/ Money

Give us a reason to switch, not just a golden handshake

Handshake against yellow back ground

The Payments Council’s free switching guarantee comes into effect today. If anything goes wrong, your new bank will refund any interest paid or lost on either your old or new account. Sounds good so far, doesn’t it?

But half of people have never switched bank account, despite the fact that some could make significant savings a year in bank charges and credit interest by switching. For the new service to be truly successful it will need to significantly transform switching rates from last year’s tiny 3%.

Which? will be monitoring the new switching process and has developed seven tests to assess how it is working for customers.  On its own, the seven day switching service won’t necessarily transform competition in banking so we also need ministers to keep driving forward wider reforms to improve culture, standards and competition.

It’s no surprise people don’t switch at the moment when trust in banks to act in the best interest of consumers is currently bumping along at just 37%. The cost of the PPI mis-selling scandal, now more than double the cost of the Olympics, and the catastrophic IT failures over the past year, have all contributed to endemic distrust. People understandably don’t believe that one bank is better than another. But once switching is easier, it will be up to the banks to convince them otherwise.

Wooing customers with tempting offers

In an attempt to do this, we’ve already seen banks wooing potential new customers over the last few weeks with tempting money offers and cash back debit cards. While appealing, consumers should be wary not to let these offers become the sole basis of their decision to switch. Switching to the wrong account could cost you far more in the long run than any of these offers.

The problem is if the banks just throw money at people, rather than use better customer service or better value products to attract new customers, then consumers might be sucked into ignoring the more important considerations when moving to a new bank, such as whether the account will suit their financial situation and how much it will cost them to manage their money.

A cash incentive isn’t a problem if you have already decided to switch based on customer satisfaction scores or if you have checked the overdraft charges, or the in-credit interest rate. However, this is far from easy to do. When we gave a group of bank customers a mock statement to calculate the cost of using an unauthorised overdraft, not a single person managed to get the calculations right – despite one volunteer studying for a PhD in maths.

Comparing the costs of a current account

Instead of clouding people’s judgement with one-off rewards, banks need to make it simple to compare the cost of running a current account so people can pick the one that’s right for them. They need to give customers a reason to switch to them, not just a golden handshake.

The biggest reason people leave their banks is bad customer service. Rather than throwing cash incentives at the problem, banks should show customers that they’ve learnt from their mistakes by offering better service and more competitive products.

Clearly the biggest banks have a lot of work to do. In our most recent bank customer satisfaction survey, the high street giants Barclays, Halifax/Bank of Scotland, HSBC, Lloyds, NatWest/RBS and Santander all scored below average.

No one should stay with an unsatisfactory provider simply because switching is too much hassle or because they think it won’t make a difference. It can and it should.

In the meantime, as the banks embark on an advertising blitz to entice new customers, they need to think seriously about how they can keep their current account holders happy and what tangible benefits they can provide to new customers, beyond a one-off bait.

Comments
Profile photo of lessismore
Member

Yes, but how about trying to change from TSB to Lloyds because that is the bank you chose and which you’ve been with for three-quarters of a century. I think a lot more consideration should have been given to customers!

Member
Richard Brown says:
18 September 2013

You don’t mention some of the additional benefits such as free breakdown cover that some Lloyds account holders enjoy or even stuff like free access to the Royal Academy enjoyed by Barclays Premier customers. These additional benefits, if us used, can easily outweigh other charges and should be borne in mind when considering switching.

Profile photo of william
Member

I really think the Payment Council has dodged the proverbial bullet on this one. I would have preferred them to tightened the rules and reduce timescales on Cash ISA transfers. I’ve been with my current bank ( its my 3rd one in total) for over 20 years now, and I have no reason to switch, as going by all the polls the only way for me is down.

Cash ISAs on the other hand, allow 15 days to make a transfer, and make no mention of having your money work for you in that time, just that the money work from the day it arrives. So in my experience the last cash ISA I transferred, provider A closed the account on day 1 and the money didn’t materialise into the new account until day 15 , so effectively losing me all that interest. And I suspect there are many more ISA transfers a year than bank account transfers.

Profile photo of lessismore
Member

I’d rather that bank accounts weren’t sold like utility accounts and internet accounts There there appear to be complicated deals that nobody remembers all the small print on sold on commission and what follows is a stressful and painful period dealing with customer services as a lot of the deals aren’t suitable for the customers. So much for competition – it is competition to find who has the best customer services instead of the happiest customers.

Member
Maxine says:
21 September 2013

Last year I changed my bank account to First Direct Bank. I like the way they answer the phone quickly and are based in England. Having an on-line bank account is excellent and they gave me a £125 pound welcome. I took out a regular saver which had an interest rate of 8%. Now the people starting one will only get 6% interest. I would very much recommend First Direct Bank for people wishing to pay in £1000 or more each month.

Member
Pete Nisbet says:
18 November 2013

Having been a Lloydstsb customer for all the years they have been joined up , I was previously with Tsb and Edinburgh savings bank etc etc some 60 years in total , however when they (Lloyd’s ) we’re made to offload TSB I have had a horrendous time trying to get all my business moved to TSB , I have lots yes lots of paperwork probably in excess of 25 some saying thank you for wishing to transfer to Lloyd’s , I was already with Lloyd’s and on changeover day my Current account was moved to TSB but nothing else and lots and lots of phone calls later my ISA’s were transferred to TSB , getting better , I asked about my Credit cards but was told I had to apply for new cards and then was told my balances would be Automatically transferred within 7 days , this was now more than 14 days ago , I have been given some compensation for all the telephone calls and sheer hastle since the movement of my current account , I have lost track of the number of calls made and the number of people I have spoken to about these issues, and I still wait for what has been promised ! I am probably not going to get what has been promised but can only live in Hope