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Open banking to improve competition in UK market

Out-Law News | 10 Aug 2016 | 11:10 am | 2 min. read

UK banks will be required to implement the Open Banking Standard by 2018, allowing consumers to share their own banking data with other banks and third parties and manage multiple providers through a single app.

Many UK consumers are paying more than they should for banking services and not benefiting from technologies in banking because larger and more established banks have too much power in the marketplace, the Competition and Markets Authority (CMA) said in a report published today.

Open banking will help people to manage their cashflow and avoid overdraft charges, and to compare products more clearly, the CMA said.

A framework for an Open Banking Standard was released in February by the Open Banking Working Group and backed by the UK Treasury. At the heart of open standards based banking is the requirement that banks allow anyone to access data they hold about their customers, products and services.

Fintech expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com welcomed the report, saying that it may make consumers more aware of the options available to them.

"Many customers do not seem to readily grasp how powerful an ability to move banking data could be. The CMA's report therefore supports the overall regulatory objective of helping people more easily save and invest by simply creating more awareness about the benefits of open banking and open APIs," he said.

"The technology is already there, and this may be the step consumers need to understand how greater control over their data could also help them gain better access to finance," he said.

There are still issues to resolve before open banking can really be viable, Scanlon said.

"While the CMA's approach will create greater awareness about the benefits of open banking, many aspects still need to be addressed including a governance framework, and a liability regime to identify who is responsible when things go wrong," he said.

"We also need to recognise the cost to banks of providing the infrastructure needed for open banking," said Scanlon.

Banks will also be required to publish information on quality of service, so that consumers can compare what is on offer, and to send out prompts reminding customers to check whether they are getting the best value or should change banks.

"Unlike many other financial products such as home insurance, current accounts do not have annual renewal dates to act as natural reminders," the CMA said.

The CMA will also introduce measures to make it easier to switch accounts, it said. Currently only 3% of personal and 4% of business customers switch to a different bank in any year, "despite, for example, personal customers in Great Britain being able to save £92 on average per year by switching provider, with savings of around £80 a year on average available for small businesses," it said.

Even larger savings are available for overdraft users who could save an average of £180 a year, the CMA said.

Specific new measures will help unarranged overdraft users, who make up around 25% of personal current account holders. Banks will have to inform customers when they are close to going into overdraft and to give a 'grace' period to avoid charges. Banks will also have to set a cap on unarranged charges and tell customers about this cap, the CMA said.