The Current Account Switch Service was introduced with a minimum of fuss and, in the face of continuing revelations about rate-rigging, mis-selling, rogue-traders and the rest, it will help the industry rebuild consumer trust. Now it is easier for customers to take their business elsewhere, banks will have to pay a great deal more attention to their views. However, while there is no question that the Service is a good thing - as it will also facilitate more competition amongst banks, while benefiting consumers - it may be beneficial to review the developments objectively.
The Service is the result of one of the few recommendations of the Parliamentary Commission on Banking Standards to have been implemented in full, which indicates that there is strong support. Given that a lot of hard work from the banks has made the introduction relatively painless for customers, we have to question why it took government intervention to bring the scheme about, and why it took so long. The answer to the first is probably to be found in the loss of switching revenues (as customers will not have to pay penalty fees any more), but the second is harder to answer. Given that the regulations will, in time, make the introduction of more transparent pricing into their products compulsory, the delays in implementing such changes are somewhat surprising.
Indeed, not only has it taken a long time to introduce, but the regulation could have gone further. The service is still only limited to current accounts and the customers end up with a new sort code and account number. Therefore, customers cannot sever relations with their old bank without transferring multiple facilities. Full account number portability (and even international account number portability) would have an even bigger impact upon competition than the current regulations - just as phone number portability did in the telecoms industry. The new Payments regulator is mandated to review full account number portability, and it would be surprising if this were not introduced in next few years, as advances in process automation and other backend technologies make it easier and more practical to achieve.
After all, competition is good for the industry as a whole and, therefore, good for individual players. Even though we have yet to see the full impact of the Account Switch Service, we are in the midst of more customer-friendly services from retail banks, such as instant mobile payments, same-day card replacement and emergency cash facilities; the reception has been very positive. Research suggests, however, that the actual impact of the Account Switching service on customer churn will be limited, so we cannot attribute recent 'digital' innovations from the big five retail banks to the influence of regulations alone. So what is going on? Why have we not seen faster change in the retail banking, and now that we are seeing more change, what is causing it?
Well, one factor for the prolonged period of inaction is technology. Pre-2008, after all, was pre-smartphone and pre 3G - on the banks' side it was pre-flash memory and pre-automated storage tiering. Social media and other digital technologies now mean that a customer advisor is only a swipe of the screen away - and customers can instantly make any dissatisfaction a matter of public record. Similarly, a bank account is no longer just accessed at a bank, but is simply part of the personal ecosystem of information that lives in the cloud which can be accessed through multiple consumer personal devices. At the most basic level, the technological advances of the last six years have made it easier for customers to request information, and much easier for banks to access it, and that lies at the heart of the banks' recent innovations. The key differentiator lies in providing an optimal customer experience across a wide demographic distribution of customers.
However, even as the banks catch up, technology continues to develop at pace and is becoming more and more disruptive. In a new and more competitive environment, banks ought to be thinking about what customers will demand in three to five years' time, not just what they are asking for now. The account switch service has made 28-day account switching seem like an anachronism overnight, but why stop at seven days? The technology exists to make 24-hour switching possible, if the market demanded it, and the 24-hour mortgage, or a 24-hour pension really ought not to be beyond the realms of possibility. How quickly we see that will be down to how strongly consumers demand it and the Account Switch Service gives them a powerful enabler with which to do so.
Time will tell what the true impact is, but the ease of switching should mean that Tier 2 banks, global players and agency banks will have greater confidence to develop innovative products to attract customers from the established players, who will, in turn, have to take customer retention more seriously. This in my view will leads to a much higher level of product differentiation amongst retail banks in the UK. There is much work left to do, and we must trust that our banks continue to offer a better customer experience using 'seamless' technology and underlying processes.