Banking tech revolution ordered by watchdog

Britain's High Street banks have been ordered to launch a technological "revolution", in an effort to promote better competition.

After a two-year inquiry, the Competition and Markets Authority (CMA) concluded that new phone-based apps should be brought in by early 2018.

These apps will show customers which banks may offer the best account, based on their own borrowing patterns.

Banks will also have to set maximum monthly fees for unarranged overdrafts.

However the CMA decided against a cross-industry cap, leaving individual banks to set their own charges.

And there will be further measures to encourage people to switch accounts.

"The reforms we have announced today will shake up retail banking for years to come, and ensure that both personal customers and small businesses get a better deal from their banks," said Alasdair Smith, chair of the CMA's retail banking investigation.

"Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy."

The consumer group Which? welcomed the report, but said it was questionable whether the measures would be enough to promote more competition.

New apps

Under what the CMA calls its "Open Banking programme", banks will be required to make it possible to share customers' data on new apps.

Individual customers will have to give their consent before this happens.

The technology - called Application Programming Interface (API) - is used by the likes of Facebook and Uber.

It will enable customers to see information about prices, standards and the location of High Street branches.

Above all it will allow consumers to see which bank is cheapest, given their particular pattern of borrowing.

Mr Smith said: "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."The emphasis on new technology was welcomed by the banking industry.

"Customers and businesses have already found digital banking hugely convenient and have taken advantage of mobile technology that is allowing us to bank round the clock," said chief executive of the British Bankers Association, Anthony Browne.

"We are pleased the CMA has reflected that in its recommendations," he said.

However the British Chambers of Commerce (BCC) warned about the dangers of sharing data.

Suren Thiru, Head of Economics and Business Finance at the BCC said the CMA should "tread carefully in the sharing of data by finance providers via the Open Banking programme, to ensure that businesses retain control over who has access to their data - otherwise any trust between lenders and businesses could be destroyed."

Overdrafts

All the banks will be required to introduce a Maximum Monthly Charge (MMC) - set by themselves - to limit the costs of an unarranged overdraft.

At the moment most banks cap overdraft fees, but then add on interest payments.

The MMC will include debit interest - typically charged at up to 20% a year - and unpaid item fees.

The CMA said this would make different bank accounts easier to compare, and cut through the complexities of overdraft charges.However Which? said banks would still be free to charge what they like.

"It is disappointing that the monthly charge cap is not actually a cap and banks will be allowed to continue to charge exorbitant fees for so called unauthorised overdrafts, rather than protect those customers that have been identified as among the most vulnerable," said Alex Neill, director of policy and campaigns at Which?

Switching

The CMA also ordered new measures to encourage more people to switch their accounts to other providers.

It said only 3% of personal customers move their accounts each year. Recent figures show the number of people switching actually going down.

As a result there will be:

• a new regulator to oversee the Current Account Switching Service (CASS).

• a longer period during which transactions will be redirected from the old account to the new - currently set at three years.

• a "long-term" promotional campaign to encourage more switching.

Banks will also be required to send customers text alerts, whenever they go overdrawn - something which most banks already do.