Government promotes new £750m IT system that allows customers to swap banks quickly to promote competition
A cast of animated characters will hit television screens in September as part of a campaign by the banking industry to encourage customers to switch bank accounts.
They will also appear in newspapers, magazines and on billboards as banks strive to prove that they do not need a full-blown competition inquiry to get customers to move current accounts.
Under instruction from a government keen to foster competition on the high street, the banks have spent £750m designing a new computer system that allows them to speed up the time it takes to shift current accounts between each other. The change could break the stranglehold that the big four – Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC – have on the current account market.
Such is the sensitivity around the programme and the determination to ensure it is not accused of being behind schedule that the payments council, which is overseeing the process, refuses to disclose when the switching service will begin. But the 30 banks and building societies participating in the project are embarking on last-minute system tests to allow the service to begin on 16 September. The service guarantees that accounts can be transferred in seven days without glitches.
On Monday the payments council wrote to the government to reaffirm that it is on track. Any suggestion that the project is falling behind schedule is quickly quashed by bankers amid rumours that banks have back-up systems where they deploy staff to change direct debits manually. One senior banker said: "We have so little credibility left, this is going to be a big chance to put it right."
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| The plans hope to encourage customers to move accounts and make banks offer a better serviceThe switching service was spun out of the review by Sir John Vickers in his independent commission on banking, which found there was little movement between customers of the big four, which have a combined market share of 80%. It allowed the banks to head off a move to account portability – more akin to moving a phone number between mobile phone providers – which they argue is expensive.Last month's parliamentary commission on banking standards put portability back on the agenda and the government will commission a new review next year. |
A functioning switching system will be the banks' main defence against portability. This government is not the first to try to bolster competition. More than a decade ago Labour tasked Don Cruickshank, former head of the then telecoms regulator, with investigating the banking industry and he, too, highlighted the problem. Since then the business has become even more concentrated in the wake of Lloyds' rescue of HBOS, the main challenger, five years ago.
Ian Gordon, banks analyst at Investec, said: "It has been an objective for ever, with limited success. I see this as a means to attempt increased portability of current accounts. Whether it will succeed I'd be a little bit sceptical because of entrenched consumer behaviour."
Motivating customers to move accounts could be one way to change behaviour. However, a statistic bankers often quote is that people are more likely to divorce than to switch the provider of an account into which salaries are paid and direct debits paid out. Bankers acknowledge there is a danger that customers end up moving their accounts among the big four, doing little to change the market share the government is trying to break, unless new-style products are brought to market. Lloyds will itself inject a new entrant into the market in early September when it spins out TSB – demanded by the EU in return for £20bn of taxpayer money pumped into Lloyds in 2008 – after a sale of the business to the Co-operative Bank fell through. RBS is also carving out a branch network at the behest of Brussels because of its £45bn taxpayer bailout.
Others such as Tesco Bank are not joining the switching service at this stage, but are expected to join a second wave of participants. A spokesperson for Tesco Bank said: "We plan to join the second wave of testing for this service in November 2013, which is expected to support a launch of the product in 2014." Norwich & Peterborough, which is the only one of the second-tier building societies to offer current accounts, has also said it is not taking part in the September launch, but hopes to join the scheme in the future.
However, Sir Richard Branson's Virgin Money is also taking part in the switching service, even though it does not have current account products in its range. Tesco expects to launch a current account next year, but Virgin could have one on the market before year-end.
To encourage customers to shift, the banks may need different products. The big four largely offer free in-credit banking and would face a public backlash if they started to charge for transactions. First Direct, an arm of HSBC, is offering cash rewards to new customers. Nationwide building society is also aiming to win new business through a big push of its existing products. Others may charge for their service. When Marks & Spencer launched into banking, every current account was an "added value" packaged account – offering add-on services – charging £15 to £20 a month. The payments council has told the government it will judge its success on the level of awareness and consumer confidence in switching. But it refuses to set a target. In 2009, around 600,000 accounts were switched, and the total doubled to 1.2m last year.
Article Source : http://www.guardian.co.uk
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