Many lenders offer cash incentives and other rewards for switching accounts but there is still reluctance among the majority of customers to make any changes to their banking arrangements. The Competition & Markets Authority (CMA) have last month published a report outlining measures it has proposed to try and address the issues hindering competition in the marketplace and also offering new protections for overdraft users.
What changes have been proposed?
The CMA has suggested the following new measures :-
- Requiring banks to set a monthly maximum charge for unarranged overdrafts on personal current accounts.
- Banks should be required to regularly prompt their customers to check they are getting good value from them.
- When going into unarranged overdraft banks should alert their customers of this and give them time to avoid the charges.
- Banks to fund a new online price-comparison service.
- Customers should be able to use a simple app to help them compare accounts and thus facilitate transparency between banks.
- Improvements to the current account switch service to enable this to be done more smoothly.
What does it mean for customers?
The good news for SMEs is that the CMA are pushing to make it easier for SMEs to shop around and facilitate price comparisons between banks and their prices and lending products. The Chair of the Retail Banking Investigation, Alasdair Smith said that “for too long, banks have been able to sit back and not work hard enough for their personal and small business customers. We believe the strong and innovative package of measures we are proposing will give customers the information and tools they really need to get a better deal out of the banks. They will also protect those who fall into overdraft from being stung with unexpected fees”.
The proposal to cap overdraft fees will no doubt be welcomed by personal customers and will hopefully help to stimulate competition between banks in this area where there is currently a huge variation in fees charged.
What does it mean for banks?
In an increasingly competitive marketplace maintaining strong relationships with customers is key. If account switching becomes easier this may be helpful for banks in winning new business from customers previously reluctant to consider a change.
Banks have been keeping apace with technological advances to maintain their competitive edge and ensure their online services are compatible with the latest software and mobile phones on the market.
Winning customer confidence
In order to be able to use the price comparison service sensitive personal data and transaction history would need to be shared with banks and relevant third parties. Data protection and information security will be of paramount concern to customers before they will readily provide such information. A recent report stated that nearly 60% of personal customers have stayed with the same bank for over 10 years and over 90% of business customers get their loans from banks where they have their own current account. Market confidence and ease of use will be key factors in determining whether the measures proposed would be successful in stimulating competition and assisting SMEs.
The CMA will release their final report in August. In the meantime a full copy of their most recent report can be accessed here – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/523755/retail_banking_market_pdr.pdf
Do you think you are getting the most from your current account? Have you considered switching accounts before but have found it difficult to compare the different options provided by banks?