LONDON (Reuters) - Britain’s banks are under pressure to make a success of new rules allowing customers to switch accounts within a week, if they want to avoid even tougher government demands such as an industry-wide information-sharing programme.
The new rules - which aim to ensure that all outgoing and incoming payments are automatically transferred - come into effect next Monday as part of the government’s campaign to break the dominance of Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC, which between them control three-quarters of UK retail accounts.
Lawmakers and regulators believe a lack of choice has been a factor behind scandals such as the mis-selling of loan insurance and complex interest rate hedging products, which have cost banks over 20 billion pounds in compensation.
The government said in June that if 7-day switching did not deliver the expected benefits it would consider more radical options, including “full account portability” - meaning an industry-wide IT platform that would allow customers to keep their account details when they switch banks.
Such a move would force banks to abandon their existing IT systems and invest jointly in a system that could be used by the whole industry - including any new competitors, which are also being encouraged by the government.
The cross-party Parliamentary Commission on Banking Standards, which was asked to make recommendations for bank reform, asked the government to initiate an independent study of the technical feasibility, costs and benefits of such a move.
Banking bosses are not keen on the idea: Lloyds chief executive Antonio Horta-Osorio recently said it would not work and be too difficult to implement.
“If they don’t get it right, political pressure will mount for something more formal. It’s in everyone’s interest to make this work,” said a senior executive at one of Britain’s biggest retail banks, referring to 7-day switching.
Bank customers are notoriously reluctant to move because of the perceived difficulties involved and a feeling that rival lenders are no different. But 7-day switching could be a game changer, according to surveys.
Research by YouGov, commissioned by business services provider SAS, suggested around 5 million UK current account holders will switch banks in the next year as a result of the changes. It found that 2 in 5 customers had not switched in the past because they believed the process to be time-consuming although 1 in 4 said they didn’t think their current bank offered the best customer service.
Nick Payne, retail banking consultant at SAS, said the research suggested consumer switching between retail banks could increase significantly from historic levels of 2 to 3 percent.
“Now savvy consumers can scour the market for the package that best suits them. Banks will now have to work hard to differentiate their offerings, through enhanced customer service and targeted marketing,” he said.
Mark Garnier, a Conservative member of the banking standards commission, said lawmakers would look again at an industry-wide platform in the next 2 years if 7-day switching is not a success. He said full account portability would boost competition and protect customers if a bank failed.
Additional reporting by Steve Slater; Editing by Sophie Walker