Britain Relying on Fintech for Banking Revolution – By Reuters

By Huw Jones and Andrew MacAskill

LONDON – Starting in 2018, British banks will be required to share customer data with third parties, enabling those firms to illustrate potential savings from using alternative lenders, as announced by the competition regulator on Tuesday.

However, new banks, consumer advocates, and lawmakers criticized this initiative, arguing it overly depends on consumers’ willingness and ability to adapt to new technologies.

According to the Competition and Markets Authority (CMA), consumers are currently spending more than necessary on banking services and are not benefiting from the latest offerings, as indicated in its final report following a three-year examination of consumer and small business banking.

The CMA anticipates that financial technology (fintech) companies will develop smartphone applications and websites that utilize customer data to help users compare bank charges.

By establishing a 2018 deadline, the CMA aims to stimulate growth in the fintech sector, which seeks to lower costs and enhance efficiency within financial services.

The UK government supports the growth of fintech, but countries like Germany are trying to attract this sector following Britain’s decision to leave the European Union.

"This is a real opportunity for the UK to take the lead. We are committed to making this a reality," stated Adam Land, a senior director at the CMA. "Fintech companies are eager for change."

In the UK, the banking landscape is largely controlled by the "big four" banks—Lloyds Banking Group, Royal Bank of Scotland, Barclays, and HSBC—which together dominate more than three-quarters of current accounts and provide 90% of business loans.

Only a small fraction of consumers (3%) and business clients (4%) change their banks each year, primarily due to inertia.

The CMA’s proposed measures, which resemble earlier draft proposals, seek to facilitate switching for personal and small business customers. Still, some smaller banks and consumer groups feel the recommendations lack the necessary boldness.

Andrew Tyrie, chair of parliament’s Treasury Select Committee, expressed skepticism about whether the proposed measures would effectively address the underlying issues. He highlighted concerns that these changes depend too much on new technology and that customers may be hesitant to share their data. Tyrie indicated that the committee would scrutinize the CMA’s proposals in the coming months, stating, "We are not giving up now."

Under the new regulations, banks must share customer data with authorized third parties, contingent upon customer consent.

Aldermore, among the new "challenger" banks that the government hopes will disrupt the dominance of the major lenders, criticized the CMA for not seizing a significant opportunity to effect real economic change.

The CMA could have gone further by suggesting that smaller banks face less stringent capital requirements, the bank stated. Challenger banks have argued for reduced capital requirements, asserting they pose a lower risk to the financial system compared to larger banks.

Additionally, the CMA will mandate that banks publish their highest fees for unarranged overdrafts, which currently generate approximately £1.2 billion annually for them.

Consumer organization Which? asserted that this initiative does not go far enough, allowing banks to continue imposing steep fees.

Land mentioned that the Financial Conduct Authority (FCA), which previously capped interest rates on payday loans, will review the overdraft measures and the barriers to new entrants to assess potential improvements. However, Rishi Khosla, co-founder and CEO of OakNorth Bank, criticized this "passing of the buck", warning that such delays could jeopardize many emerging businesses.

"The fact that the CMA is simply going to pass responsibility to the Treasury, which won’t initiate its own investigation for two years, is extremely disappointing," Khosla said. "Many small and medium-sized enterprises are struggling to secure growth capital, and they may need to wait even longer for improvements."

Land defended the approach allowing banks to set their own cap, arguing it promotes competition for lower overdraft fees. However, consumer protection agencies were not persuaded by the reasoning.

"The FCA should be ready to impose an industry-wide cap if banks do not substantially reduce fees charged to customers in difficulty," said the Money Advice Trust, a charity committed to assisting individuals with debt management.

The Financial Services Consumer Panel, which provides guidance to the FCA, commented that the measures depend on unproven technology and require consumers to navigate complex information. "At the very least, it has provided the FCA with substantial evidence to challenge the banks."