UK account switching service lures a million customers in its first year

UK consumers are increasingly willing to switch – but progress remains gradual rather than sudden

Just over one million UK consumers have switched their current accounts using the UK Payments Council’s seven-day switching service during its first year of life, according to new figures released this week , ahead of the first anniversary of the service – but some observers believe more change is needed.

The account switching service was introduced in September 2013 by the UK Payments Council, as part of a government-led drive to improve competition in the UK retail banking sector. The 1.1 million switches recorded represent a 19% increase compared against the same period one year earlier (925,985 switches).

The service covers 34 current account providers, which represent nearly 100% of the current account market in the UK. The average time to process an account switch prior to the service was between 18 and 30 days, according to the Council. The new service guarantees it within seven working days. Customers do not need to talk to their old bank when they make the decision to switch – instead they simply choose a new bank, and the new bank will handle all communication from there.

However, not everyone is satisfied that the account switching service has achieved its goal of increasing competition between UK retail banks and thereby prompting better services for the consumer.

“Switching was designed to stimulate competition, but if the choice of products on offer is broadly similar, then it makes justifying the change of account hard,” said Alex Kwiatkowski, senior analyst at IDC Insights. “If you can’t differentiate on product, then it leaves service. And, frankly, we’ve seen/heard lots of promises about delivering a better user experience, but not much evidence of it in reality. Hence customers might not feel motivated to switch, only to find that there’s no improvement.”

It has also been pointed out that breaking the hold of the UK’s largest banks will not be easy. RBS alone has 24 million customers in the UK, while HSBC has 16 million and Santander 14 million. At current levels of switching, it would take approximately 15 years to switch an equivalent number of customers even when switches between all banks are included.

“I think it has certainly promoted competition on the banks’ side, in driving more focus on competitive pricing/ innovation with current accounts,” said Dan Mayo, director, data tools and insights at Ovum. “The issue is that perceived switching costs is only one of reasons behind relatively low customer churn rates in retail banking. Costs are relatively low for current accounts compared to most financial products and generally spread out, so I think there will also be a degree of lethargy while we have nominally free banking. The key question for me was whether the increase would be sustained after the initial launch, but monthly figures seem to be relatively stable.”

“The low business banking figures are more surprising to me,” he added. “There are higher costs usually for business accounts, so theoretically creating incentive to get a good deal here. SME banking was certainly one of the key areas of concern in the Vickers report, so will be interesting to see whether government drives more initiatives in this sector.”

Despite the expert misgivings, public response to the service itself appears to be largely favourable, with the Council reporting that 88% of consumers who used the service felt there was very little effort involved on their part, and 87% of small businesses found it easy to move accounts. Beyond this, 70% of the general public are now aware of the service, according to the Council.

“The service was designed to make life easier for customers by removing barriers to switching, with the aim of boosting competition in the banking sector,” said Gerard Lemos, executive chairman of the Payments Council. “It’s clear from reviewing its very first year that it’s made great ground – empowering customers with the ability to switch their bank account easily and quickly if they choose to do so.”

A breakdown of the full data for the first year reveals that the number of account switches under the guarantee has remained largely stable since January 2014, ranging between 81,000 and 93,000 per month. The largest single month was October 2013, when 109,456 switches were made using the guarantee. The lowest was December, when 74,276 were made.  The most recent was August, when 93,555 guaranteed switches were made.

The figures also count separately the number of customers who made a switch, but kept their old account open and therefore did not receive the guarantee. These account for just over 100,000 in total since the service was launched.

Surprisingly, the Payments Council itself acknowledged that “Switching levels are not in themselves the truest indicator of whether the new service has been a success or not. This is because low switching volumes do not necessarily indicate that the personal current account market isn’t in a healthy and competitive state.”

It also noted that customers may be making a conscious decision not to switch if they are satisfied with the service they are receiving from their existing bank, and added that it was possible that all banks and building societies have “felt the need to ensure that their products and services are delivering what is required to not only attract new customers but to keep their existing ones.”