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Darren Capehorn


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Mr Osborne, Is This Really Going To Make A Difference?

02 December 2014  |  2497 views  |  2

You may, like me, have been surprised to hear Sky News reporting recently that George Osborne’s Autumn statement will ‘turn the screw on Britain’s biggest banks by demanding an urgent overhaul of the seven-day current accounts switching regime’.

It was only fourteen months ago that the Banking industry launched the Current Account Switching Service (CASS) – a service which promises customers wanting to move account from one bank to another that their regular payment details will be transferred, that direct debits will be automatically redirected and that their new account will be active within seven days.

Turning The Screw On Britain’s Banks

In essence Mr. Osborne is reacting to the shocking realisation that despite a reported industry spend in the region of £750 million pounds on CASS, the incidence of people moving Bank accounts remains relatively low. According to figures published by the Payments Council last month, just over 1.2m switches were processed in the first year, which is only an increase of 22% on the previous 12 months. That currently means an investment of £2,840 for each additional account switched!

And that small increase occurred at a time of unprecedented marketing campaigns and financial incentives to encourage people to switch banks.

So What Conclusions Has He Made?

Put simply, that inertia exists – people still find it too difficult to move accounts from one Bank to another.

And the measures he’s rumoured to be announcing?

  • That the two-year period during which banks are obliged to guarantee the redirection of payments to a customer’s new account will be extended to 36 months
  • That the service will be open to more small businesses (those with turnover of up to £6.5m, rather than the existing €2m threshold)

What Difference Will This Really Make?

In terms of encouraging people to switch banks, I’d be surprised if these changes resulted in the movement of accounts of more than a dozen additional customers. That said, I also doubt the changes will cost much to implement. It would be strange if the banks’ solutions required anything more than configuration and process changes to comply with this announcement – this seems like small potatoes when compared to the average of £60m they’ve already sunk into providing this service!

So how does that announcement warrant the phrase ‘turning the screw on the Banks’? Well sadly, a few more ideas are rumoured to be in the offing which start to ratchet-up the rhetoric, and these are worthy of some scrutiny.

Firstly, it seems the Treasury is also asking Banks to reduce the switching time from seven days to five. This request may not be included in the Autumn statement as the Banks are already advising that this will be costly to implement, and there is very little evidence that it will incentivise people to switch banks.

Secondly, the Financial Conduct Authority (FCA) is currently conducting a review which could lead to a more far-reaching change in the form of full Account Number Portability (ANP), which allows customers to take their account numbers with them when they move between banks.

Banks argue that ANP would cost billions of pounds to implement – and given the propensity for Banks to underestimate large scale change, one can easily see the national debt of Brazil disappearing into this initiative.

And once again it is difficult to see if and how this will encourage movement.

How About This Radical Thought?

What if the reason people aren’t switching accounts is because in reality, all Banks offer broadly the same services. What if it isn’t the effort but rather the reward of switching that is causing the inertia? Indeed, what if the inertia is, in fact, apathy?

And if that is the root-cause, then maybe the existing CASS solution is fit for purpose, and that perversely the cures being proposed above are, in fact, only adding to the problem.

For every pound that Banks have to spend on regulation such as this, they have one less pound to spend on innovation. So surely rather than ‘turning the screw on the banks’ the government and regulators should be allowing them more time and money to innovate, and thereby differentiate through the provision of services that customers really want.

And Here’s The Real Irony….

All the time that Banks have to invest in complying with these politically attractive initiatives, the new entrants are innovating. The challenger Banks and the technology companies moving into payments are building attractive, differentiated services. When these providers start to gain broader visibility in the marketplace, I imagine the CASS solution will be inundated with switching requests.

And the Banks who invested in making it possible will be left with big bills and no customers.

What are your thoughts?  Do you think Osborne’s plans will make a real difference for customers?  I’d love to hear your views.


TagsPaymentsTransaction banking

Comments: (2)

Paul Love
Paul Love - Open Payments Cloud - Nottingham 02 December, 2014, 15:35

Great post Darren,

I agree this tinkering is the equavelent of Nero fiddling while Rome burns.

Such "Grand Schemes" as CASS seem doomed, as their sheer cost and timescale makes them irrelevent even before the design is signed off by the multitude of "stakeholders". Surely someone should veto such schemes based purely on the incredibly bad cost/benefit (as you have so shown so clearly).

The Account Number Portability (ANP) is even worse. it is like taking your postcode with you when you move house. ALready is is being rendered pointless by third party identifiers, e.g. the mobile phone number as used by Paym.

Banks should indeed innovate, and not pander to the committes drawing up these "Grand Schemes".



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A Finextra member
A Finextra member 03 December, 2014, 09:03

I couldnt agree more. I plan to switch to Atom when it launches for precisely the reason that I want to experience innovation as a customer

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