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Tuesday, August 9, 2016

Current account shake-up: how will I benefit from the CMA's 'open banking'? 

The competition watchdog has announced a series of recommendations designed to improve the current account market.

The proposals, from the Competition & Markets Authority, are designed to encourage more customers to switch accounts and to reduce the amount they pay in overdraft fees.

Most eye-catching are plans to allow customers to use smartphone apps to see how much they could save by switching to a rival bank, although this has given rise to fears about data security.

Here we look at the proposals in more detail. 

How will the new app help me find a better account?

Under a scheme called "open banking", banks will have to make it possible for customers to see which bank is cheapest for their financial position. 

Using technology similar to that used by Uber, the smartphone-based taxi service, the app will show customers the location of nearby bank branches, customer service standards and prices offered by different banks.

For this to happen, banks will have to share customers’ data with other approved firms, allowing them to look at a customer's details including the payments they make and receive and the amount they are charged by their bank, and then offer them a better deal specific to their situation.

Switching will also be made easier. A new regulator will oversee the current account switching service and payments will be redirected for longer than the current three-year period.

Will my data be safe?

Each customer would have to give their consent before their data is shared. However, some consumer groups have expressed concern that banks might use data protection as an excuse not to implement the new scheme.

What will it mean for my overdraft?

There should be a clearer limit on how much you have to pay. This will include overdraft fees and interest payments together, to make it clearer how much you are paying.

Banks will also have to tell customers, using an alert, when they are approaching an unauthorised overdraft that would cost them money. Some high street banks do this already.

However, there will be no externally enforced cap and banks will set the limit themselves, meaning they can still implement high charges.

When will these changes take place?

The biggest banks say they are broadly supportive of the changes and are reviewing them to see how they can comply. 

RBS and Barclays said they already capped overdraft fees and would not be making immediate changes as a result of the report. 

HSBC said it would be reviewing the CMA's proposals "in detail" and introducing them when it needed to.

The mobile app is due to be introduced by early 2018.

Read Telegraph Money's guide to the best current accounts to switch to here.

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