FCA aims to increase PFM offerings from banks

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The UK’s Financial Conduct Authority (FCA) has announced proposed changes that would alter the way banks interact with people who use overdrafts and high-cost credit. After conducting a review into the market, the regulator has decided it’s necessary to reduce costs for these consumers, and wants to give them greater control over their finances by forcing banks to implement more personal finance management (PFM) features. It is currently asking for input on the proposed changes.

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Banks brought in around £2.3 billion ($3.1 billion) in revenue from overdrafts in 2016, according to the FCA. Unarranged overdrafts made up 30% of this figure, causing consumers to pay £450 ($600), on average, in fees. Banks often don’t let consumers know when they are close to dipping into their overdraft, which can make money management difficult.

The FCA is now calling for banks to include mobile alert warnings of potential overdrafts, online tools to better explain overdraft fees, and online tools to assess eligibility for overdrafts, among other tweaks. By making the overdraft space more transparent, the FCA hopes to save consumers up to £140 million ($187 million) a year. It is also considering more radical changes, like banning fixed fees, in the future.

This could spark greater efforts from banks to make money management easier. Neobanks and other challengers are currently ahead of conventional banks in terms of PFM features; however, the FCA stepping in to enforce the implementation of such features could push incumbents to catch up.

Additionally, if these proposed changes go to plan, the FCA may consider further adjustments to make consumers’ financial situations more transparent and easier to manage, such as encouraging banks to offer tools that track spending. This is not only good news for consumers, which will likely save large sums of money, but also for PFM providers that can help banks launch these features.