In the current market customers rarely switch current accounts – even if the service they receive is poor, and they are overcharged for the services provided. Some 57 per cent of consumers have been with their current account provider for more than 10 years, and 37 per cent for more than 20 years, the CMA said
Customers may not understand the charges they are paying, or realise that they can get a better deal elsewhere. This has left banks needing to do little to retain customers, but has also left them with few avenues to grow their business, as customers simply can’t see a benefit to moving. However this is all about to change, the open banking API standards and frameworks required by the Competition and Markets Authority (CMA) remedy, will drastically increase transparency for customers.
“Requiring banks to implement Open Banking by early 2018, to accelerate technological change in the UK retail banking sector. Open Banking will enable personal customers and small businesses to share their data securely with other banks and with third parties, enabling them to manage their accounts with multiple providers through a single digital ‘app’, to take more control of their funds (for example to avoid overdraft charges and manage cashflow) and to compare products on the basis of their own requirements.” Competition and Markets Authority 19th August 2016
This has the potential to increase competition in the marketplace, as customers can better understand the cost of so called “free banking”. This new pressure on price may well see some banks cutting prices to win business, but competing on price alone puts pressure on margins, that in many cases are already being squeezed.
We’ve already seen the prices wars caused by the aggregators in the insurance market – in a survey by Finaccord, over 40% of UK respondents bought car insurance through an aggregator – competition has become tougher, leading to decreased profitability. Insurers now compete on price rather than brand loyalty or customer service, offering stripped down products at the lowest possible price.
Too many banks preparing for implementation have been focusing solely the race to meet the regulatory requirements – but now it is time for banks to shift focus to look at what increased competition will do for their business.
With products, rates and changes listed side by side, how can banks win customers without entering into a price war?
Banks need to ensure they do more than simply meet the regulation to ensure that they can remain competitive. They need to understand the customer, and become the right bank for them.
The real battle for customers will be won, not by those who cut their prices and slim down their products, but by those who compete on understanding – and innovate accordingly.
Jennifer McDonald, Manager, Axis Corporate