The Competition and Markets Authority (CMA) told the UK’s dominant financial institutions they must move to a so-called ‘Open Banking’ regime by 2018.
The radical proposals will enable consumers and small businesses to share their data securely with banks other than their own as well as third parties, meaning users can manage their accounts through multiple providers with a single mobile app.
The CMA uses the catch-all phrase Open Banking to describe this new environment.
The aim is for users to take greater control of their funds, so boosting competition and reducing bank charges.
Despite upheavals in recent years, UK banking has remained consistently in the hands of four big players: Lloyds Banking Group, HSBC, Barclays and Royal Bank of Scotland. The four banks together hold 77 per cent of personal accounts, and 85 per cent of business accounts.
The CMA’s report follows a two-year investigation which concluded “older and larger banks do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow”.
“Our central reform is the Open Banking programme to harness the technological changes which we have seen transform other markets,” said Alasdair Smith, who chaired the investigation.
“We want customers to be able to access new and innovative apps which will tailor services, information and advice to their individual needs,” he added.
Other measures include requiring banks to publish “trustworthy and objective information” on quality of service on their websites and in branches. Whether a customer is willing to recommend their bank to other users will be “a core measure” but banks must also publish a range of other quality measures.
The CMA will also require banks to send out prompts such as on the closure of a local branch or an increase in charges, to remind their customers to review whether they are getting the best value and switch banks if not.
Unlike many other financial products such as home insurance, bank accounts do not have annual renewal dates to act as natural reminders, points out the report.