Switching banks: new apps proposal gets cold shoulder
Just 1m out of 65m current account holders switch to a new bank each year. Can the regulator force more people to change for the better?
After a two-year long investigation into the retail banking sector, the competition watchdog has finally published a list of measures to boost the number of people switching bank.
The main remedy, as the Competition and Markets Authority (CMA) calls it, is its ‘open banking programme’ which will force banks to share customer data with other banks and third parties on new apps.
This could help consumers find the best deals and prices for their own personal circumstances.
While the measures are a sign of long-overdue progression in the banking sector, the response from many parts of the industry has been lukewarm.
“While the CMA has made some positive proposals, we don’t believe they will have an impact in the short to medium term to help millions of customers get a better deal from their bank,” said Tesco Bank chief executive Benny Higgins.
Kevin Mountford, banking expert at MoneySuperMarket, went further, saying: “Those looking for wholesale reform of the banking market are likely to be holding their heads in their hands this morning. The CMA’s final remedies are more ‘gently does it’, as opposed to the seminal, watershed moment for British banking that many had been looking for.”
The main issue is the measures will help people who have decided to switch but don’t do much to encourage people to make the decision to switch in the first place.
So what can be done to get people switching? We know just three million people switched banks in the last three years out of an estimated 65 million current account holders in the UK.
Well, the banks’ answer is making more information, more readily available to people.
“Customers have a right to know what they are paying for their bank account and what they receive in return. We continue to believe that if that information was readily available far more customers would switch accounts,” Higgins said.
But the truth is people’s fears are stopping them from switching.
Fear of flying
Firstly, they are scared of sharing their bank details. Of all the personal details we’re told to never share on the internet, bank accounts come close to the top. The CMA may say data will be shared safely, but consumers will need more assurances.
Secondly, they are scared of interrupted service when they switch provider. When we switch energy firms, we know we won’t be left without electricity while the switch takes place. We need the same assurance when it comes to our direct debits and standing orders.
As James Daley, managing director at Fairer Finance, says, as long as it remains a manual service, where one account has to be closed and another one opened, people will fear that things will go wrong.
Daley says the CMA missed an opportunity by not introducing portable account numbers, like those used when we switch mobile network.
“If people knew that they could switch their bank like they switch their gas and electric – we’d certainly see more people move. They could even continue using their old cards and cheque books until their new ones arrived. The transition would be truly seamless.”
According to research by comparethemarket, more than half of UK adults say they would be more likely to switch if they could take their account number with them.
Of course, consumer inertia is a big problem when it comes to getting people to switch but doing more to allay people’s fears will make more a difference than sticking piles of information in front of them.