The UK’s Competition and Markets Authority (CMA) today set out its proposals to reform retail banking through a package of remedies. The Provisional Decision on Remedies is the culmination of almost 18 months of work, and puts forward the CMA’s proposals on how to address the competition issues it has identified in the market. The final report will be published in August after further consultation.
The CMA has proposed a wide-ranging package of remedies which, along with technological change in the market, it believes will support innovation and increased customer engagement. This should result in increased competition in the market.
The provisional remedies include:
- A program of FCA-led behavioural testing to refine the design of remedies aimed at providing customers with tools to make easy, tailored comparisons between banks on price, features and service quality. Banks will be required to cooperate with the FCA in its remedy development and trialling;
- Measures aimed at helping overdraft users avoid charges, ranging from FCA-led randomised control trials (RCTs) to determine the most effective prompts and alerts to increase customer engagement, to a monthly cap on unarranged overdraft charges; and
- Measures to make current account switching easier.
The CMA said that the overall shape of its remedy proposals was influenced by insights from behavioural economics. It said it had drawn on its own and others’ customer research in developing its proposals, and in a number of areas recommended the use of RCTs to refine the design of remedies and ensure they are as effective as possible in changing customer behaviour. This approach reflects the recent trend for economic regulators to put a stronger focus on behavioural economics, as discussed in a recent Frontier (Europe) bulletin.
The CMA also emphasised how rapid technological change in banking is driving innovation which will improve outcomes for customers. In particular the CMA highlighted the role of application programming interfaces (APIs), noting that “the timely development and implementation of an open API banking standard has the greatest potential to transform competition in retail banking markets (…) by making it much easier for both personal and business customers to compare what is offered by different banks”.
Frontier has supported Lloyds Banking Group throughout the investigation, which included advice on designing and analysing a programme of customer behaviour trials. Frontier also regularly advises clients on the application of behaviour economics for commercial and regulatory strategy.
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