A shake-up in UK retail banking has been criticised by consumer groups and economists as not going far enough.
The Competition and Markets Authority (CMA) concluded that new phone-based apps could show customers which banks may offer the best account.
Banks will also have to set maximum monthly fees for unarranged overdrafts.
But consumer group Which? said: “It is questionable whether these measures will be enough.”
The CMA decided against a cross-industry cap, leaving individual banks to set their own charges.
Alasdair Smith, chair of the CMA’s retail banking investigation, told the Today programme: “Heavy-handed regulation would run the risk of reducing the availability of unarranged overdrafts.”
Alex Neill, director of policy and campaigns at Which?, said: “It is disappointing that the monthly charge cap is not actually a cap and banks will be allowed to continue to charge exorbitant fees for so-called unauthorised overdrafts, rather than protect those customers that have been identified as among the most vulnerable.”
The CMA said there would be other measures to encourage people to switch accounts.
Mr Smith said: “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.
“Our reforms will increase innovation and competition in a sector whose performance is crucial for the UK economy.”
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Under what the CMA calls its “Open Banking programme”, banks will be required to share their customer data with third-party app providers.
Individual customers will have to give their consent before this happens.
It will enable customers to see information about prices, standards and the location of High Street branches.
Above all it will allow consumers to see which bank is cheapest, given their particular pattern of borrowing.
Mr Smith said: “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.”
However, Andrew Tyrie MP, chairman of the Treasury Select Committee, said: “The CMA is relying on the rolling out of new technology to do the heavy lifting on competition. But many customers will not have the tools or skills to do this. Customers are also – understandably – wary of the data-sharing required for this to be effective.”
Diane Coyle , Professor of Economics at the University of Manchester, questioned whether the new measures would increase the rate of switching.
“There’s a lot of reliance being placed on more information, but consumers will need to give all of their transaction information to third-part providers, and there’s the trust question … do you really want another party to be able to see all the transactions that you make in your bank account and be able to tell other potential competitors about that?” she told the BBC.
Meanwhile the banking industry welcomed the emphasis on new technology.
Anthony Browne, chief executive of the British Bankers Association, said: “Customers and businesses have already found digital banking hugely convenient and have taken advantage of mobile technology that is allowing us to bank round the clock. We are pleased the CMA has reflected that in its recommendations.”
However, the British Chambers of Commerce (BCC) warned about the dangers of sharing data.
Suren Thiru, head of economics and business finance at the BCC, said the CMA should “tread carefully in the sharing of data by finance providers via the Open Banking programme, to ensure that businesses retain control over who has access to their data – otherwise any trust between lenders and businesses could be destroyed”.
All the banks will be required to introduce a Maximum Monthly Charge (MMC) – set by themselves – to limit the costs of an unarranged overdraft.
At the moment most banks cap overdraft fees, but then add on interest payments.
The MMC will include debit interest – typically charged at up to 20% a year – and unpaid item fees.
The CMA said this would make different bank accounts easier to compare, and cut through the complexities of overdraft charges.
The CMA also ordered new measures to encourage more people to switch their accounts to other providers.
It said only 3% of personal customers move their accounts each year. Recent figures show the number of people switching actually going down.
As a result there will be:
- a new regulator to oversee the Current Account Switching Service (CASS).
- a longer period during which transactions will be redirected from the old account to the new – currently set at three years.
- a “long-term” promotional campaign to encourage more switching.
Banks will also be required to send customers text alerts, whenever they go overdrawn – something which most banks already do.