By Huw Jones and Andrew MacAskill
LONDON (Reuters) - British banks will from 2018 have to share customers' data with third parties who can then show how much could be saved by using other lenders, the competition watchdog said on Tuesday.
New banks, consumer advocates and lawmakers, however, derided the plans as relying too much on people's ability and willingness to use new technology.
Customers are paying more than they should for banking and are not benefiting from new services, the Competition and Markets Authority (CMA) said in its final report after a three-year review of consumer and small business banking.
Financial technology, or "fintech", companies are expected to offer smartphone "apps" and web sites that use customers' information to enable them to compare bank charges.
The CMA believes setting a 2018 deadline will also boost the "fintech" sector, which uses technology to make financial services cheaper and more efficient.
The government wants to see fintech grow, but European Union countries like Germany would like to lure the sector from London after Britain voted to leave the bloc.
"This is a real opportunity for the UK to take the lead. We are going to make it happen and give it a push to get it across the line," Adam Land, a senior director at the CMA, said. "There is no question that fintech companies are champing at the bit."
High street banking in Britain is dominated by the "big four" lenders - Lloyds Banking Group <LLOY.L>, Royal Bank of Scotland <RBS.L>, Barclays <BARC.L> and HSBC <HSBA.L> - which control more than three quarters of current accounts and provide nine out of 10 business loans.
Only 3 percent of consumers and 4 percent of business customers change banks in any year due to inertia.
The CMA hopes its proposed measures, which differ little from draft measures outlined in May, will make it easier for personal and small business customers to switch lenders, but some smaller banks and consumer groups said the new measures were not radical enough.
NOT GIVING UP
Andrew Tyrie, chair of parliament's Treasury Select Committee which has pushed for six years to get more competition in banking, said he was not optimistic the measures will get to the heart of the problem.
The measures rely on new technology to do the heavy lifting while customers were understandably wary of sharing data, and the committee will ask the CMA to justify its proposals in the autumn, he said. "We are not giving up now," Tyrie added.
Under the new rules, banks will have to share a customer's data with third parties, providing the customer agrees.
Aldermore <ALD.L>, one of the new "challenger" banks the government hopes will eat into "big four" dominance, said the CMA has missed a huge opportunity to provide a real, positive economic impact.
The CMA could have gone further by recommending that small banks have more proportionate capital requirements, it said. Challenger banks have called for lower capital requirements than big banks, arguing they pose less risk to the financial system than bigger rivals.
The CMA will also require lenders to publish their maximum fee for unarranged overdrafts, which earn banks 1.2 billion pounds ($1.6 bln) a year.
Consumer group Which?, however, said that measure did not go far enough as banks would still set the maximum rate and so would be able to continue to charge "exorbitant fees".
Land said the Financial Conduct Authority (FCA), which capped payday loans' interest rates, will review the overdraft measures and obstacles to new entrants to see if they improve, but Rishi Khosla, co-founder and CEO of OakNorth Bank, said this "passing of the buck" to other market watchdogs could put many fledgling companies at risk.
"The fact that the CMA is simply going to pass the buck to the Treasury who won't look to launch their own investigation until two years from now is extremely disappointing," Khosla said.
"There are millions of SMEs (small to medium enterprises) that are struggling to secure growth capital who may now need to wait up to four years for the situation to improve."
Land said allowing banks to set their own cap gives them flexibility to compete with each other on offering the lowest overdraft fee, but consumer advice bodies were unconvinced.
"The FCA should be prepared to step in with an industry-wide cap if they (the banks) do not significantly reduce the charges being paid by people who fall into difficulty," said Money Advice Trust, a charity that helps people deal with debt.
The Financial Services Consumer Panel, which advises the FCA, said the measures rely on untested technology and consumers having to act on complex information. "At least it has given the FCA some good evidence to take on the banks."
($1 = 0.7701 pounds)
(Additional reporting by Sinead Cruise; Editing by Jason Neely, Susan Fenton and Adrian Croft)