New hope for simplified banking

In August 2016, the Competitions and Markets Authority (CMA) unveiled its plan to make banking more transparent and easier for customers to get the service they need in the hope of increasing current account switching and competition within the banking market. 

‘Making banks work harder for you'

Following its investigation into the retail banking market, the CMA published a report at the start of August 2016, entitled ‘Making banks work harder for you’. This detailed its proposals for a range of reforms designed to give control back to you, the consumer.

They concluded that the larger, established banks do not tend to have to compete to get your business as these household names tend to be more trusted than the new, upcoming banks, who find it hard to cut through the market and win your business. This has in turn meant that new innovations haven’t been a quick to the banking sector as other markets, and competition amongst banks is not as strong as it should be to get customers a better deal.

The report also found that current accounts tend to have complicated charging structures, and the actual cost to the customer depends on how they use the account. Most of us don’t understand these charges and so we can’t tell if we could get a better deal with another product or another bank. In addition, because there is no annual renewal or trigger point, we don’t feel the need to review our current account choice and just let them run on, even if we might be able to get a better deal by switching.

So what’s the solution?

The CMA has proposed a wide range of measures to remedy these issues, including:

  • Banks need to implement Open Banking by early 2018. This will allow you to share your own bank data securely with third parties (if you opt in) so you can find better value services and take control of your finances. This means smaller providers may now get a look in as it will be clearer if they can offer you a better deal.
  • Banks must publish trustworthy and objective information on the quality of their service on their websites and in their branches so that you can see how good they are.
  • Banks must send out relevant communications regularly and based on certain events, e.g. the closure of a local branch or an increase in charges, to remind you to review your financial products and switch banks if you can get a better deal elsewhere.
New hope for simplified banking

The benefits of switching

Currently only 3% of you switch your personal current account in any year. This is despite the fact that the CMA found that you could save £92 a year on average by switching. Those of you who are overdrawn for one or two weeks every month could save £180 per year on average so it really is worth a look.

Luckily, more people seem to be becoming aware of the Current Account Switch Service (CASS), which guarantees a stress-free switch of your current account in 7 days. All of your payments are transferred over and payments are redirected for 36 months, so you shouldn’t encounter any problems.

Over 40 banks are signed up so if you want to switch, you may want to choose a bank that has signed up to the service. There were a record number of switches earlier in 2016, so it seems that more of you are taking advantage of the service. But more of you could still gain by switching.

Jody’s view

Jody Baker, our Head of Money, commented on the news: “The increasing number of people using the Current Account Switching Service has been encouraging but fundamentally, only a very small portion of people switch current accounts. There are two key drivers of this lack of competition – awareness and fear. Many simply don't understand the potential benefits of switching what is widely perceived as a free service, and fears over uninterrupted access to money combined with the perception that switching is an onerous process further reduces people's willingness to take that step.

“One potential solution to this widespread consumer inertia is introducing account number portability. research shows that more than a third of consumers say that the complexities in the switching process and fear that direct debits may not be successfully transferred discourages them from moving bank. Furthermore, more than half of UK adults questioned say they would be more likely to switch if they could take their account number with them. We estimate that around £5bn would be returned to consumers over a ten year period by addressing account number portability due to the increased competition and resulting reduction in interest rate charges, bank fees and the increase in interest rates paid on balances. The CMA or Government would do well to look at implementing this separately.”

Compare today

Why not have a look at our current account tables, based on what’s most important to you – whether that’s a standard account, packaged account or student account. You could gain more than you think.

Compare current accounts

Compare now