The UK’s Competition and Markets Authority (CMA) today published its final report following a two-year investigation into the retail banking sector. The CMA wants banks to work harder for their customers and outlined a comprehensive package of remedies to tackle the problems it has identified.
The CMA’s package of remedies aims to boost competition and innovation across the sector, by accelerating technological change across the market and making it easier for personal and small business customers to compare and switch bank accounts. The key remedies include:
- Requiring banks to implement Open Banking, which has the potential to transform competition in retail banking by making it easier for customers to manage their finances and make personalised comparisons across products. Open Banking uses application programming interfaces (APIs) – the type of technology used in digital apps such as Facebook, Google Maps or Uber – allowing customers to share their data securely with other banks and third-party providers.
- A program of behavioural testing led by the Financial Conduct Authority (FCA). This will refine the design of remedies, aiming to provide 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. These include overdraft text alerts and grace periods to give customers opportunity to avoid overdraft charges; a provider-set monthly cap on unarranged overdraft charges; and FCA-led randomised control trials (RCTs) to determine the most effective prompts and alerts to increase customer engagement.
- 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, drawing on its own and others’ customer research. In a number of areas, the CMA 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.
Frontier has supported Lloyds Banking Group throughout the investigation, which included advice on designing and analysing a programme of customer behaviour trials.
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