Banks are going to have to make it even easier for customers to switch their accounts after a two-year investigation by the Competition and Markets Authority (CMA) found that "older and larger banks do not have to compete hard enough for customers' business".
The final report also concluded that smaller and newer banks find it difficult to grow, meaning that many people are paying more than they should for banking services and are not benefiting from new services.
Among the measures being imposed by the CMA to ensure banks have to work harder for customers is an "Open Banking" programme to exploit the benefits of new technology.
By early 2018, personal customers and small businesses should be able to share their data securely with other banks and with third parties, said the report. The aim is to enable them to manage their accounts with multiple providers through a single digital app, to take more control of their funds (for example to avoid overdraft charges and manage cashflow) and to compare products on the basis of their own requirements.
Banks will also have to publish "trustworthy and objective information" on the quality of the service they provide on their websites and in branches, so that customers can see how their provider shapes up.
Another new requirement will see banks having to send out suitable periodic and event-based 'prompts' such as on the closure of a local branch or an increase in charges, to remind their customers to review whether they are getting the best value and to switch banks if they are not.
"Unlike many other financial products such as home insurance, current accounts do not have annual renewal dates to act as natural reminders and other possible triggers like business growth are not prompting customers to review what they are getting from their bank," said the CMA.
The report revealed that only 3% of personal and 4% of business customers switch to a different bank in any year, despite the former being able to save £92 on average per year by switching, and the latter missing out on savings of around £80 a year. For overdraft users, personal customers who are overdrawn for one or two weeks every month could save £180 per year on average.
The CMA has also introduced specific measures to benefit those who use unarranged overdrafts, gifting a total of £1.2 billion a year in charges into their banks' coffers. Under the new measures, banks will be required to send alerts to customers going into an unarranged overdraft, and inform them of a grace period, to avoid charges. Banks will also have to set a monthly cap on unarranged charges, and tell their customers about it.
"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 retail banking investigation.
"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.
"This is backed up by a wide package of measures to improve the current account switching service, to make it easier for small businesses to shop around and open new accounts or get a loan, and to see how the quality of service provided by your bank compares with other providers.
"We are also taking measures to give customers much greater control over their overdraft charges, so that they are clearly told when they are about to be incurred and have an opportunity to avoid them. Alongside this, banks will have to cap their monthly charges for unarranged overdrafts."
You don't have to wait until 2018 to switch your account, get in on the action now! If you're not happy with your account, compare the alternatives to see if you can get a better deal – and thanks to the Current Account Switch Guarantee, you can switch with confidence.
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