CMA measures will encourage banks to make better use of technology
The Competition and Markets Authority (CMA) has today published its findings from the retail banking market investigation that was started in 2014. The final report states that established banks don’t have to compete hard enough for customers, and must embrace digital to better meet customer needs.
The CMA identified that customers lack knowledge around the banking options open to them, and thus the proposed remedies are focused on engaging, informing and empowering personal and business banking customers in the UK.
The measures set out by the watchdog include three core ‘foundation measures’, outlined below.
1. Open Banking
As highlighted in our discussion of PSD2, Open Banking is essentially a digital standard for banks. It means that banks must allow third parties access to customer data and transaction history (where customers give permission) in order to pave the way to better services and tools for customers. The CMA’s recommendations for Open Banking shows that, despite PSD2 being an EU measure, the UK will still be pushing ahead with the proposal.
“Of all the measures we have considered as part of this investigation, the timely development and implementation of an open API banking standard has the greatest potential to transform competition in retail banking markets,” the CMA states.
The CMA envisages third party apps that allow customers to better manage their accounts and take control of their finances, with the ability to compare products and avoid overdraft charges. At Mapa, we support the notion of Open Banking – and see it as an opportunity for established banks rather than a threat.
Mark Pavan, founder of Mapa Research, commented: “While aggregators may appear and challenge the connection between banks and their customers, we see this as a chance for banks to push innovation and offer up the same service to enhance their offering. Better PFM (personal financial management) tools is something that has been required for a while and this should accelerate the process.”
2. Service quality information
Banks will also be expected to publish ‘objective information’ on the quality of the services – both physical and digital – they offer to customers. This is likely to revolve around a Net Promoter Score, with other objective measures of quality also required to be published. These will also need to be made available through open APIs, with the potential for new intermediaries who can collate this information to provide comparison tools for customers.
“The quality of digital services is something we are very interested in here at Mapa,” comments Pavan. “As we explain to our clients, there are few hygiene factors present in digital banking – customer expectations are being raised by players outside financial services, we believe, with much that could be improved by incumbent banks.”
3. Customer Prompts
The third ‘Foundation Measure’ is that banks must provide customer prompts at appropriate points, to help them make a ‘conscious choice’ about their banking providers. Periodic reminders to ‘shop around’ for better deals, and alerts regarding fees, must be sent by banks in order to be compliant.
The CMA summary states: “Our remedies will drive innovation and improve products and services, disrupting the status quo.”
Pavan adds: “Another good thing about these measures is that they appear to target a more ‘mobile’ segment. Often younger, more confident, more price-sensitive banking customers, they may be more likely to move between providers. It will be interesting to see what happens next.”
The summary of the report can be found on the CMA website.
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