Open banking is set to increase competition and lower the costs for citizens and enterprises – what great news to hear!
It is estimated that people who exceed their permitted overdraft for a week or two will save, on average £180 with these new changes.
The British regulator for market competition, CMA, has adopted a package of measures which with the help of technology should increase competition in banking sector and lower the costs for citizens and enterprises though better insight into accounts and data sharing with multiple service providers.
Older and larger banks don`t have compete with each other to attract clients, and smaller and newer ones have difficulties in finding a way to expand their business. This means many people are paying more than they should, but have no benefits from new services, the CMA states.
4 large British banks control 77% of the market of bank accounts and more than 80% of the accounts of small enterprises.
With that in mind regulators seek to speed up the technological innovations requesting that banks adopt the so called “open banking” system. This system will enable citizens and small enterprises to safely submit their data through smartphone apps to other banks besides their mother bank, so they could more successfully manage their accounts with multiple banks and compare their prices.
Additionally the CMA wants to facilitate transferring accounts, which now only 3% of citizens and 4% on enterprises do. Regulators estimate this will cause savings of around £92 for citizens and £80 for enterprises annually.
Some specific measures have already been taken in form of support to citizens and enterprises which exceed their limits ad-hoc where Banks earn on such fees approx £1.2 billion annually, but from now they will have to warn their clients of exceeding limitations and send them notifications to avoid costs.
Will these measures from regulators result in more savings? It remains to be seen. There is already some criticisms that regulators have not considered seriously the industry structure, and that they are relying solely on new technology to encourage competition instead of planning themselves.