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The competition watchdog has ordered Britain’s banks to make comparing and switching small business bank accounts easier. The Competition and Markets Authority (CMA) has this week announced a raft of measures aimed at shaking up the current account market, both for consumers and small traders.
Although the proposals have been broadly welcomed by campaigners, the CMA’s review is the most recent in a long line of attempts by UK regulators to make retail banking fairer and more transparent.
As such, it remains to be seen how effective this latest intervention will be.
As far as business account holders are concerned, the CMA is demanding greater transparency when it comes to overdraft and loan rates, as well as the level of customer service clients can expect.
The watchdog also wants to see new digital apps developed to help both business and personal account holders switch between banks with as little hassle as possible.
For example, banks will be obliged to tell business customers when they are coming to the end of any initial free banking period, and then provide them with representative rates for loans and overdrafts. This is designed to make it much simpler to compare rival deals – an issue that has long been viewed as a major obstacle to competition.
The biggest banks will also be required to set up a small business account comparison service, as well as a loan price and eligibility tool that will make it much more straightforward for firms to work out their chances of being offered finance.
Additionally, banks will have to publish independently audited service quality ratings to help customers choose the most suitable provider.
The CMA has imposed different deadlines on the various measures it is demanding, but most of the new system should be in place by the end of 2017.
One of the most groundbreaking recommendations made by the CMA is the development of an Open Banking system. This will see banks make it easy for customers to share their financial data with other companies on digital apps, thereby helping them to pinpoint the best deals on current accounts, loans, and savings. Personal customers will also benefit from a new monthly limit on overdraft charges.
Alasdair Smith, chair 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.
“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.
“This is backed up by a wide package of measures to improve the current account switching service, to make it easier for small businesses to shop around and open new accounts or get a loan, and to see how the quality of service provided by their bank compares with other providers.”
The Federation of Small Businesses said that switching levels among small firms were very low, with just 4% of FSB members changing their current account last year. “We welcome the package of measures aimed at improving the current account switching service and reassuring small businesses it is a quick, easy and safe way to switch accounts,” said spokesman Mike Cherry.
But he added that, while the CMA’s review made some welcome recommendation, more needed to be done to stem the tide of local branch closures.
“The FSB is deeply concerned about the worrying pace of branch closures and the impact this is having on some small businesses’ ability to make informed banking decisions, particularly in rural areas,” Cherry said. “Unfortunately, 2016 is already looking like a record-breaking year for closures. We now want ministers to look at further options to protect small businesses’ access to their local bank.”