Banks will be forced to make banking easier and fairer for millions of customers from later this year after receiving a "strict timetable" from the competition watchdog.
The Competition and Markets Authority (CMA) has today issued a 'final order' setting a schedule for a series of reforms to the banking industry that it announced last year.
By January 2018 all banks must allow customers to manage their accounts with multiple providers through a single digital app, in what the CMA's called an "Open Banking revolution".
Other requirements include banks setting their own monthly caps on unarranged overdraft fees, due in August 2017; an improved bank switching process and overhaul of the Current Account Switch Service (CASS), in January 2018; and a system of alerts for customers in their overdrafts, in February 2018.
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How will 'Open Banking' work?
As part of the 'Open Banking' initiative, banks must ensure that customers' data can be shared securely with other banks and third parties (which are likely to be new players or price comparison sites), to allow customers to manage multiple accounts via one app, and so have more control of their cash.
Here are the main changes customers can expect by January 2018:
- Banks will be required to share data using 'application programming interface' (API) technology. Put simply, APIs allow the sharing of people's information, for example their location, preferences, or whether or not they're in credit. This kind of technology is already widely used by the likes of Facebook, Google Maps and Uber. In banking, APIs can be used to share information such as the location of bank branches and the prices and terms of banking products.
The CMA believes Open Banking will "significantly increase competition between banks", by making it much easier for customers to compare what is offered by different banks via a phone-based app.
- You'll have to opt in to share your data. It's important to note that Open Banking operates on an 'opt-in' basis, meaning customers must first be satisfied about privacy and security safeguards.
Once you've given consent, your transaction data will be shared with intermediaries, which can offer advice tailored to the individual. This is expected to make it easier for customers to identify the best products for their needs.
- Security will be prioritised. To ensure enough time is available to work through the important issues associated with customers' data security, the CMA is requiring banks to release the least sensitive information – about prices, terms and conditions and branch location – first. This will be done by the end of next month.
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Cap on unarranged overdraft fees
The CMA's report last year focused on how to help those who often find themselves with unarranged overdrafts – around 25% of all personal current-account customers. The report says banks make £1.2 billion a year from unarranged overdraft charges.
- From August 2017 banks will have to set a maximum monthly charge for unarranged overdrafts, and tell customers about it. This maximum charge will cover all unarranged overdraft charges including debit interest and unpaid item fees.
- The CMA considered setting an upper limit for this maximum overdraft charge but decided not to do so, arguing that having the charge set by the banks rather than the regulator will mean banks themselves remain accountable for their overdraft charges.
- From February 2018 banks will also be required to provide overdraft alerts and grace periods for customers who've slipped into an unarranged overdraft.
- Research by the Financial Conduct Authority has shown that this kind of alert, when combined with mobile banking, can significantly reduce overdraft charges.
Other key requirements
The CMA's wide-ranging report also calls for:
- An improved account opening and switching process. The CMA found that customers fear switching current account is difficult and time-consuming, and worry that something might go wrong. So from January 2018 it's requiring improvements to specific aspects of the switching process, with a longer, rolling period of redirection of transactions from the old to the new account (currently set at three years).
The CMA's report also laid the foundations for a "long-term" promotional campaign to encourage more switching.
- Overhaul of the CASS. While the CMA found that the CASS has "made a positive difference to the switching process and is generally working well", it found that many customers do not know about it or do not have confidence in it.
So the CMA is requiring that the way the CASS is managed be strengthened and for it to be overseen by a regulator, in a bid to improve customer confidence.
- Better information for small-business owners. The CMA found that small businesses lack online tools that provide comprehensive information about bank charges, service quality and credit availability.
The CMA thinks small-business owners would be best served by tools that provide a 'one-stop shop', allowing them to quickly and reliably compare banks on price, service quality and lending criteria across all providers. With that in mind it's ordering large banks to develop comparison services for small businesses from February 2018.