The CMA is right to place its faith in tech, not gimmicks
The CMA has made a bold call in its retail banking market investigation, ignoring continued cries to break up banks and ban the prevalent free-if-in-credit current account model, and instead putting its faith in innovation.
It correctly identified that the problems in the current account market start with customers’ difficulties navigating the market.
But, perhaps counter-intuitively, the solution isn’t to ban free banking and force banks to publish table upon table of prices instead.
What’s the point, when most of us would a) never look at them and b) couldn’t work out the costs we’d face using our accounts even if we did? The CMA is right to rely instead on a wave of oncoming technologies which will transform competition in the current account market.
Some consumer campaigners will dismiss the technological developments the CMA hopes to fast-track as a gimmick, but to do so is to seriously underestimate the nature of these innovations. We’re not just talking about a price comparison website, but a clever set of automated comparisons and prompts.
With the Open API (Application Programming Interface) the CMA plans to force banks to create by 2018, you’ll be able to compare not an estimate but a concrete calculation of how different accounts would work for you, with a couple of taps on your smartphone.
And you’ll be prompted to check this comparison – potentially any time you pay a fee for your overdraft, or if your bank closes a local branch. Consumers will, for the first time in this market, be given the tools to easily make an informed choice, and nudged to do so. It’s this consumer engagement, not customers being divvied up between more identikit banks, which will drive competition.
The true test of these reforms, however, will be in the parts of the market most woefully under-served at present – persistent overdraft users. We need to make sure that tech remedies really work for these consumers, particularly as the CMA’s proposal for a monthly maximum charge for unarranged overdrafts is underwhelming.
Some banks already cap charges, but the maximum monthly fee varies from £35 – £100, and as most consumers underestimate the likelihood they’ll use their overdraft and incur fees, it’s not likely to change behaviour or offer much protection.
Alerts, prompts to manage, and using your account data to check whether you could get an overdraft from another provider should all help overdraft users in theory, but design will determine effectiveness.
Those who have campaigned for years for the big banks to be hit harder will never be satisfied with these relatively cheap proposals.
But let’s not underestimate how radical they are – when most banks still use IT platforms built in the 1970s, forcing them to really join the age of the internet and big data could be transformative.