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Published: 03/02/2017
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It's been announced that the move to open banking is officially underway, which should hopefully make the banking sector a lot simpler (and hopefully cheaper) for consumers. But what do the changes mean, and how can you benefit? We take a closer look.

The reforms

The changes follow an investigation undertaken by the Competition and Markets Authority (CMA), which found that competition was lacking and consumers were paying the price. That's why they're introducing changes, as announced yesterday, with the report formally implementing new banking reforms and setting out the timetable for introducing key advances.

These advances include open banking, a monthly maximum unarranged overdraft charge cap, standardised business account opening procedures, and the requirement for banks to publish service quality statistics. A "technological revolution" will give people greater control over their money, the CMA said, by making it easier for personal customers to manage their money, find the best deal for their needs and avoid overdraft fees, while small businesses will be able to benefit from greater competition and better access to finance.

Enough of a change?

The reforms are expected to save overdraft users an average of £180 a year, and other current account holders an average of £92, so it could prove fruitful for many – but have the reforms gone far enough?

Rachel Springall, finance expert at Moneyfacts, doesn't think so. "The CMA's investigation into the retail banking sector was a golden opportunity to force a crackdown on excessive charges overall, not just for those who borrow over their pre-arranged limit," she said.

"It's therefore unfortunate that the new monthly maximum charge is aimed solely at those customers who exceed that limit (above their arranged overdraft), and it will be down to the banks themselves to decide by August 2017. This won't help those who may borrow using their arranged overdraft from time to time and are hoping to compare accounts on this basis."

Even so, other areas of reform could prove to be beneficial for all, with banks being required to provide overdraft alerts and grace periods by the start of next year. It may not be ground-breaking, with some banks already providing this service, but the rollout to all banks will mean more customers can benefit.

However, there are still issues with fees and associated overdraft charges, as Rachel explains: "There are still accounts that charge daily usage fees, which can add up to an eye-watering amount if customers have no way to immediately credit their account, and there doesn't appear to be any force to drive these charges down or make it any easier to compare the various charges.

"In recent years, many banks have altered their overdraft structure to create greater transparency, by removing interest charges and replacing them with a flat fee. However, in many cases this will actually be more expensive for consumers. [Our figures show that] the average monthly usage fee on authorised overdrafts has shot up from £4.08 five years ago to £6.04 today, while the average monthly usage fee on unauthorised overdrafts has risen from £48.65 five years ago to £53.61."

So, while transparency is all well and good, it doesn't necessarily mean savings for banking customers, which is why it's so important to compare the options thoroughly to make sure you're getting a good deal from your current account.

But just what would make you switch? "One thing that may well encourage customers to switch is that current account providers have been ordered to publish service quality results each year from August 2018," said Rachel. "Regardless of what an account charges or offers in benefits, poor service can speak volumes, so these figures will be beneficial for customers comparing deals.

"At a time when cash perks and credit interest are being cut, customers will need to ensure that they weigh up both any rewards and potential charges on a current account, so that they can be sure it is ideal for their day-to-day banking needs."

It's hoped that the changes announced will improve the sector and lead to better deals for consumers, potentially encouraging more people to switch, too. But why wait for the changes to come into effect? If you're not happy with the service provided by your current bank or think you could be getting a better deal, make sure to compare the top accounts – paying close attention to all features – and get switching.


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