Blog article
See all stories »

7-day account switch: customer empowerment or indifference

The UK’s new seven day account switching rule, introduced last year, has important implications for customers and banks alike. But does it really herald a revolution in customer relationships in the financial services sector?

Statistically speaking current account relationships are more successful than marriages. According to the Payments Council, the average customer current account relationship lasts 17 years – a great deal longer than the average UK marriage of 11.5 years.

However, the fact that customers rely on the same provider for such an essential service for close to two decades, may be a sign of inertia and apathy rather than a mutually beneficial relationship.

The good news is that changes are afoot. In the past it took between 18 to 30 business days to switch current accounts. In addition, each bank having its own account transferring procedure often resulted in issues and delays. From September 2013, this process was reduced to seven working days by the Current Account Switch Service, with one uniform procedure for participating banks and building societies.

Peace of mind for the customer

What does the seven day account switching rule entail? The new bank will move across all your existing direct debits and standing orders. Moreover, your new bank will also automatically make provisions for any regular payments you receive (e.g. your salary). If your new bank makes any mistakes during this process that result in you being worse off financially, the bank is obliged to compensate you (i.e. cover any penalties or fees), guaranteeing peace of mind for the customer.

Increased competition in the current account market is the ultimate aim of the switching rule, based on research by the Independent Commission on Banking that found that the four largest UK retail banks controlled 77% of personal accounts (2011).

Current accounts: Another white label product?

‘Commoditization’ may be the key to understanding the potential impact of the rule. Today we can all use comparison websites to find the best current account deals and, coupled with the simplified switching process, there is little that distinguishes bank specific accounts. Rationally, we should expect customers to change banks more frequently – current accounts should become just another white label product.

And yet banking is relationship-driven, it is built on trust and habits. If we were truly rational, we would all use internet-based banks now. The seven day rule is a step forward in consumer protection and convenience. It makes it easier for dissatisfied customers to vote with their feet, but it may not be the game-changer that the government hoped for.



Comments: (1)

A Finextra member
A Finextra member 20 June, 2014, 14:18Be the first to give this comment the thumbs up 0 likes

Current Account Switching is an intiative designed to stimulate competition as eveidenced by more switching. The impetus has come from Government. Way back in November 1998 the Government commissioned an independent review of the Banking Industry.  In July 1999, an interim report was published: Competition and Regulation in Financial Services: Striking the Right Balance" which had within its scope questions of innovation, competition and efficiency compared with other countries around the world. 

In March 2000, a turning point came with the publication of 'The Cruickshank Report.   The report highlighted barriers to entry to payments schemes then owned directly by banks, and the fact that banks were represented on the board of the FSA. This theme of banks 'marking their own homework' is still relevant today and we can now wait in great anticipation to see how the new Payment Systems Regulator approaches it.

One outcome of the Cruickshank report was an initiative to create a service that formalilsed and digitised the transfer of Direct Debits and Standing Orders and reduce it to a ten day one. Shortly after the service went live I tried it myself and found that flaws in the guidance about implementation meant that although the messages could be exchanged between banks and new payments set up at the new bank, the end to end process could take a great deal longer depending on the combination of banks involved.  

Although one can transfer supplier or cancel a direct debit, many banks failed to purge old records and presented customers with a list of 30 or 40 debits and credits, only 3 or 4 of which were live.   Had this real-life issue and the full customer experience been part of the design of the service, which instead was technology driven, things may have been different.

The new Current Account Switching Service is a phenomenal initiative that cuts that time in half. Between banks the end to end process is 5 days but as we know, some banks pad this out making the process seven days to the customer.  Another example of this 'padding' is in faster payments, where the bank to bank processs is under two seconds in duration but the time lag between the payment being made and showing up in an account is often stretched due to fraud checks or the complications of the enormous legacy systems within bank infrastructure then talking to interfaces such as internet banking systems.

In both cases however, the initiative was driven from the top down - out of the aim to improve competition.  Certainly this time around there are more banks to choose from and banks have invested in advertising to stimulate demand.  

Apathy in retail banking is a longstanding problem (unless you are a bank in which case the lifetime value of a customer is to be sought  and protected avidly). However, with more choice and comparison tools to hand, things should improve. According to the Payments Council switching rates since CASS launched have been positive. So keep switching and try a new flavour of banking. They are not all vanilla.



Now hiring