By Tim Wallace for the Telegraph
Record numbers of bank customers switched their current account to a rival lender last month, hinting that competition between banks may at last be taking off.
Almost 125,000 customers used the switching service to open a new account, a rise of 13pc on the month. That means more than 2.8m customers have used the service since it launched in September 2013.
One boost could come from the change to savings rules – from 6 April typical savers can receive up to £1,000 of interest tax-free per year, effectively removing ISAs’ main advantage and encouraging bank customers to shop around for interest-paying current accounts.
That could benefit banks such as Santander, which pays a headline rate of interest of 3pc, as well as TSB, which pays 5pc on some deposits.
Banks have also sharpened up their offers. Although Santander increased the monthly fee on its account last year, Tesco Bank scrapped its fees, and in March Halifax increased its joining bonus for switchers to £125.
“We’ve certainly seen a big increase in people wanting to switch to Halifax this year,” said the bank’s Darren Tong.
Nationwide has also successfully turned its existing customers into recruiters. It offers £100 to customers if they persuade a friend to open a current account, as well as £100 to that new joiner. So far 59pc of new switchers join via that scheme.
Anne Pieckielon from Bacs, which operates the switching service, said more advertising has also helped.
“Market developments are driving changes, and our recent communications campaign will also have been a contributing factor in the higher levels of switching,” she said.
Santander, Halifax and Nationwide have been the main gainers from the switching service to date, but other banks also hope to win more new customers.
The switching service launched in 2013 and aimed to shake up a market which was seen as uncompetitive as very few customers moved from bank to bank.
The scheme allows customers to change accounts in seven working days, taking their direct debits and standing orders with them, and guarantees that any payments into the old account will follow the customer to their new account for the next three years.
Initial expectations that 5m customers were prepared to switch proved over optimistic, and the Competition and Markets Authority launched a probe to investigate the state of the current account market.
That could lead to more action to force banks to advertise the switching service and to prompt customers to move their money when problems occur – for instance, when a customer has paid a fee for an unauthorised overdraft, or when the bank’s IT systems crash.
However, the sharp rise in switching in March may relieve some of the pressure on the sector to show competition is alive and well.
Tesco Bank chief executive Benny Higgins said one factor holding back switching levels is that customers do not shop around for accounts on a regular basis.
“It is easier to switch, but customers are still not motivated to switch and at the heart of that is a lack of transparency – it is hard for customers to judge value,” he said. Tesco Bank has around 75,000 current account customers.
“I don’t think the level of switching will ever be very high, I think the nature of the product probably means it will not be very high.”
First appeared at the Telegraph