‘Open Banking’ reforms get final go-ahead

Current account customers will save an average of £92 a year as a result of a forthcoming shake-up in the banking industry, the Competition and Markets Authority (CMA) has said.

The watchdog argued that its ‘Open Banking’ reforms will see personal account customers find it easier to manage their money, uncover the best deals and avoid overdraft charges, while small businesses will benefit from greater competition and better access to finance.

The CMA announced measures that would make banks “work harder for their customers” and help people “take control of their banking using innovative new services” in its final report on the retail banking market published last year.

But the ‘final order’ that formally implements the reforms was implemented yesterday, in a move that the CMA said would also save overdraft users an average of £180 a year.

Alasdair Smith, chairman of the retail banking investigation, explained: “Open Banking will make a transformational change to banking for personal customers and small businesses. For the first time innovative and secure apps will provide personalised services and information to cover all financial needs in one place, and make it easy for people to find out what bank account is best for them.

“We’re also making banks send alerts to people about to slip into overdraft to help them try and avoid unnecessary charges,” he added. “Banks receive £1.2 billion a year from unarranged overdraft charges. A new alert system, combined with our order to require them to publically announce their maximum monthly charges, should mean significant savings in future for their hard-pressed customers.”

The final order also set out a timetable for introducing measures such as a monthly maximum unarranged overdraft charge – coming into force in August, standardised business current account opening procedures and banks having to publish service quality statistics.

The CMA has already accepted undertakings from Bacs to make improve the Current Account Switch Service this year, by extending the time the automatic redirect service is available when customers switch banks, actively providing information to those people who would benefit the most from changing banks and introducing independence into governance of the switching system.

Small businesses will also benefit from the ‘Open Up Challenge’ being run by innovation charity Nesta, the CMA added, which will enable the development and delivery of comparison and advice services, and increase the transparency of cost and eligibility of SME lending.

The Financial Conduct Authority will also be supporting the CMA’s recommendations by testing the prompts designed to increase consumer engagement and alerts that increase customers’ awareness of their overdraft usage, publishing service quality information and reviewing the effectiveness of banks’ introduction of the monthly maximum charge for unarranged overdrafts.

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