ao link
0 £0.00
This item was added to your basket
Credit Strategy homepage
LinkedIn
Twitter
Intelligence, Insight and community for responsible professionals in credit

FCA: Open Banking “crossroads” for banking sector

The introduction of Open Banking and attendant technological innovation has the potential to increase competition in the banking sector, according the Financial Conduct Authority (FCA).

In its Strategic Review of Retail Banking Business Models report, the regulator notes that its early analysis has found that a key component of competitive advantage for incumbent banks to date has been the combination of personal current accounts and large branch networks.

 

The FCA found those networks, along with a critical mass of pre-existing customers, allow:

 

  • A funding cost advantage from large numbers of customers holding balances in personal current accounts paying no interest, and in savings accounts which pay lower interest rates than other providers
  • Significant additional income from fees and charges on personal current accounts, particularly overdraft charges
  • The ability to cross-sell lending products to personal current account customers
  • The ability to cross-sell business current accounts (BCAs) and associated business savings balances, which also pay no/low interest.

 

The review shows that most current account customers contribute to their bank’s profits, but a small proportion pay significantly more than others – around 10 percent of customers generate between a third and a half of all contributions to profits from current accounts.

 

Despite that, the introduction of Open Banking could open up the market, the FCA said in its review.

 

Open Banking enables banks, with customers’ permission, to grant third-party providers access to online accounts and payment services data, with a view to potentially offering them better deals.

 

“We now stand at a crossroads. Technological change, facilitated by Open Banking and the second Payment Services Directive (PSD2), has the potential to drive innovation and competition for the benefit of consumers,” it said. It added that although the impact of Open Banking has yet to be seen, having only been introduced in January this year, there is potential for the initiative to encourage switching.

 

Andrew Bailey, FCA chief executive, said: “This is an important piece of work to help us understand the complexities of the retail banking market and how this may develop in the future.

 

“It provides more evidence that there is no such thing as free banking. In particular, this evidence will inform the work we are doing on overdrafts, so we can fully understand the potential effects of the significant action we are considering taking in this market.”

 

The FCA is seeking responses, including evidence or views, by September 7, 2018. It added that the next stage of the review will look at a range of possible future scenarios, including what branch closure programmes mean for consumers and banks’ business models, and how technological and regulatory changes may affect the market.

Please login to continue reading this article.

Not a member?

Become a member

FREE registration. No credit card required

Register now
  • Stay up-to-date with industry news and appointments
  • Hear about events first
  • Read 1 free Premium article per month

Become a premium member

From as little as £3.48 per week

Become Premium
  • All the perks of a standard member plus:
  • Access to the entire Credit Strategy website
  • 12 months subscription to Credit Strategy Magazine
  • 25% discount to all conferences
  • Exclusive access to Premium Member only roundtables
  • 50% off award entry fees

GET THE LATEST INDUSTRY NEWS STRAIGHT TO YOUR INBOX

READ NEXT

Amigo creditors vote in favour of redress scheme

Amigo creditors vote in favour of redress scheme

Consumer car finance new business grows by 10% in March

Consumer car finance new business grows by 10% in March

“New nervousness” consumer attitude in credit market

“New nervousness” consumer attitude in credit market

Upcoming events

Credit Summit 2021

Women in Credit Awards 2021

Car Finance Awards 2021

Credit Strategy
LinkedIn page

Member of

Did you find our website useful?

Thank you for your input

Thank you for your feedback

creditstrategy.co.uk – an online news and information service for the UK’s commercial and consumer credit industry. creditstrategy.co.uk is published by Shard Financial Media Limited, registered in England & Wales as 5481132, Axe & Bottle Court, 70 Newcomen St, London, SE1 1YT. All rights reserved. Credit Strategy is committed to diversity in the workplace. @ Copyright Shard Media Group