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Should banks be more open about account switching?
When it comes to building trust and engagement with customers, transparency can be a valuable principle.
Efforts are underway in markets such as the UK to promote diversity in the retail banking market and to make it easier for those who want to consider switching. But there are still those who argue that the process is still too difficult, and that banks need to play a bigger role in keeping customers informed.
The benefits of switching
In a recent report focusing on the US market, WalletHub pointed out that checking accounts charge up to 50 different fees, and providers aren't always forthcoming in disclosing them. The figures suggested that consumers could find themselves paying up to $750 per year if they choose the wrong account.
People who regularly use overdraft protection could save $360 per year, on average, by choosing the appropriate account for their needs.
Similarly, in the UK, TSB has argued that the average consumer is likely to be £70 better off by switching - which adds up to a collective total of £10 million in savings the public could be missing out on.
For banks, this is a challenging subject. A business does not want to lose its customers, of course, but there is also a lot of potential gain in a market that is more fluid and flexible. The growth of fintechs and smaller, specialized service providers is showing that there are alternatives to established financial institutions. Those banks that are willing to embrace change and be more transparent - not only with their customers, but with potential collaborators - could see the benefits in terms of how their brand is perceived.
Healthy competition, and a genuine risk of losing your customers to a rival if your services are not meeting expectations, can potentially be a positive stimulus.
Is change needed?
According to TSB, there are three "simple changes" that need to be made to give customers more control over their financial affairs and enable switching. These are:
- Banks providing a standard-format monthly bill so customers know exactly how much they are paying for their banking.
- The development of a dedicated solution enabling all consumers to switch their bank account, particularly those who stand to gain the most, such as users of overdraft protection.
- Active efforts by banks to inform customers of their right to switch to another provider.
The UK has taken positive steps in this area with the launch of the Current Account Switch Service. However, TSB insisted that further action is needed, with the number of people actually using this service falling by 14 percent in the past year.
Paul Pester, chief executive of the bank, said: "In a truly competitive market, consumers will be offered genuine choice and a level of transparency they've never seen before, so they can make informed choices and switch with ease. Only then will consumers be empowered to vote with their feet and get a better deal."
With open banking initiatives underway in other markets such as Australia, and PSD2 set to shake up competition in the EU payments industry, it certainly seems that consumer choice and competition between providers will be defining themes of the financial services industry in the years to come.