Bank account switching remains surprisingly uncommon even when consumers are given tools designed to make the process easier. In the UK, regulations have required banks to simplify the transfer of accounts, direct deposits, and recurring debit transactions from one financial institution to another, removing many of the practical obstacles that traditionally discouraged customers from changing banks.
Despite extensive promotion of easier switching and financial incentives from banks seeking new customers, relatively few consumers are taking advantage of the opportunity. The experience raises questions about what actually drives banking loyalty and whether convenience, familiarity, or simple inertia may matter more than financial incentives when consumers decide where to maintain their primary accounts.
In one of his blogs, Chris Skinner took a look at the rate of consumer checking account switching in the UK. This is an interesting view into consumer banking habits. In the UK, banks have been required, by regulation, to make it easy for a consumer to switch their bank account, their established direct deposit and recurring debit transactions from one institution to another. Despite nation-wide promotions letting consumers know that bank account switching had been made easier and banks’ attempts to lure consumers in with rich rewards, this blog reviews the supporting data and reports that very few consumers actually do:
Switching has been a focus of the Competition & Markets Authority, regulators, government and more, and yet promoting people to switch is not working. According to the latest stats, there are around 70 million deposit accounts across the UK, with the average citizen having 2.4 accounts, and yet we’re only seeing a million account switches a year. That’s about 1.4% who switch, whilst 98.6% of customers can’t be bothered.
This is lower than before the account switching regulation came into force in 2013. Leading up to that regulatory change, a parliamentary review brought the CEOs of the mainstream banks and asked them how many customers switch.
So banks had to invest in the technology, operations and human resources to make changing banks easier, and it’s no being used. As open banking begins to roll out, we will have see if this changes consumers’ minds about where to bank, or if most of the services consumers want are provided by third party processors, then where consumers’ balances are held become even less important.
The limited adoption of bank account switching suggests that eliminating logistical barriers alone may not be enough to persuade consumers to change financial institutions. Banks have invested in the technology, operations, and personnel necessary to support easier transfers, yet the percentage of customers actually switching remains small.
This behavior has significant implications for financial institutions attempting to attract customers through promotional offers or improved switching processes. Consumers may perceive relatively little benefit in moving an established banking relationship, particularly when their existing account already meets their basic needs. Familiarity with a bank’s services and the perceived inconvenience of changing financial relationships may continue to outweigh incentives designed to encourage switching.
Open banking could introduce another dimension to this issue. If consumers can access financial products and services from third-party providers without moving the accounts where their deposits are held, the importance of the primary banking relationship could change. Customers may be able to obtain better services or functionality without completing a traditional account switch at all.
The UK experience therefore demonstrates that bank account switching is not simply a matter of removing procedural obstacles. As open banking develops, financial institutions will need to understand whether consumers become more willing to move their primary accounts or instead maintain existing deposit relationships while using third-party providers for an increasing share of their financial services.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group
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