The Financial Health Exchange attended an event yesterday (19 April) on the subject of retail banking, particularly current account switching, with speakers Harriet Baldwin MP, economic secretary to the Treasury; Michael Chambers, CEO of Bacs Payment Schemes Limited; Ian Cass (aptly named), Forum of Private Business; Kevin Mountford, MoneySupermarket; Catherine McGrath, Barclays Retail Bank; and Edward Twiddy, Atom Bank.
Harriet Baldwin kicked the event off boasting the achievements to date of the Current Account Switching Service (CASS), revealing for the first time that volume of bank account switching in March 2016 is at the highest level since its inception, 20 per cent higher than in last quarter.
Indeed 124,615 current accounts were switched in March – the highest monthly total since the current account switching service was launched in September 2013. Compare that to the 74,723 current account switches recorded in January.
For context, the free-to-use current account switching service allows people to make an account switch in seven working days – compared with up to 30 working days before the service was introduced in 2013.
In press statements, Bacs pointed out that “market developments are behind the recent higher levels of switching, alongside a recent publicity drive about the service, which can be used by small businesses, charities and trusts as well as consumers.
Harriett Baldwin told the media: “I am delighted that the latest figures from the current account switch service (Cass) show record levels of customers taking advantage of the service.”
At the event, while Michael Chambers from Bacs argued that the success of the switching service has been largely down to product development, and the pressure to keep above competitors – which is a benefit to consumers whose needs have never been so actively listened to – Ian Cass from the Forum of Private Business reminded us that there is still a big piece needed on communicating the benefit of switching for certain groups, namely small businesses.
Edward Twiddy from Atom Bank, who drew a lot of attention from the panel by virtue of representing a relatively new and disruptive financial services organisation, mentioned the elephant in the room on retail banking competition: free banking. He said that Midland Bank created a major problem in offering the first free current account, which they did do back in 1984.
Twiddy asked, on free banking: “how is it being paid for? How is interest paid on it? It’s not free banking, it’s subsidised banking”.
When it comes to wider changes in the retail banking sector, Catherine McGrath from Barclays warned us against making simple assumptions about consumers. For example while many young people might enjoy using FaceTime and Skype it does not necessarily follow that they want to use these things for banking. This, it seems, was a warning to current account providers understanding the needs of younger consumers in making the switch to them attractive.
The Financial Health Exchange raised the point in the room that not all consumers enjoy the fruits of greater choice in retail banking, nor see how current account switching can benefit them. As the Competition and Markets Authority (CMA) working paper on current account switching found engagement is “lower among less advantaged groups and much lower among those who were most often overdrawn because those most overdrawn feel that they would be unable to change banks as other banks were unwilling to take them on”.
In April 2015, Which? carried out some research on the issue and found that people in higher socio-economic groups were “more likely to switch than those in the lowest (43 per cent of people in the AB group switched accounts in the last year, compared to 33 per cent of people in group DE).”
So while an increase in switching accounts is a positive for consumers as a whole, in order for competition to work for all consumers, no matter their income group, more communication on its benefits, and around people’s legitimate concerns, especially overdraft-users, is vital.