It’s a Match: The CMA and Open Banking

Switching banks is like ending a relationship. Your old partner knows all of your personal information, finding a replacement is an emotionally fraught process, and whoever you end up with, you could still be miserable.

The Competition and Markets Authority (CMA) has set out to end this parallel. On 9 August, the CMA unveiled a package of reforms, central to which is the drive to digitally revolutionise retail banking. Where outdated infrastructure and bureaucracy have inhibited customers’ ability to search and switch between banks, new common standards are intended to facilitate flexibility and control over our finances. The opportunity to left-swipe Howard from Halifax is within reach. It is the change that experts have been crying out for.

From early 2018, banks will be required to implement the Open Banking Standard. Using open application programme interfaces (APIs), customers and small businesses will be able to share their data securely with other banks and third parties. Customers will, in theory, be able to manage accounts with numerous providers via a single app, allowing greater control of funds and comparison of financial products.

The resulting gains for consumers are potentially considerable. At present, only 3% of personal and 4% of business consumers move to a different bank in any year. Given that personal and small business customers stand to save an average of £92 and £80 per year by switching provider, Open Banking stands to shift the balance of power from the high street into the pockets of consumers.

Technology alone would not be sufficient to usher customers into a brave new world of retail banking. In order to inform this new legion of smartphone-wielding savers, banks will be required to publish objective and transparent information on the quality of their service. Banks will also have to send out event-based ‘prompts’, notifying consumers of changes such as branch closures and charge increases. This will further strengthen customers’ hands and reduce the current asymmetry of information between banks and their patrons.

Alasdair Smith, chair of the investigation, heralded the new measures. Mr Smith said, “The reforms we have announced today will shake up the retail banking sector for years to come, and ensure that both personal customers and businesses get a better deal from their banks.”

“Our central reform is the Open Banking programme to harness the technological changes which we have seen transform other markets. We want customers to be able to access new and innovative apps which will tailor services, information and advice to their individual needs.”

Reaction to the CMA’s report has been muted, and challenger banks are sceptical of its eventual impact. Atom Bank chief executive Mark Mullen has warned the proposals still leave the big banks in control of the future of the industry, while Rishi Khosla, chief executive of OakNorth Bank, criticised the report for having "fallen short."

It remains to be seen whether the CMA will successfully level the playing field between high street banks and their customers. In theory, making it easier for people to access the right financial products can only be a good thing, as long as banks provide the necessary information, and the technology works securely. However, doubts persist regarding consumers’ interest in switching between banks. For these measures to be successful, this apathy will have to be addressed.

Additionally, reforms contingent upon smart phone ownership should be treated with caution, as 24% of British adults are still without the technology. As we stride towards a new era of technology-driven consumer finance, we must not leave a quarter of the population behind. The British public may be in loveless marriages with their banks and their partners, but they will need more than an app to realise this, and help them finally find the relationship that’s right for them.

Alex Warnakulasuriya

Hill & Knowlton Strategies Search