UK Regulator Pushes Retail Banking Reform

In a 405-page document by the United Kingdom’s Competition and Markets Authority (CMA), a number of proposals came to light that would encourage more competition and reform in retail banking.

As noted through a press release offered up by the CMA, personal current accounts, as they are known, could be more valuable to consumers should they be given new protections for overdraft users, among other attributes. The charges levied on accounts are also difficult to suss out, said the authority, and many customers just stick with institutions on the assumption that it is just too hard to change. That means that a majority of holders stay with the same firm, and the stickiness extends beyond individuals, as the CMA found that more than 90 percent of small and medium enterprises get loans from the very same bank where they keep their current accounts.

As a result, banks have little incentive to change their noncompetitive mindsets or, at times, lackluster service.

Lack of transparency also means that breaking up bigger banks might not have the desired effect of boosting competition or helping consumers see and compare different products. The CMA also maintained that banning some products that may be enjoyed by customers (but that may not offer the best returns) would cut into choices, so bans would be detrimental.

Among the proposals: new online comparison tools and also better knowledge about switching costs and monthly maximum charges tied to overdrafts. In terms of technology, the CMA has recommended banks switch to an API standard that will share data (securely) between banks and that may help those institutions deliver better customer services in a targeted manner.