According to Adrian Kamellard, chief executive of the UK Payments Council, there were 306,240 retail bank account switches, representing a 17% increase, from October to December last year, following the launch of the UK Current Account Switch Service. In this blog assessing its impact, Kamellard looks at the history of the project, its purpose to encourage more competition, consumer awareness and the challenges so far, plus how it will affect the UK banking sector in years to come.
The Current Account Switch Service in the UK started last September with 33 banks and building societies signed up to offer access to the shared technology platform, which facilitates easy bank account switching with the aim of encouraging more competition in UK retail and transactional banking.
Technology-wise the central IT system on which the Current Account Switch Service is built is operating smoothly, with Bacs processing the switchovers as the operational platform provider behind the scheme. Every participating UK bank and building society has had to connect and integrate to the platform and are now incoporating the switch guarantee trustmark into their marketing efforts to encourage consumers to switch banks. The aim of the new service, which was launched after the Indepedent Commission on Banking (ICB) report which reshaped the regulatory and market structure of UK financial services post-crash, is to introduce more competition into the UK High Street banking market [which is currently dominated by HSBC, RBS, Barclays and Lloyds Bank Group -Ed].
The service is intended to make it as easy to switch your bank account as it is to redirect your postal mail with all your existing standing orders, direct debits and so forth automatically following you within seven working days when you open a new account at the bank or building society that you wish to join. [there is no account number portability (ANP) as there is with mobile phone numbers because this was deemed too expensive to implement as it would require every customer, even those not wishing to switch, to be given a new bank account number - see here -Ed].
During Q4 2013 there were 306,240 switches on the new shared platform, a 17% rise in switching levels which had totalled 261,122 in the last quarter of 2012. The increase was more marked for switches in the last month of the year, with 83,729 switches in December 2013 - a 54% increase on the same month in 2012 when there were 54,329 switches. We never expected that every customer who is tempted to switch would rush out to do so in the weeks after launch, but this is an encouraging start. The new service works and is attracting volume.
Background to the UK Current Account Switch Service
In previous years switching current accounts in the UK (known as checking accounts in the US) used to be seen by most people as a time-consuming and frustrating procedure. Individuals were put off switching as it was perceived to be too difficult, would take too long, and there was an underlying fear that something might go wrong with payments potentially going astray.
It was clear that something needed to be done to encourage more mobility in the UK banking sector and from 2011 onwards, following the ICB report, the Payments Council worked with current account providers and the UK’s payment schemes, to create the UK Current Account Switch Service [see my earlier blog with further historical background here]. The new service means that consumers, small businesses and small charities can now switch their current account from one bank or building society to another with confidence that the process will run smoothly, and will only take seven working days.
Tech Works and Customer Awareness is Rising
Since its launch both the central account switching system itself - which enables the old bank and the new bank to exchange the relevant customer information - and the redirection service have operated as planned with no technological problems encountered in the platform run by Bacs, using VocaLink technology. Similarly, no major connectivity issues have been encountered at the banks. UK customer switches are being successfully processed by the central switching engine and 99.6% of switches that successfully start are completing in the required seven working-day timescale.
Of course, it is vital that the new service works as it has been designed to, but just as important is that customers know about it, so a huge marketing campaign is underway. From the outset, raising awareness of the new service and its benefits has been a key objective for the industry, and a multimillion pound UK national advertising campaign kicked off at launch across television, radio, print and social media. There has also been widespread coverage in the mainstream press and a second burst of advertising began on New Year’s Day and is scheduled to run until March 2014. In addition, there has been a noticeable increase in individual providers’ own advertising campaigns as they strive to retain and attract customers and the Trustmark is gaining recognition.
In tandem with the operational and marketing efforts following the launch of the UK Current Account Switch Service, we at the Payments Council have also been measuring the customer awareness of, and confidence in, the new service using an online omnibus survey of 2,200 people aged 18 and over across the UK. The findings show that by December 2013 just under three-fifths (59%) of the general public were aware of the service. Customer confidence in it is demonstrated by 58% of respondents saying they are confident in how the new service works, with three-quarters agreeing that it would now be quick and easy to switch a current account from one bank or building society to another.
We have set out to eradicate any concerns customers may have had in the past about switching their current account, so this is an encouraging finding. If a customer wants to switch there should be no obstacles, real or perceived, to stop them. This ought to result in an improvement in the products, service and general banking experience that customers receive from now on. No longer can any current account provider be complacent about how they treat their account holders as it now much easier for them to leave for a competitor. I believe the barriers to switching have been removed and UK bank customers will no longer just stick with what they have if it is not right for them, with the 306,240 switches so far - a number rising all the time - testament to this trend.
Challenges Encountered and Future Impacts
The new service works and is attracting volume and customer awareness but, of course, there have been challenges along the way - principally that customers should ensure their correct name and address is listed with their existing bank. Since launch this has been the one key learning point regarding switching. Feedback from the 33 participating UK banks and building society brands has been that customers can help prepare for their switch by being ready to give their new bank or building society an up-to-date bank statement that shows their full details including their current address. This is because their switch could be delayed if the name or address provided by the customer to the new bank does not match that held by the old bank. Examples include if the customer has recently got married and not changed their maiden name to their married name, or if they have moved house and not given their old bank their new address.
Customers should also be ready to give details from their existing debit card to their new bank or building society to assist the switching procedure. This will help their switch commence successfully by enabling banks to run the various security checks that they need to do.
UK bank customers are now in the driving seat to secure the current account that best fits their needs and, with more and more of us not only aware of the UK Current Account Switch Service but actually using it, the long-term effect should be a better and more competitive banking service for all. This is the key impact that it is designed to have and I look forward to the next set of figures to further assess its impact. [The pressure for change and more competition in the UK retail bank market is still on, with the government opposition party leader, Ed Miliband of Labour, recently announcing a policy, if they get into government, to force further divestments of UK bank branches in order to encourage competition. The UK Current Account Switch Service is designed to do this in and of itself so its switching numbers will be scruntinized closely -Ed].