Banking shake-up 'could help customers avoid overdraft charges'
Banking customers could avoid being stung by overdraft charges by instructing apps to automatically move their money around for them, under a watchdog's plans to shake up the sector "for years to come".
The Competition and Markets Authority (CMA) unveiled a package of measures to help customers to shop around to get a better deal, after finding older and larger banks do not have to compete hard enough for customers' business and newer and smaller banks find it difficult to grow.
As part of the plans, banks will be required to speed up advances in technology by putting "open banking" in place by early 2018.
People and small businesses will be able to manage the accounts they hold with several different providers on one single app.
This could mean, for example, that rather than having to constantly check their bank account themselves to avoid going in the red, someone could pre-instruct their app to move money from another provider into their account if they are about to go overdrawn.
Automatically moving money about in this way could help customers avoid unwittingly being hit with charges.
Holding the information about how someone banks in one place could also make it easier for someone to find the deal that best suits their needs, the CMA said. Apps could use transaction information to find the current account which suits the user best, based on how they use their account.
The CMA said "many people are paying more than they should and are not benefiting from new services".
The measures were set out in the final report from the CMA's retail banking market investigation.
They also include requiring banks to send alerts to customers going into an unarranged overdraft and set a cap on unarranged overdraft charges.
But banks, which collectively make £1.2 billion a year from such charges, will be able to set their own cap, rather than having one imposed on them.
The CMA has previously rejected the idea of breaking up the biggest banks and also stopped short of getting rid of "free if in credit" current accounts.
The measures were criticised for not going far enough - with consumer group Which? saying it is "disappointing" that banks have been left to set their own caps on unarranged overdraft charges - and warning banks will be allowed to continue to charge "exorbitant fees".
Paul Pester, chief executive of challenger brand TSB, said the CMA has "played right into the hands" of the biggest banks.
Guy Anker, MoneySavingExpert.com managing editor, said: "The glimmer of hope for competition is the data solution whereby banks will be forced to provide data so people can see all their accounts on one app, and be able to find the best account for them via a comparison based on their own requirements."
At present, just 3% of personal and 4% of business customers each year ditch their old bank and switch to a new one.
Despite this, someone could save £92 a year on average by switching to a deal that better suits their needs. Savings of around £80 a year on average are available for small businesses by ditching and switching.
Alasdair Smith, chairman of the CMA's retail banking investigation, 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.
"We are breaking down the barriers which have made it too easy for established banks to hold on to their customers."
Speaking on BBC Radio 4's Today programme, Mr Smith denied failing to take tough measures to tackle high charges on unarranged overdrafts.
He said: "Heavy-handed regulation would have the risk of reducing customers' access to credit."
Anthony Browne, chief executive of the British Bankers' Association (BBA), said: "We recognise more work needs to be done to create a level playing field by supporting new banks wanting to set up business, as well as helping to grow established banks."
Suren Thiru, head of economics and business finance at the British Chambers of Commerce (BCC), warned that the CMA "must 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".
The CMA said customers will need to give their consent for their data to be shared on an app and information will be shared on a limited basis.
Sue Lewis, chair of the Financial Services Consumer Panel, a statutory body set up to advise the Financial Conduct Authority (FCA) on consumers' concerns, said challenger banks and consumer representatives must be able to influence the design of rules on open banking " or the big banks will just design systems to suit their own ends".
She said: "Open banking will not help the digitally excluded. There is a risk of scams and fraud, particularly for the least savvy consumers. More data will enable providers to 'cherry pick' customers, leading to better deals for some, but exclusion or high prices for others."
Ms Lewis said the CMA had also "failed to tackle excessive overdraft charges effectively".
She said: "We believe the FCA should look at an 'opt-in' rule similar to the US overdraft protection law. Under this law, consumers have to request an overdraft facility, and agree the terms up front. The FCA should also consider a cap on unarranged overdraft charges, set at the net additional administrative costs."