He said the CMA was well aware of the current barriers to challenger banks in United Kingdom retail banking and said what was really holding back the challenger banks is their ability to highlight to customers how new offerings compare with their current deal.
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Chief executive of the British Bankers’ Association (BBA) Anthony Browne said: ” Capping monthly overdraft fees will help customers better manage their finances and raising awareness of the current account switching service will help more people realise they can switch accounts easily and quickly.
In addition, the CMA has proposed the introduction of an Open API banking standard which will enable small business and personal customers to share their unique transaction history with other banks and third parties.
The CMA therefore proposes to push the development of new online comparison tools and improve the current account switch service.
The CMA decided against more radical measures such as ordering an end to free banking for customers in credit or breaking-up the largest players, because it said it would not solve the problems of competition.Instead it focussed on “nudging” customers and businesses into being more pro-active in their choices by clarifying what is on offer.
Smith added that by encouraging customers to switch providers and by increasing transparency, the new proposals will ensure consumers receive a much better deal than the one now on offer.
In 2014, £1.2 billion of banks’ revenues came from unarranged overdrafts – which have been described by commentators as a “cash cow” for banks.
If someone were to go overdrawn every month, they could therefore pay as much as £690 a year.
For those thinking of switching banks accounts, the CMA would like to see changes there too.
He added: “Up until now it’s been extremely hard for customers in an overdraft to switch their current account, and this move means customers have the freedom to shop around and search for a better deal”.
It also found more than 90% of small and medium-sized companies took out business loans with the bank where they held their current account.
They said: “At present, it is hard for bank customers to work out if they are getting good value”.
Its efforts to boost transparency called, again, for the creation of new price comparison websites to inform consumers and business customers of the best deals.
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Banks should also alert customers when they are going into an unarranged overdraft and give them time to avoid charges, the Competition and Markets Authority said an e-mailed statement Tuesday. Significantly more needs to be done to break their dominance, however contrary to the CMA’s belief, what is holding new entrants back is not the inability “to highlight to customers how new offerings compare with their current deal”, but not being able to compete on a level playing field.
