Current account switching flops

Current account switching flops

The UK's much vaunted current account switching service is beginning to look like an expensive white elephant, as fewer consumers transferred their business in 2015 compared to the previous year.

Introduced as a means to inject more competition into the moribund banking sector, the latest figures from CASS show that just over one million switched their bank accounts last year, 11% down on the 1.15 million recorded in 2014.

The seven-day service, which cost the industry in the region of $750 million, was recommended by the Independent Commission on Banking, which had originally looked at full account number portability, which would have cost anything up to £5 billion.

Findings by comparethemarket.com showed more than a third of people surveyed say that the complexities in the switching process and fear that direct debits may not be successfully transferred discourages them from moving bank.

The disappointing take up is likely to stir the interests of the Competition and Markets Authority and the new Payment Systems Regulator, which have a mandate to shake up the market and provide new opportunities for challenger banks to take on the might of the country's biggest banks.

The FCA has floated two potential models for delivering account portability: building it within the existing market structure and then running the additional infrastructure centrally, as is the case with Cass; or a new central utility model based on a shared platform.

Comments: (9)

Nick Ogden
Nick Ogden - ClearBank - London 21 January, 2016, 11:06Be the first to give this comment the thumbs up 0 likes

I believe that this issue is deeper, and that the profound lack of choice is also a deterrent.

Of 45 Building societies in the UK only 5 offer current account services, yet those 40 societies manage normally the largest financial transaction that a consumer undertakes, and then they fail to manage and support their day to day finances. Agency Bank restrictive practices from the 4 incumbents that throttle competition coupled with complex and expensive IT also have a part to play in the lack of consumer choice, and the consequent failure to stimulate trust in change.  

When people in the pub chatting are able to say I moved my account today because my new provider checks my regular payments and fixes any overcharging for me (Mondo perhaps?)... a new, truly competitive and transparent market will have at last arrived.

 

A Finextra member
A Finextra member 21 January, 2016, 11:59Be the first to give this comment the thumbs up 0 likes

Could be, Nick,that customers are so happy with the service improvements they've seen over the last 12 months that they don't see any need to switch!

Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 21 January, 2016, 12:37Be the first to give this comment the thumbs up 0 likes

Now it is seen - easy enough to switch anyway. The customers should understand that they pay every cent for every folly around.

A Finextra member
A Finextra member 21 January, 2016, 12:551 like 1 like

Could it be that most often the first question asked in the UK when you apply for a mortgage or credit card/loan is often 'how long have you been with your current bank'? UK consumers fear damaging their chance of approval so don't switch. Its not a technical problem but an educational one.

Bo Harald
Bo Harald - Transmeri, Demos, Real Time Economy Program,MyData - Helsinki Region 21 January, 2016, 13:15Be the first to give this comment the thumbs up 0 likes

Education needed first of all to understand that every demand has a cost - and a payer (who is not the shareholder). All costs should be calculated and charged for visibly whenever possible

 

Nick Ogden
Nick Ogden - ClearBank - London 21 January, 2016, 14:50Be the first to give this comment the thumbs up 0 likes

The issue of supply to create competition is simply that for an existing challenger, or a new entrant to compete, they have to partner with an incumbent. In the case of Fidor Bank, a new UK challenger, their approaches were initially declined by the 4 incumbents, thus restricting, or controlling, consumer market choice. Atom Bank, another challenger, have publically stated that a significant business risk they face is their agency bank relationship.

For others who were not declined, their relationship adds cost, complexity and an unhealthy supplier competition risk to their venture.  The Telco market has some interesting parallels in the MVNO model. There the pricing structure that evolved delivered a wholesale “buy rate” that ensures competition occurred, Skype charges vs BT are an example. The consumer can easily choose. In transactional or current account banking the prices charged by the incumbent providers are substantially higher than the payment scheme fees that they are charged. This ensures that their agencies charges for consumer current account services are substantially higher than their own, which was highlighted during the ongoing CMA process. 

 

Tom Hay
Tom Hay - Icon Solutions Ltd - London 22 January, 2016, 10:53Be the first to give this comment the thumbs up 0 likes

Soviet-style central planning is never going to increase competition. Even the FCA's own report admits that "The introduction of a potential monopoly provider of a centrally-managed core platform also introduces the risk of a single point of failure and may stifle rather than encourage innovation in payment systems". A continued obsession with account number portability will throw good money after bad (£5bn mentioned in the article) while actually derailing the real objective of increased competition between account providers. Let's focus instead on providing "new opportunities for challenger banks" who will give customers a genuine reason for changing account provider, rather than a mechanism for easily switching between uniformly mediocre financial institutions.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 January, 2016, 15:40Be the first to give this comment the thumbs up 0 likes

Neobankers might believe that this scheme would have been a big hit had the regulator permitted switch to neobanks:) 

On a more serious note, 2015 has provided a lot of reality check for the founding premises of neobanks:

  1. Apple Pay usage drops in 2015 from 2014 (https://twitter.com/s_ketharaman/status/685484148631453696)
  2. Nearly half of Millennials say they're more likely to pay with cash in 2015 than a few years ago (https://twitter.com/s_ketharaman/status/689798849909669888)
  3. And, now, account switching drops in 2015 from 2014.
Peter Robinson
Peter Robinson - Liberti Consulting - Northampton 23 January, 2016, 15:17Be the first to give this comment the thumbs up 0 likes

I'd switch in a jiffy if I could find a bank that paid me a decent interest on the balances I hold. The reality is that with QE, few banks actually need my money. Instead I'm forced to hold multiple accounts across several banks with varying degrees of direct debit requirements and minimum balances while juggling to ensure that no account exceeds the maximum thresholds of protection. It's all too much of a pain.

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