The Competition and Market Authority’s (CMA’s) final report on its investigation into the UK’s retail banking market has proposed mainly minor reforms to its operation. However, the proposal to implement open banking has the potential to greatly enhance consumer outcomes, according to financial services research and insight firm Verdict Financial.
Most of the measures the CMA has recommended to promote customer mobility in the current account market revolve around improvements to the existing Current Account Switch Service (CASS). CASS was introduced in 2013 and allows UK consumers to switch their bank accounts to a new provider within seven working days. However, there has been no significant increase in customer mobility. According to statistics from Bacs, the number of consumers using CASS has actually fallen: in the 12 months to June 2016 there were 1,056,378 switches, compared to 1,109,381 switches in the previous 12-month period.
Daoud Fakhri, Principal Analyst for Retail Banking at Verdict Financial, states: “Given the widespread consumer indifference to CASS since the service launched nearly three years ago, the incremental improvements that have been proposed by the CMA are highly unlikely to have any noticeable impact on switching rates.”
However, a far more noteworthy proposal by the CMA is the recommendation to facilitate ‘open banking’ through the introduction of an open application programming interface (API) standard that will allow the easy and secure exchange of customer data between banks and third parties.
As Fakhri explains: “The use of open APIs in banking has potentially far-reaching consequences. The free flow of customer data between banks and third parties will help to promote competition, spur innovation, and improve customer outcomes. Consumers will benefit by, for example, being able to accurately compare current accounts and other products without having to manually enter personal data, using account aggregation services without having to divulge their online banking login credentials, and gaining wider access to credit.
“Work on creating an open banking API framework in the UK is already well underway, having been mandated by the Treasury in 2015, and is expected to come to fruition by Q1 2019.”