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Tuesday 19 February 2019


FCA credit review opportunity for FinTechs

Written by Peter Walker

UK banks will have to develop alerts for customers at risk of slipping into debt, as well as a range of financial management tools to make it easier to keep on top of finances.

The Financial Conduct Authority’s in-depth review into the high-cost credit market proposed several “radical changes”, including:

• Mobile alerts warning of potential overdraft charges.
• Stopping the inclusion of overdrafts in the term ‘available funds’.
• Requiring online tools to make the cost of overdrafts clearer.
• Introducing online tools to assess eligibility for overdrafts.
• Making it clear overdrafts are credit or borrowing.

The proposals may be seen as an opportunity for the various FinTech firms which have developed personal finance apps, as well as those developing similar tools under the recent Open Banking changes.

The regulator’s chief executive Andrew Bailey stated: “Our immediate proposed changes will make overdraft costs more transparent and prevent people unintentionally dipping in to an overdraft in the first place.

“However, we believe more fundamental change is needed in the way banks charge customers for overdrafts,” he added, noting that given the size of the market, the work will be completed as part of a wider review into retail banking.

In 2016 firms made an estimated £2.3 billion in revenue from overdrafts – 30 per cent of which was from unarranged overdrafts. The majority of unarranged overdraft charges are paid by only 1.5 per cent of customers, who pay around £450 per year in fees and charges, effectively subsidising the cost of providing free current accounts for the wider market.

Bragi Fjalldal, chief marketing officer at Meniga, said that this move should help create a healthy approach towards financial planning in the UK.

“Progressive banks have already developed technologies to help their customers avoid unnecessary financial penalties,” he stated, adding that now the rest will have to catch up. “Banks need to align their own incentives with the financial health of their customers. Anything else is an unsustainable strategy and short-term thinking.”

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