Does 7-day account switching really empower customers?
Does the UK's new seven day account switching rule really herald a revolution in customer relationships in the financial services sector?
The UK’s new seven day account switching rule, introduced last year, has important implications for customers and banks alike. But does it really herald a revolution in customer relationships in the financial services sector, asks Morten Dyrmose.
Statistically speaking current account relationships are more successful than marriages. According to the Payments Council, the average customer current account relationship lasts 17 years – a great deal longer than the average UK marriage of 11.5 years.
However, the fact that customers rely on the same provider for such an essential service for close to two decades, may be a sign of inertia and apathy rather than a mutually beneficial relationship.
The good news is that changes are afoot. In the past it took between 18 to 30 business days to switch current accounts. In addition, each bank having its own account transferring procedure often resulted in issues and delays. From September 2013, this process was reduced to seven working days by the Current Account Switch Service, with one uniform procedure for participating banks and building societies.
Peace of mind for the customer
What does the seven day account switching rule entail? The new bank will move across all your existing direct debits and standing orders. Moreover, your new bank will also automatically make provisions for any regular payments you receive (e.g. your salary). If your new bank makes any mistakes during this process that result in you being worse off financially, the bank is obliged to compensate you (i.e. cover any penalties or fees), guaranteeing peace of mind for the customer.
Increased competition in the current account market is the ultimate aim of the switching rule, based on research by the Independent Commission on Banking that found that the four largest UK retail banks controlled 77% of personal accounts (2011).
Current accounts: Another white label product?
‘Commoditization’ may be the key to understanding the potential impact of the rule. Today we can all use comparison websites to find the best current account deals and, coupled with the simplified switching process, there is little that distinguishes bank specific accounts. Rationally, we should expect customers to change banks more frequently – current accounts should become just another white label product.
And yet banking is relationship-driven, it is built on trust and habits. If we were truly rational, we would all use internet-based banks now. The seven day rule is a step forward in consumer protection and convenience. It makes it easier for dissatisfied customers to vote with their feet, but it may not be the game-changer that the government hoped for.