News: Proposals from the Competition and Markets Authority (CMA) focus heavily on the impact of technology as a means to disrupt the traditional banking industry.
The CMA has recommended the creation of open application programming interfaces (APIs) and data sharing in order to force greater transparency for account holders and to increase competition between the banks.
An order has provisionally been created requiring Barclays, HSBC, Nationwide, Santander, Royal Bank of Scotland, Lloyds Banking Group, Danske, Bank of Ireland and Allied Irish Banks, to adopt and maintain common API standards through which they will share data with other providers and third parties.
The banks will have until the end of Q1 2017 to set this up and then maintain it.
A mandate for an open API standard, open data and data sharing would promote the sharing of product and service information and the sharing of customer transaction data, could potentially significantly increase competition in PCA and SME banking markets and further increase the opportunity for challenger banks to disrupt the market.
Personal current accounts (PCAs) and retail banking services for small and medium-sized enterprises (SMEs) will be required to publish service quality data and introduce prompts for customers to consider their banking arrangements.
The CMA has set out to ensure greater transparency for customers when comparing different banking product prices, to compare the service quality of providers and to encourage account holders to consider whether better banking options exist.
The CMA says that these measures all make use of technology developments which could, "improve the reliability, and sustainably reduce the costs to customers," in addition to aiming to facilitate the development of an effective intermediary sector such as fintech.
The report describes its proposed remedies as an effective solution that: "we think are necessary to tackle the underlying problems affecting competition in the markets for PCAs and retail banking services for SMEs."
In essence these measures are designed to create a much more open banking industry for customers. Instead of feeling tied in to a bank and being unaware of other, potentially better banking accounts, customers will be able to more easily switch.
The CMA makes a broad estimate of some of the direct benefits of its remedies, suggesting that over a five year period the benefits would accumulate to a sum in the region of £1bn. This is in comparison to the estimated cost of implementing the remedies which is expected to be £75-£110 million.
Anil Stocker, Co-founder and CEO of MarketInvoice, said: "Small business banking has been an oligopolistic market for many years, but these proposals by the CMA finally lay the groundwork for a level playing field in SME finance.
"By increasing cost transparency on business current accounts and overdrafts, so often an effortless source of income for the banks, business owners will finally be able to see exactly what they’ll be charged in advance, and shop around for the best deal."
While the proposals by the CMA may not go as far as some fintech companies would have liked, they have presented an essential foundation on which to build on.
The report titled ‘Retail banking market investigation,’ recommends that HM Treasury conducts a full review into greater sharing of SME data by the summer of 2018. This highlights the increasingly proactive stance that the UK is taking towards revolutionising the banking sector through the implementation of technology.