Current Account Switching Rates Drop by 5%
The number of people switching their current account fell by nearly 5% over the past 12 months, despite a range of incentives being offered to customers who do switch.
This latest data comes from Bacs, the organisation responsible for the implementation of the Current Account Switching Guarantee, a series of commitments designed to ensure a smooth switch with no loss of funds or any other service during and after the process.
Back in 2013, the 7-Day Current Account Switch Service, based around the Guarantee, was launched in a bid to improve competitiveness among bank account providers by facilitating ease of movement between them for customers.
Since then, banks have been offering various incentives, including cash back, to customers in order to convince them to switch. These incentives have been fairly successful, but as these latest figures show, there still appears to be more room for improvement.
Over the past year, Bacs reported that 1.05 million customers switched their current account - 4.7% fewer than did the same during 12 month period before. There was some good news, in that over the first six months of 2016, 4% more customers switched than during the first six months of 2015.
However, the annual drop will come as both a surprise and as something of a call to action to the Financial Conduct Authority and the Competition and Markets Authority, both of whom have been struggling to find ways to further incentivise switching.
The CMA has been working on an 18 month investigation into current account switching and competition in the banking sector generally after it emerged that the Big Four (RBS, Lloyds, HSBC and Barclays) still retain more than 75% of the market. The CMA claimed that customers who do switch could be savings up to £116 per year.
Hannah Maudrell, editor of an online advisory service, said that still, though, something isn’t working.
She said: “With 65 million account holders in the UK, movement is minimal.
“Even with big cash incentives on the table, people just aren’t switching.”
Among these ‘big cash incentives’ including one-off lump sums offered to customers who switched, ranging from £125 from Halifax, to £220 offered by Marks and Spencer’s bank.
Bacs also released data showing which banks had been the most (and least) popular among switchers.
At the top was Halifax, with a net gain of 31,181 customers, followed by Nationwide with 25,150, TSB with 9,604 and Santander with 3,592.
Down at the bottom, the biggest loser was Barclays, with a net loss of more than 27,000 customers, followed by Nattiest, who lost 13,928 and Royal Bank of Scotland, who lost 11,430, narrowly pipping Lloyds, who lost 11,015 customers.
Santander had been doing better, but since they increased the pricing on their popular 123 account, their net gains have been falling.
As online financial journalist Andrew Hagger explained: "Details of the intended price hike first came to light on 14th September 2015, and it appears to have had a dramatic impact on the net number of new accounts opened.”
Separate research has shown that this latest drop in switching rates is not merely a blip, with just 3% of current account holders in the UK switching provider each year. According to the CMA, more than 35% of customers have had the same current account for 20 years or more, and 57% have not changed provider for 10 years or more.
This data has prompted a special Treasury committee to urge the CMA to shift their focus away from simply promoting switching, with one member, Caroline Barr, explaining: “Competition should be working with the grain of how consumers behave, not trying to get tens of millions of people to change their behaviour.”
Barr argued that instead, what customers would be wanting was more incentives to stay with the same provider.
“People don’t want to be changing their bank every five minutes,” she said, “they think their loyalty to their bank will be rewarded.”
However, the issue with loyalty discounts as opposed to switching discounts or offers is that they are somewhat more difficult to come by. Under the current system, switching often can allow a customer to benefit from several different cash back offers in succession.
With the various guarantees in place, all existing payments and direct debits will be transferred to a new account by the previous account provider, without any input needed from the customer.