9th September 2013
The number of people transferring their current accounts each year could almost double in the next ten years according to new research.
Research carried out by the Centre for Economic and Business Research for Metro Bank suggests that the new Current Account Switch Service (CASS) could see the number of switches could grow from 1.3m to 2.5m. This would represent a switching rate of 5%.
Metro Bank, which styles itself the first new retail bank in more than 100 years, will be hoping some of those extra 1.2m switches will be coming its way.
The report’s econometric analysis estimates that what it describes as an efficient or “open” market could see 10% of the market switching per year. It notes that while the current account market is becoming more competitive rising from 1.7% of the market switching in 2003 to 2.8% in 2012, the rate remains at less than one third of the level of the gas sector and one quarter of the level in the electricity sector.
This lack of competition is often cited for the complacency of some of the big retail banks when it comes to customer service failings and worse.
Craig Donaldson, Chief Executive, Metro Bank says: “An efficient current account switching market is essential for a competitive banking sector. Increased competition forces banks to work harder to innovate, differentiate themselves and keep their customers happy. At the moment, far too many consumers put up with poor service from their bank simply because they believe switching to be too complicated. We expect that CASS will help to breakdown this perception and encourage consumers to find a bank that best suits their needs. As the research demonstrates, with switching numbers predicted to almost double in the next decade, CASS is certainly a great first step to achieving an open current account market.”
In addition to the impact of the CASS service, the report also examines additional reforms which it suggests could raise the switching rate by 3.5 times for each a year, representing 4.6 million switches annually or 9.3% of the market by 2023.
The reforms are –
1. Account number portability: Enabling customers to switch their current account numbers and sort codes between different banks and building societies. This, in addition to CASS, would increase the switching rate by 2.1% and would lead to 6.4% of the market switching annually by 2023; this equates to 3.2 million people switching annually.
2. Transparency: Current accounts tend to be seen as “free” products because in most cases no explicit fee is charged. In reality there are costs associated but they are largely hidden or visible but opaque. Increased transparency could help consumers to really understand their accounts, in addition to:
3. Standardised comparison tables: This would allow consumers to accurately compare current accounts, and make well informed choices. The report anticipates that in conjunction with the above reforms, this full reform scenario would take switching levels to 4.5 million or 9.3% of the market switching annually.
Donaldson adds: “An open current account market will give consumers power, allowing them to easily switch from banks that don’t meet their needs. Therefore an open switching market, like the one described, will allow consumers to actively seek out what they want and need from a banking partner, forcing banks to put their customers first. Consumers will switch because they have a positive reason to move like improved customer service, and because they believe in the bank they are choosing. This makes switching a positive experience and will ensure that banks are designing their services with customers in mind.”
A brief Mindful view: It is clear the High Street banks have, for many years, relied on a lack of competition. At best, this led to complacency, the banking version of resting on their laurels. At other times, it has encouraged bad service or at worst misselling with customers seen as little more than cash cows. There are many reasons for customer inertia. Among other things, bank customers fear what would happen if everything from the salary payments to direct debits went wrong after a switch. There is definite a sense of better the devil you know. They also like to have a good relationship with their bank who they may want to borrow from one day. But if Metro, which sets out its stall as a bank that really cares about its customers, is correct the terms of engagement may be about to change. Genuine competition may see banks raise their game and about time too.