The government used the Budget to announce changes in the banking sector that will boost consumer and business choice through increased competition.
The retail financial services sector is being shaken up by technology and the government wants to create a regulatory environment where competition thrives.
New developments such as a current account comparison tool and a commitment to open financial services application programming interfaces (APIs) were announced.
The measures to further support competition in banking are covered in detail in the Banking for the 21st century: driving competition and choice report.
Current account comparison tool
Helping consumers understand which current account suits them is vital if people are to change provider.
“Gocompare will launch its personal current account comparison tool on 26 March 2015,” the government announced. “This will enable customers, for the first time, to identify which personal current account could suit them best and help to drive switching in the current account market.”
Read more about competition in the banking sector
- History of technology transformation in the trading sector suggests only the introduction of genuine competition in the retail banking sector will push banks to replace legacy IT.
- Retail banks are more concerned with competition from technology companies than from new banks or payment platforms such as PayPal.
- IT platforms such as Comparethemarket.com have transformed the process of buying insurance and the government hopes open APIs will increase transparency of banking services.
This could stimulate the use of the seven-day switching service, which the Payments Council introduced in 2013 to make it easy to change current account provider, reducing the time it takes to switch accounts from 30 days to seven.
But take-up of the service has been low, as consumers see little reason to change banks due to a lack of differentiation between them. The number of people who changed current accounts in 2014 was higher than in 2013, but lower than the number who switched in 2012 before the seven-day switching service was available.
Raising competition and innovation in financial services
Startup banks using technology to differentiate and technology companies offering financial services are shaking up banking and now the government wants to put the right regulations in place to stimulate real competition.
“The fintech sector comprises a wide range of activities and companies with the potential to bring increased competition and innovation in financial services markets, to the benefit of UK customers,” said the government.
Computer Weekly recently described six technology companies set to hasten the demise of retail banking giants and outlined six challenger banks using IT to shake up UK retail banking.
Online-only banks were given a boost from the Budget, with news that the government expects an agreement between banks and the Post Office which will see 11,500 Post Office branches offer banking services on behalf of banks.
This will remove the disadvantage of not having branches faced by digital banks.
More tech-focused Budget announcements
- A range of measures to help support the growth of technology and digital government across the UK.
- Government Digital Service will have its remit extended to cover local authorities.
- Initiatives to encourage research into networking technologies, including the internet of things and 5G mobile networks.
- £11m investment in tech incubators in Manchester, Leeds and Sheffield.
If agreed, the government said the Post Office would deliver a “standard approach to counter services for personal current account customers and business account customers in branches”.
Open APIs in banking
The government also confirmed its commitment to open APIs in banking, with a detailed framework for its design by the end of 2015.
“This will enable fintech firms to make use of bank data on behalf of customers in a variety of helpful and creative ways, and ensure the UK remains at the forefront of developments in financial technology and innovation.”
On digital currencies the government said it will apply anti-money laundering regulation to digital currency exchanges in the UK, to support innovation and prevent criminal use. It is launching research with the involvement of the Alan Turing Institute, Digital Catapult and the finance industry to address opportunities and challenges for digital currency technology. It will increase research funding in this area by £10m.
The government also said it wants smart ATMs that allow customers to deposit as well as withdraw cash.