At the introduction of lockdown in March, the major current account providers delivered a very clear statement to consumers, neatly summed up by a spokesperson from the Royal Bank of Scotland:
During this difficult time we are focusing all our efforts on doing as much as we can to help our existing customers. We are therefore withdrawing our current account switcher offer with immediate effect.
The same message reverberated from the likes of HSBC and First Direct, both of whom had been offering new joiners financial incentives.
On the surface, this introspection appeared to make sense. In a time when there was so much uncertainty around everything we have come to consider ‘normal’, customers would be adjusting to unfamiliar circumstances and banking was no different. Transition was coming.
For many customers, particularly those of a certain generation, lockdown meant that regular visits to their branch were put on hold. According to data collected by Ipsos MORI’s Financial Research Survey (FRS), the proportion of those using branches to manage their current accounts dropped by almost 10% between April and June 20201.
Changed engagement with current account providers and a lack of financial incentives to move elsewhere resulted in a significant drop in the number of consumers using the Current Account Switching Service (CASS). Data from CASS indicates that in July 2019 there were 82,000 current account switchers, but in July 2020 this figure had dropped to 30,000.
Current accounts, often operated at a loss, can be considered the foundation blocks on which a relationship with a customer is built. There is plenty of evidence to suggest that consumers will hold multiple products with the provider they identify as being their main current account. With that in mind, banks were unlikely to put their entire focus on existing customers for long.
Halifax and RBS both returned to the market over the summer, offering new joiners £100 for switching and a further £5 per month based on certain criteria being fulfilled. These are generous offers and have been successful in the past. Lloyds have also introduced a £100 incentive, but on a packaged account, an account that offers certain benefits but with an associated monthly fee, something that has turned people off moving in the past. HSBC are also returning to this market with an offer to trump the competition, £125 cash and access to a saver account with a generous 2.75% interest rate.
So why now? What other incentives are there for the largest banks to re-introduce offers like those above? I believe there are a few reasons why taking these actions now makes sense. Firstly, people have had more (and in many cases different) interactions with their banks than they would have had in normal times. For a minority, this will have created friction and led to them resolving to look elsewhere. In fact, we can see that 8% of current account holders are considering switching; higher than it has been in the past two years2.
Secondly, the two most popular reasons for choosing a new provider are location (of branches) and cash incentives. With increased use of online banking services, branch will play a less significant role in future switches. That leaves incentives as the primary motivator; having the most attractive proposition will give providers an advantage over the competition.
Finally, there has been a lot of competition in the market for new current accounts from brands collectively described as the neo-challengers; the predominantly digital banks, the best-known of which are Monzo, Starling and Revolut. The pandemic has not been particularly kind to some members of this group. There has been plenty of speculation about their ability to make a profit and even talk of some exiting the market. The current account switching service has never had a huge uptake, but for the reasons above, I would certainly expect it to return to the pre-pandemic numbers over the coming months. The big question is which providers will be the biggest beneficiaries? We at the FRS will be monitoring the situation closely.
1: Ipsos MORI FRS; All current account holders 16+, 58% visit branch in April vs. 53% in June, 3m rolling data
2: Ipsos MORI FRS; % of all current holders likely to switch in the next 12 months, 6m rolling data
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