4% of businesses switching provider every year.
Building on HMT’s Open Banking Working Group, the CMA has opted for radical action, by mandating an open and common data standard which is enabled by the use of API’s (Application Programme Interfaces). Without public intervention, fears will remain over the pace of change and whether API's can even be guaranteed. The CMA has pointed to replicating the API revolution seen in other industries, allowing data to flow freely between many different apps and enabling customers to view all their services in one place if prior and informed consent is granted (it cites Uber, Facebook and Google Maps as exemplars).
In terms of implementation, the CMA will require the release of least sensitive data (bank data on their products, services, prices and T&C’s) first by the end of March with all other aspects of the open banking standard ready for early 2018.
However, the API revolution in banking will pose a number of challenges around implementation and more clarity is required, for example, around security. There will have to be clarity on what ‘informed consent’ to access sensitive data actually looks like in practise as well as the contents of certain data standards and how they function. Another implementation challenge will be the creation of a framework that is compatible with the upcoming Payments Service Directive 2 (PSD2) and General Data Protection Regulation (GDPR). The move to an open banking standard however will certainly further the UK’s ability to satisfy both as all require similar infrastructure, security and data sharing components.
Other relevant measures to be taken include:
- Maximum charges and alerts for account holders who enter unarranged overdrafts
- Prompting consumers to check their banking arrangements in the result of a change in quality, much like annual renewal dates function for other financial products such as insurance policies (The FCA have been tasked with research into how prompts can be most effectively employed to encourage competition in retail banking)
- Strengthening of the Current Account Switch Service’s (CASS) capabilities and increasing its awareness among consumer
- Mandating support and funding from financial institutions for Nesta’s 'challenge prize' initiative to deliver comparison services for small businesses.
techUK will be convening a working group with members to ensure a flexible and supportive regulatory regime, a willingness from established players to implement the changes and that the voice of the technology industry is heard during implementation, given that it will be responsible for much of the API creation. For more information and to find out how to get involved, see here.