Faster switching: The Winners and Losers

How long does it take to switch bank accounts? Ten days? Two weeks?

According to the Payments Council the current “best time” achieved by account holders to successfully switch to another bank is 18 days and it can take as long as 30. And this isn’t just in the UK. Mystery shoppers taking part in a survey carried out across the 27 states of the EU last year found trying to change banks is a very tricky business indeed.

“This transformation in the market can be used to innovate
product offerings to attract customers”

When they attempted to switch bank accounts, only one in five (19 per cent) did so successfully. Would-be switchers found banks to be generally unhelpful. Bank staff didn’t understand the switching process themselves and could provide only patchy information about how to do it. And in some cases, rather than welcoming the new customer with open arms, new banks actually refused to open a new account until the customer’s salary was received. Rarely did the full switch take place within the 14 days that EU banks aim to achieve.

It’s little wonder that fewer than one in ten people (8 per cent) switched or attempted to switch their personal account over the five years to 2010, according to the Payments Council.

Getting into gear

When it comes into force next September will faster switching “kick banks into gear”, as Craig Donaldson, chief executive of new entrant Metro Bank hopes? Will the new regulation actually do what it sets out to do and not only simplify the lives of consumers, but increase competition among the UK’s banks? Will customers be flocking in their droves to new entrants? And who stands to win the most?

These are the questions new research from Simon-Kucher & Partners, a global consulting firm specialising in pricing and marketing set out to answer in a recent research study.

The consultancy found that although faster switching will probably encourage customers to switch banks, they are most likely to stick with the ‘devil they know’ – one of the ‘big five’ banks.

Almost half – 49 percent – of the UK current account holders the consultancy spoke to in January said they are likely to consider switching their account when the new regulation comes into force. They see the main benefits as:

  • Speed and simplicity (83 per cent)
  • Assurance of accurate migration of direct debits and receipt of salary payments (83 per cent)
  • Ease of trying another bank (73 per cent)

The survey concludes that in reality, switching rates are likely to double from today’s 2.5-5 per cent to 6-12 per cent as a result of the new rules.

Winners and losers

When asked which banks they might consider switching to, respondents were more cautious. While they are definitely interested in the challenger brands and mutuals, more than seven out of ten (73 per cent) of them say they would opt for one of the top five banking brands.

By comparison only just over a third (37 per cent) would consider switching to a ‘challenger’ brand, and just under a third (29 per cent) said they would move their account to a mutual such as a building society.

Among the new entrants Virgin Money is most popular. The top four brands that would attract current account customers areTop Seven High Street Banking Groups

  • Virgin Money Tesco Bank
  • M&S Money
  • Sainsbury’s Bank

When it comes to the established players, the Cooperative Bank, Nationwide and HSBC are set to become net beneficiaries. They have the greatest relative appeal compared with their current market shares. These were followed by Santander and RBS in equal fourth place, followed by Barclays and Lloyds Banking Group.

Banks and building societies are setting out their stalls to welcome switchers. Nationwide is promoting its mutual status, while Metro Bank’s website promises “Metro Bank already makes it easy to switch accounts. Customers can walk in from the street and open an account, and our dedicated switching team will handle the entire seamless switching process for them”.

The price of loyalty

But is greater convenience really all that customers are looking for?

The survey found that customers could be bribed for their loyalty with incentives such as one-off gifts of £100, and better interest rates on savings and current accounts.

Such tactics are likely to offer only short term gains for banks: customers might even be tempted to play the banks at their own game by accepting a cash incentive for their loyatly from their old bank before defecting to a new one for a similar amount.

Significantly, the Simon Kucher survey found – in line with BT’s Smart Service research – that online banking is the main feature that attracts current account holders when looking for a new bank. This suggests that a longer-term bet for banks is devote their energies to improving their offerings – delivering better and seamless service across all channels, for example.

As Jens Baumgarten, banking partner of Simon Kucher & Partners puts it: “There are opportunities for banks to understand the price of loyalty in order to retain these customers and protect their market shares…[] This transformation in the market can be used to innovate product offerings to attract customers, but also gives the opportunity for banks to review their pricing models”.

The Simon Kucher Current Account Study was conducted in January 2013 in England, Scotland, Wales and Northern Ireland among 1063 respondents

Read the Simon Kucher releases on seven-day switching: Key reason to switch current accounts: speed and simplicity; High Street banks maintain dominance – competition from challengers and mutuals

 

Comments

  1. Dave Walker says:

    There’s a further angle to this, around looking at the problem from a resilience perspective.

    Following the unexpected (and more importantly, unexpectedly prolonged) RBS / Nat West service outage(s), I’m not surprised that new interest has been provoked in how protracted the process is, for changing bank accounts – however, I’m a bit surprised that little attention seems to have been paid so far, to the idea (and ease) of running multiple bank accounts of the same type, with different banks, to mitigate the risk of outages affecting one bank.

    As an individual, it’s possible to run multiple current accounts, just about – although the ones with the best benefits require a minimum monthly pay-in, and for people only running one job or contract at a time, it may be difficult to persuade their employer to split their salary across multiple accounts. An easier option for maintaining multiple current accounts, provided a float can be kept in all accounts, would be to have salary paid into one account, which then has standing orders to pay into the others.

    Resilience in paying-out mechanisms is a much harder problem, in the face of an outage – primarily because the bank suffering the outage would not be able to cancel payment instructions.

    This latter problem is magnified in business banking, unless the business is doing sufficiently well that it can afford to keep a month’s payroll (say) in every one of its current accounts.

    Does this merit further discussion?

Speak Your Mind

*