Account switching rules are changing in the UK but many questions remain unanswered. The Digital Banking Club, sponsored by Intelligent Environments, gathered a panel of experts in London who warned that as the digital channel becomes more central the threat may come from new players. Sara Perria reports
The Digital Banking Club Breakfast Briefing, organised by digital money software specialists Intelligent Environments and Timetric, assembled senior industry specialists to discuss the implications of account switching in the UK and across the whole industry.
The panellists, introduced by the group editor of Timetric’s consumer finance titles Douglas Blakey, included: David Core for the Payments Council; Fairbanking Association’s director, Antony Elliott; Santander managing director for digital banking business Sarah Hicks; internet psychologist Graham Jones; consultancy Vella Ventures managing director Roy Vella, and Intelligent Environments managing director David Webber.
A seven-day to switch rule is due to be implemented for UK current accounts in September 2013, aiming to simplify procedures and increase competition.
The regulation, which was announced as part of the 2012 Vickers report into banking standards, will reduce the time it takes for customers to switch accounts from one bank to another down to seven days from the current 31-day period.
Douglas Blakey, Timetric
Indeed, in the regulator’s eye, dissatisfied customers are currently finding it too hard to move their bank accounts between lenders and the new rules are expected to increase banks’ efforts to retain clients.
The move is a sign of the increased efficiency of bank’s digital platforms, which now should be capable of supporting the new regulations requirements, while offering a new range of services to attract new costumers.
However, no change happens without a number of questions arising: will the regulation achieve its goals? Is it addressing the correct issue or is it coming too late, as the financial environment is undertaking a profound revolution?
The Payments Council’s David Core described the account switching regulatory changes as a large and complex programme.
David Core, Payments Council
"It is always risky to sound complacent but we are making good progress, even though we have only been given two years to deliver what is a major change across the industry," he said.
The biggest challenge, he added, is with "individual participants" and their willingness to comply and speed in doing so.
As for the banks, Santander MD Sarah Hicks is optimistic: "We are pretty confident: we are on target and we have got our de facto five-star rated switching service up and running now."
Financial institutions don’t seem to be afraid about the timing. The issue at stake revolves around the consequences of the regulation, once it enters into force.
As for now, banks are well aware of what is going to happen, but it will hit them only when the news becomes common knowledge among customers.
Vella Ventures Roy Vella says: "It will take two Daily Mail articles and a Guardian article for customers to even realise that there is this opportunity."
Intelligent Environments’ MD David Webber stresses that regulation could be disruptive: "No one knows what impact this regulation will have and that is what makes it interesting to observe."
A recent survey from Moneysupermarket found that more than half of respondents were happy with their own banks and didn’t feel there were any real alternatives in the market.
A point that Hicks wants to highlight: "We have to realise that there is a difference between loyalty to a brand because you like it and loyalty because all brands are pretty much the same".
Sara Hicks, Santander, and Graham Jones, internet psychologist
However, the survey also stresses that for a third of respondents the only reason that is stopping them from switching is the ‘hassle’ involved.
Douglas Blakey says that according to most analysts the current account switching percentage is around 8%. The panellists agree switchers will increase as a result of the regulation with Vella the most optimistic, estimating it will reach the "high teens".
A survey from consultants Simon Kucher & Partners found that Virgin was the most popular of the "challenger brands", followed by Tesco Bank, M&S Money and Sainsbury’s Bank. However, the same survey showed how the dominance of the big five did not seem to be at risk, with seven out of ten of respondents saying they would consider moving their accounts within HSBC, Lloyds, RBS, Barclays or Santander.
Still, the panellists say, established players will have to take into consideration some "unexpected" factors, such as the change in customers’ behaviour that many banks are failing to detect.
To begin with, internet psychologist Graham Jones points out, the reason why a client would want to switch has to be clear: "This is a politically driven decision but if we want to look at the psychology behind the motivation, then it is because people feel that their current supplier doesn’t care for them. That is the main reason for people wanting to switch."
"We need to focus on demonstrating total and absolute care for our customers. Do that and switching becomes a diversion," he adds.
Roy Vella, Vella Ventures, and Anthony Elliot, Fair Banking Association
From this point of view, Jones believes that the Big Data debate could be misleading: "Some UK bank stats tell you that clients look at 80 web pages, more than another bank. But it is not about quantity: on the contrary, the question is ‘why are they looking at all those web pages?’ It is actually negative data. Big data gives us a history of what they do but not what they think, it doesn’t say what clients want."
Sarah Hicks says: "The question is: what is this going to do to the customer experience? One of the key focuses I am trying to bring on while developing is to actually look at what customers need and to see the provision, not from a bank view, but to actually start from what a customer needs to do."
"And that is where you actually need to start from. Start and make things easy. Those who think in bank- think do not necessarily think in customer-think," she adds.
Hicks says it is interesting that people are more satisfied when they are banking themselves and are in control through mobile or online banking.
"It’s when things go wrong and things become messy and difficult that banks find it hard. I know it is something we have struggled with at Santander because of the rigidity of banks’ structure while regulators are saying ‘you can’t do that’.
"I think that’s where banks will have to adapt. As much as it is about front-end technology, it will also be about behaviour, cultures and the way banks see customers."
Fairbanking Association Anthony Elliott says that certainly providers of current accounts are looking at their product to see how they can improve it for the customers.
"Clearly this switching process is going to activate more thought amongst clients: if I am unhappy or I think there is a better one out there, then maybe I should go for that.
"One of the criticisms at the moment is that people feel that there is not much of a choice: if I wanted to move somewhere else there really isn’t going to be much of a difference to what I am experiencing now," Elliot says.
According to Vella, this is why banks have to wake up to serving their customers appropriately.
"I think the comparison will not be about just the account itself, but people will be comparing complete services, comparing what happens whenever there is a problem etc. I think we will see a huge wave of people switching accounts – easily double or triple to what it is today."
Indeed, adds Vella, convenience and simplicity is winning across the industry and banks are not known for either of those two words.
With this respect, he says, "there is a front-end-back-end problem in banking: most banking is about back-end, about the security and settlement of funds, branch operations etc," he says.
However, according to Vella this may not be the core-issue anymore: "This is the old world of physically protecting money and physically giving you confidence that your money is protected. The new world is not about that anymore. It is about front-end usability, mobility, convenience, simplicity: people are not so concerned with protecting physical money in vaults anymore."
"The new issue is about serving people when they spend their money and in assisting them on how they spend their money. And I think there will be a huge wave of non-banks, like Virgin Money, Tesco Bank etc. And this despite the fact that, when this trend started, RBS, where I was working at the time, started saying: ‘who will trust a supermarket doing banking?’ This perception is not true anymore," Vella stresses.
And this is the disruptive factor that many have not considered: "People often think that the competition is going to come from within their sector. But that is just not true: now that it’s all just about data security and manipulation, competition for switching is not necessarily going to come from another bank. It might come from a completely different digital player," Vella says.
Webber adds: "People might not switch to another traditional bank. They may move their account to another financial provider of some kind, so when Facebook dollars become a tradable currency, that is going to have a massive impact, because you have got a billion and a half people now who trust Facebook on their mobile device. Consequently, why would they not, if they already trust Facebook, use that as a place to transact?
"The value is not in the account per se but in the opportunity to sell other products and services to the account holder. And I assume that is the battle that the banks are going to fight," concludes Webber.
Douglas Blakey, group editor, Consumer FinanceTimetric
Douglas is group editor, Consumer Finance at Timetric, chief of judges for the annual Retail Banker International Awards and lead market advisor for Timetric’s retail banking research division. He maintains an editorial advisory board of leading bank executives and is a regular guest banking analyst with BBC, NBC, New Statesman and other leading media.
David Core, Payments Council
David has been involved with the development of the new account switching service from its outset in 2011. He is currently responsible for the communications activities within the programme. As part of this work he is focused on ensuring that the customer guarantee, a central element of the new service, is delivered effectively.
Anthony Elliott, Fairbanking Association
Antony spent over 10 years as Group Risk Director of Abbey National plc having worked for a number of UK and international banks previously. The research and education based charity, Fairbanking, was founded by him in 2008. It has commissioned research into the link between a person’s money management and their level of contentment or financial well-being. The research has been developed to consider the implications for banking products and services.
Sarah Hicks, Santander UK
Sarah is responsible for managing Santander’s digital banking business. In her current role, she develops long term strategies while managing the bank’s business performance.Prior to joining Santander, Sarah was Director of Operations and Development, Digital Banking at Barclays
Graham Jones, Internet Psychologist
Graham is a psychologist who aims to help organisations and businesses understand the Internet and use it in better ways. He runs workshops, speaks at conferences and provides consultancy to public sector organisations, associations and business of all sizes. He is an award-winning writer, an author of 28 books and is a lecturer at two British universities.
Roy Vella, Vella Ventures
Roy is a mobile financial services expert and independent advisor/consultant to players such as Visa, Vodafone and the GSMA as well as a number of startups. Prior to offering his services-at-large, Vella was at RBS where he led the bank’s mobile efforts globally. Before RBS he spent five years with PayPal starting out as the Director of Business Development in the US Merchant Services team and finally as the Head of Mobile Payments leading the mobile payments initiative in Europe.
David Webber, Intelligent Environments’ managing director
David joined Intelligent Environments in 2012, bringing over 15 years hands-on experience of the financial services software industry. David is responsible for the day-to-day running of Intelligent Environments, working closely with all divisions of the business to effectively determine and define the organisation’s overall strategy, strategic partnerships and global marketing communications. Prior to joining the organisation, he was chief executive at electronic trading, risk and exchange systems provider, Patsystems Group, a role he held for six years.